Review of mergers

Thresholds and triggers

What are the relevant thresholds for the review of mergers in the pharmaceutical sector?

There is no specific threshold for review of mergers in the pharmaceutical sector, and the general thresholds are applicable (ie, when one of the following conditions are met):

  • as a consequence of the concentration, a market share equal to or greater than 50 per cent of the domestic market in a specific product or service, or in a substantial part of it, is acquired, created or reinforced;
  • as a consequence of the concentration, a market share equal to or greater than 30 per cent but smaller than 50 per cent of the domestic market in a specific product or service, or in a substantial part of it, is acquired, created or reinforced in the case where the individual turnover in Portugal in the previous financial year, by at least two of the undertakings involved in the concentration, is greater than €5 million, net of taxes directly related to such a turnover; and
  • the undertakings that are involved in the concentration have reached an aggregate turnover in Portugal in the previous financial year that is greater than €100 million, net of taxes directly related to such a turnover, as long as the turnover in Portugal of at least two of these undertakings is above €5 million.

Is the acquisition of one or more patents or licences subject to merger notification? If so, when would that be the case?

The following thresholds apply:

  • as a consequence of the acquisition, a market share equal to or greater than 50 per cent of the domestic market in a specific product or service, or in a substantial part of it, is acquired, created or reinforced;
  • as a consequence of the acquisition, a market share equal to or greater than 30 per cent but smaller than 50 per cent of the domestic market in a specific product or service, or in a substantial part of it, is acquired, created or reinforced in the case where the individual turnover in Portugal in the previous financial year, by at least two of the undertakings involved in the concentration, is greater than €5 million, net of taxes directly related to such a turnover; and
  • the undertakings that are involved in the acquisition have reached an aggregate turnover in Portugal in the previous financial year that is greater than €100 million, net of taxes directly related to such a turnover, as long as the turnover in Portugal of at least two of these undertakings is above €5 million.
Market definition

How are the product and geographic markets typically defined in the pharmaceutical sector?

The geographic market defined by the Portuguese Competition Authority (AdC), following the practice of the European Commission, is generally the national market, although there may be situations where the relevant geographical market is one of the Portuguese autonomous regions, specifically for mergers in the wholesale sector (eg, Case 17/2010, Alliance Healthcare/Medimadeira, Funchalfar).

The product markets are defined regarding the type of medicine: subject or to not to prescription (ie, over-the-counter), co-paid by the state or not, and type of substance according to the anatomical therapeutic chemical (ATC) classification system, by activity (wholesale, logistic services, equipment, manufacture of medicines). Following the practice of the European Commission, generics are not deemed a relevant market.

In Case 72/2005, Actavis/Alpharma, the AdC follows the practice of the European Commission, as in other cases, and applies the ATC to help define the relevant market. Normally, the third level of the ATC code is sufficient as a starting point to define the relevant market. However, the AdC has specifically stated that sometimes the markets must be defined according to other levels, or it may be necessary to subdivide the ATC3 categories based on other criteria related to the demand of the medicines or to include in the same relevant market products that belong to other ATC3 categories, in particular when the products are considered substitutes by demand.

In fact, in other cases, such as Case 54/2008, CSL Limited/Talecris, and Case 36/2010, Bausch & Lomb/Activos Novartis, the AdC has taken into consideration the ATC4 and ATC5 levels to define the relevant market.

In Case 12/2012, Omega Pharma/GlaxoSmithKline Assets, the AdC followed the International Consumer Health Classification, in this case the OTC3 level, as suggested by Omega Pharma, since the GSK assets that were to be acquired by the latter regarded mostly over-the-counter medicines and the substitutability between the administration methods is limited.

Sector-specific considerations

Are the sector-specific features of the pharmaceutical industry taken into account when mergers between two pharmaceutical companies are being reviewed?

So far, the AdC has hardly opposed any mergers between two pharmaceutical companies. Since the AdC has a significant track record on these matters, it is aware of the sector-specific features of such cases.

Generally, the AdC has decided not to oppose the mergers of which it was notified because it considered that they did not create or reinforce a dominant position that would cause barriers to effective competition in the identified relevant markets.

