There is no requirement to pre-notify or obtain prior clearance for mergers under UK law, the pre-notification regime being voluntary; however, the CMA has the power to intervene and investigate mergers, including those that have not been notified or that have been completed, or both, and it frequently does so. Where the CMA reaches an adverse competition assessment following a second-phase investigation, it can prohibit an anticipated merger or impose remedial measures for a completed merger, including divestment requirements.
The acquisition of material influence, not just the acquisition of control, is subject to the UK merger control regime. For most sectors, including pharmaceuticals, the thresholds for a transaction qualifying for investigation are the target having a UK turnover of over £70 million or the parties having an overlapping share of supply of 25 per cent or more in the UK (or a substantial part of the UK). The 'share of supply' test is interpreted very flexibly: the CAT recently upheld a CMA decision finding that it had jurisdiction even where one of the parties supplied services only indirectly to UK customers.
In 2018, the UK amended the Enterprise Act to lower the applicable threshold for intervention in mergers or acquisitions in three specified sectors: dual-use goods, quantum technology and computing hardware. In 2020, these thresholds were again lowered, resulting in the CMA having jurisdiction to investigate a transaction where the target business has a UK turnover of above £1 million or has a share of supply of 25 per cent or more of relevant goods or services in the UK (or a substantial part of it), even if the transaction does not lead to an increase in the merging parties' share of supply. Three additional categories were added: artificial intelligence, advanced materials and cryptographic authentication.
The National Security and Investment Act 2021 (NSIA) adds another layer of complication for merging entities. The NSIA came into force on 4 January 2022, after receiving royal assent in April 2021.
This regime is focused on reviewing transactions on the grounds of national security, giving the government wide powers to intervene where it has concerns. It goes further than just M&A transactions and covers certain minority investments, acquisitions of voting rights and acquisitions of assets, including IP.
The regime requires mandatory filings of more substantial investments in businesses involved in 17 'sensitive sectors', including synthetic biology (i.e., applying engineering principles to biology to produce components or systems that do not exist in the natural world). The 17 sensitive sectors also include other activities that may be less directly relevant to pharmaceuticals, including artificial intelligence, computing hardware, data infrastructure and certain supplies to the government. Failure to comply with the requirements of the NSIA may lead to a transaction being void, heavy fines or criminal liability.
The CMA's investigation and enforcement powers apply to foreign-to-foreign mergers where the parties (and especially the target) supply the UK market and the relevant criteria for investigation are met. The definition of 'supply' is broad. For example, in the pharmaceuticals sector, in 2019 the CMA investigated, on its own initiative, the acquisition by Roche Holdings, Inc, a subsidiary of the Swiss-based Roche group, of Spark Therapeutics, Inc, a US biotechnology company active in developing gene therapy treatments. Roche was supplying the relevant UK market, but Spark's relevant products were still in clinical development. The ultimate test in UK merger control is whether the merger is likely to result in a substantial lessening of competition in the UK. The CMA concluded that there would not be in this case.
Following Brexit, mergers in the UK may now be subject to parallel investigations by the CMA and the EC, as the 'one stop shop' principle no longer applies.
Anticompetitive behaviouri Competition Act, Chapter I – Restrictive Agreements Reverse payment agreements (pay-for-delay)
Under specific circumstances, it is clear that a settlement agreement between a holder of a pharmaceutical patent and a manufacturer of generic medicines can be contrary to UK competition law.
In 2016, the CMA adopted its first decision on reverse payment agreements. GlaxoSmithKline (GSK) and various generic medicines manufacturers concluded patent settlement agreements whereby the generics suppliers agreed to refrain from entering the market with their own generic medicines, in return for payments and supply by GSK of specified volumes of generic paroxetine tablets for resale on the UK market. The CMA found that the agreements infringed the prohibition of restrictive agreements under Article 101 of the TFEU and its UK equivalent (Chapter I of the Competition Act) and constituted an abuse of GSK's dominant position in the relevant market on the basis of Chapter II of the Competition Act.
The CJEU formulated general principles to be applied to reverse payment agreements, on fundamental issues relating to the application of potential competition, objects, effects, the definition of the relevant market and abuse. The court held that reverse payment settlement agreements may be considered as 'by object' infringements of competition law, thus breaching antitrust rules by their very nature, without needing proof of the effects that the conduct had on the market.
Following the CJEU's judgment, the CAT applied the ruling to the facts of the four referred cases in its decision of 10 May 2021.43 It reduced the imposed fine from £37.6 million to £22 million and also reduced several other related fines. The CMA had advocated for a smaller reduction of closer to 10 per cent; however, the CAT held that on grounds of proportionality, a reduction of closer to 40 per cent was more appropriate.ii Recent and ongoing CMA Chapter I investigations Nortriptyline
In a decision on 4 March 2020, the CMA found that four drug makers, including Lexon, were involved in the exchange of commercially sensitive information – including about prices, volumes and entry plans – to try to keep the price of nortriptyline high. The companies were collectively fined £3.4 million, with Lexon appealing to the CAT.