Addressing competition concerns

Can merging parties put forward arguments based on the strengthening of the local or regional research and development activities or efficiency-based arguments to address antitrust concerns?

There are cases where generally prohibited practices may be justified. Arguments such as the strengthening of the local or regional research and development activities or efficiency-based arguments can be used to justify certain types of agreements, concerted practices or decisions of associations of undertakings that otherwise would be illegal if they are contributing to improving production or distribution of goods or services, or promoting technical or economic progress. Furthermore, for such arguments to proceed they must:

  • allow the users of these goods or services an equitable part of the resulting benefit;
  • not impose on the undertakings concerned any restrictions that are not indispensable to the attainment of these objectives; and
  • not afford such undertakings the possibility of eliminating competition from a substantial part of the market for the goods or services at issue.
Horizontal mergers

Under which circumstances will a horizontal merger of companies currently active in the same product and geographical markets be considered problematic?

A horizontal merger of companies active in the same product and geographical market may be considered problematic when it affects competition by changing the structure of the markets, in particular, when the market share resulting from the merger is significant and can result in a monopoly or a dominant position.

On the contrary, if there is only a slight overlap in the activity of the merging companies that does not affect the market structure, the AdC does not consider the merger problematic (see Case 06/2010, Cephalon/Mepha, where there was a small overlap in only one category of medicines and the market structure was not affected by a higher market share).

In the pharmaceutical sector, there has not been a significant product overlap that would affect competition, but the AdC can take into consideration the actual or potential loss of competition.

Product overlap

When is an overlap with respect to products that are being developed likely to be problematic? How is potential competition assessed?

The AdC also assesses the potential effects from the perspective of future pharmaceutical products, as does the European Commission (Case 31/2003, Idec Pharmaceuticals Corporation/Biogen Inc, where the AdC quoted Case IV/M 737, Ciba-Geigy/Sandoz, although in the end it did not consider it to be an overlap).

Therefore, if in a merger one of the merging companies is developing products, they are also taken into consideration for determining the relevant market and whether there is an overlap of products or not. This was the case in the acquisition of OE Holding SA by Recordati SA Chemical and Pharmaceutical Company (Case 68/2007, Recordati/Orphan Europe), where the AdC not only took into consideration the market of the existing orphan medicines but also the market of the orphan medicines that were being developed by Orphan Europe. In the end, the AdC considered that there is no change in the structure of the market, since there is only a change of the holder of the market share.

This means that the overlap with respect to products that are being developed is treated similarly to an overlap with existing products.

Remedies

Which remedies will typically be required to resolve any issues that have been identified?

The remedies are assessed on a case-by-case basis according to the AdC Guidelines on the Adoption of Remedies. These remedies are first proposed by the involved parties and then assessed by the AdC, which will determine whether they are sufficient to eliminate obstacles to an effectively competitive market.

The Guidelines identify two major groups of remedies: structural remedies and behavioural remedies.

Generally, structural remedies correspond to the sale of assets (such as licences or trademarks) or groups of assets, including companies or production units.

Behavioural remedies include those that promote or reinforce competition, such as: limits on the parties’ actions during the operation (eg, not requiring a certain licence, or not exploiting its own assets); measures to attenuate the client’s costs with the change in the merger operation (eg, no customer loyalty schemes); and reduction of the use of exclusive agreements or long duration agreements in the sales of the parties involved in the merger.

However, so far the mergers in the pharmaceutical sector have been authorised without any remedies being required. In Case 44/2003, Dräger Medical AG &Co/Negócio de Termoterapia da Hillenbrand (Hill-Rom Air-Shields), where the concerned activity is close to the pharmaceutical sector (it concerns neonatal medical equipment), the AdC considered that there would be a significant increase in the market share arising from the merger, affecting the competition structure in Portugal (the second player would be acquiring the market leader). To minimise such effects and ensure a competitive market, the AdC authorised the merger, subject to the following five conditions:

  • maintaining a second distribution channel for three years;
  • maintaining non-discriminatory conditions for three years;
  • maintaining a certain type of product as long as there is demand for it in the following three years;
  • no direct sale in Portugal for three years; and
  • maintaining spare parts for seven years from the production of the last device.

Law stated date

Correct on

Give the date on which the above content is accurate.

24 June 2020.