On 1 June 2020, the CMA announced that it had secured a legally binding disqualification undertaking from Amit Patel, a former director of Auden Mckenzie (Pharma Division) Limited and Auden Mckenzie Holdings Limited. Patel gave an undertaking not to act as a director of any UK company for five years from 13 July 2020.
On 21 August 2020, the CMA secured a legally binding disqualification undertaking from Robin Davies, director of Alissa Healthcare Research Limited. Davies gave an undertaking not to act as a director of any UK company for two years as of 24 November 2020; however, on 10 November 2020, Davies applied to the High Court for permission to act as director and take part in the management of certain companies, and on 17 December 2020 he was granted that permission, subject to strict conditions. The court was influenced by Alissa's status as a pharmaceutical supply company during the pandemic, the fact that Davies was the only executive director and the lack of a suitable replacement for him.
On 27 August 2020, the CMA issued proceedings in the High Court of Justice, Business and Property Courts, seeking the disqualification of Pritesh Sonpal, a director of Lexon (UK) Limited; however, given the pending appeal against the CMA's decision before the CAT, the assigned judge made an order transferring the disqualification proceedings to the CAT so that both could be heard together. On 25 February 2021, the CAT upheld the CMA's findings and dismissed the appeal, while also unanimously determining that the first condition of the disqualification proceedings was fulfilled.44Prochlorperazine and nitrofurantoin
On 7 April 2020, the CMA announced a pause in two investigations concerning alleged anticompetitive agreements in the supply of prochlorperazine and nitrofurantoin, respectively, to reallocate resources to enable the CMA to focus on urgent work during the covid-19 pandemic. Each of those investigations was the subject of statements of objections issued in 2019.
Both cases resumed in July 2020. On 25 April 2021, the CMA announced it needed further time to consider the responses to the statement of objections sent in the nitrofurantoin investigation. In the prochlorperazine investigation, the CMA announced on 22 January 2021 that it had taken the administrative decision to focus on the overarching agreement rather than individual breaches.
The CMA published its infringement decision on 3 February 2022 and fined the parties £35 million for the pay-for-delay agreement. From 2013 to 2017, the prices paid by the NHS for prochlorperazine rose from £6.49 per pack of 50 tablets to £51.68, which amounts to an increase of 700 per cent. The parties have appealed the fine at the CAT, and a final judgment is awaited.iii Competition Act ,Chapter II – Abuse of DominanceUK Court of Appeal clarifies the legal test to be applied in excessive pricing casesPhenytoin sodium – Pfizer/Flynn
In December 2016, the CMA imposed a record fine of £84.2 million on Pfizer Limited and £5.2 million on Flynn Pharma Limited for charging excessive prices and abuse of dominance in the market for the manufacture and distribution of phenytoin sodium capsules.
The CAT quashed the CMA's decision (June 2018), finding that the CMA had misapplied the legal test for excessive pricing, not properly applied the evidence adduced by the companies by not taking sufficient account of the prices of comparable products (phenytoin sodium tablets in particular) and not properly considered the economic value of phenytoin sodium capsules. The CMA appealed the CAT judgment to the Court of Appeal (supported by the EC), and on 20 March 2020, the Court of Appeal broadly upheld the CAT's ruling.
Pfizer supplied phenytoin sodium, a prescription anti-epilepsy drug, in capsule form under the brand name Epanutin in the UK. In 2012, it transferred to Flynn the marketing authorisation for the capsule form that it continued to manufacture for Flynn, which in turn supplied it to the NHS. Flynn de-branded Epanutin and supplied it as a generic.
As a consequence of this de-branding, the capsule form was no longer subject to price regulation. Pfizer increased its manufacturing price to Flynn for capsules by between 783 per cent and 1,615 per cent. Flynn raised its price to the NHS by between 2,387 per cent and 2,656 per cent.
The Court of Appeal considered the application of the legal test for excessive pricing established by the CJEU in its seminal United Brands judgment.45 In that case, the court stated that the excessive nature of a price could be determined, among other things, through the application of a two-limb test:
- the price must be excessive when the difference between the cost of production and the selling price of the product is excessive (the excessive limb); and
- the price must be unfair either in itself or when compared to competing products (the unfair limb).
However, the Court of Appeal said that this two-limbed test is not the only method for assessing excessive pricing and that the CMA has a margin of manoeuvre or appreciation in deciding which methodology to use and which evidence to rely upon.
On 8 June 2020, the CMA announced the timetable for its investigation in the Pfizer/Flynn excessive pricing case, following remittal of issues by the CAT and by the Court of Appeal judgment. The initial re-investigation was carried out between June and October 2020, and in March 2021 the CMA took the decision to continue with the investigation. In August 2021, the CMA issued a statement of objections. The investigation is ongoing.Liothyronine
The CMA investigation relates to suspected unfair and excessive pricing by Advanz Pharma (formerly Concordia International RX (UK) Limited) in the supply of liothyronine tablets, including to the NHS).
The CMA's case, contained in two statements of objections, alleged that Advanz Pharma/Concordia abused its dominant position, in breach of the Chapter II prohibition of the Competition Act and Article 102 of the TFEU, by charging excessive and unfair prices to the NHS.
The CMA issued a third statement of objections in July 2020, which addressed issues arising from the Court of Appeal's judgment of 10 May 2020 in the phenytoin investigation, discussed above, and stated that the CMA maintained its provisional finding of a breach of competition law. The CMA published an infringement decision on 29 July 2021. Advanz Pharma appealed against the decision, and the judgment is awaited.
Liothyronine tablets are primarily used to treat hypothyroidism. Until 2017, Concordia was the only supplier. The CMA found that the amount that the price that the NHS paid per pack of this drug rose from around £4.46 before it was de-branded in 2007 to £258.19 by July 2017, an increase of almost 6,000 per cent, while production costs remained broadly stable.Hydrocortisone
On 12 February 2020, the CMA joined together three separate investigations into alleged excessive and unfair pricing, anticompetitive agreements and abusive conduct in relation to the supply of hydrocortisone tablets in the UK. It issued statements of objections between December 2016 and February 2019, and on 15 July 2021 it published its infringement decision.46
The CMA found unfair pricing abuses and anticompetitive agreements in relation to the hydrocortisone tablets and imposed total fines of £260 million.47 It found that the price increased by over 10,000 per cent compared to the original branded version of the drug.
In real terms, this meant that the amount paid by the NHS for a single pack of 10mg tablets rose from 70p in April 2008 to £88 by March 2016. For the 20mg strength, prices rose from £1.07 to £102.74 per pack over the same period. This meant that for the investigation period, the NHS had gone from spending approximately £500,000 per year on hydrocortisone tablets in 2008 to over £80 million by 2016. This explains the level of fines imposed on the companies. The companies appealed against the decision, and a final judgment is awaited.Lithium-based medication for the treatment of bipolar disease
On 5 October 2020, the CMA opened an investigation into Essential Pharma's intention to discontinue the supply of Priadel, a lithium-based medication for the treatment of bipolar disorder. The DHSC requested the CMA to impose interim measures on Essential Pharma, preventing it from following through with the discontinuation until the investigation was concluded; however, Essential Pharma agreed to continue supplying the drug to facilitate continued discussions on pricing.
On 24 November 2020, the CMA announced its intention to accept commitments from Essential Pharma and sought input from stakeholders on the suitability of the proposed commitments. On 18 December, following minor modifications, the CMA officially accepted the commitments and closed the investigation.iv Market definition in abuse cases
In its GSK preliminary ruling, the CJEU provided guidance on the key issue of market definition in the context of abuses of dominance, which will have wider implications for the pharmaceutical industry than patent settlement agreements alone. The guidance from the CJEU is that if the generic medicines are as a matter of fact (to be determined by the national court) in a position to enter the market within a short period with sufficient strength to compete with the originator, they are to be considered as being within the relevant market.
This reasoning has already been applied in the Lundbeck judgment, where the CJEU confirmed that the General Court was correct in upholding the EC's finding that at the time the agreements were concluded, Lundbeck and the manufacturers of generic medicines were potential competitors.48
The court also stated that it is for the national court to determine whether the strategy to conclude settlement agreements with the object or effect of delaying generic entry has the capacity to restrict competition and, in particular, whether it has exclusionary effects, going beyond the specific anticompetitive effects of each of the settlement agreements that are part of that strategy.
On 6 November 2020,49 the UK Supreme Court confirmed the scope of the res judicata principle in EU law, holding that findings of fact made in an EU General Court judgment in the course of a judgment annulling a finding of breach of Article 102 of the TFEU were not binding on a UK court assessing the damages payable for a breach of Article 101 of the TFEU.
This resulted from a damages action brought before the English High Court, in which the respective health authorities of England, Wales, Scotland and Northern Ireland sought to recover compensation for Servier's anticompetitive behaviour.50 Servier argued that the health authorities had failed to mitigate their loss or had negligently contributed to their loss in that they failed to encourage prescribers to prescribe alternative substitutable blood pressure drugs instead of perindopril.
In that context, Servier sought to rely on findings made by the General Court about the degree of substitutability of other drugs for perindopril. It contended that those findings were binding as a matter of EU law and that it was an abuse of process for the health authorities to dispute them. The High Court rejected both arguments but granted permission to appeal on the EU law point. The Court of Appeal also rejected the EU law argument, but Servier obtained permission from the UK Supreme Court to argue that a reference should be made to the CJEU.
The Supreme Court held that no reference could be made while the General Court judgment remained subject to appeal. On the substance, it held that the General Court's findings were not binding in the context in which Servier sought to rely on them (i.e., seeking to borrow findings of fact from an annulment judgment made in the context of abuse of dominance under Article 102 of the TFEU and to deploy them in the entirely different context of mitigation of loss, which had nothing to do with Article 102 or with the consequences of the annulment judgment).