Evolving Approaches to Pharmaceutical Competition: Navigating UK and EU Policy Shifts

As authorities reassess antitrust frameworks and enforcement philosophies, pharmaceutical companies in the UK and EU must position themselves with jurisdiction-specific economic evidence.

The pharmaceutical industry is highly diverse and constantly evolving, which gives rise to a range of unique challenges in antitrust investigations and merger control matters. Additionally, the broad alignment of competition enforcement with updated pharmaceutical policy frameworks – and the sector’s growing complexity – are reshaping how antitrust bodies in the UK and EU assess competition in the sector.

Pharmaceutical companies operating in the region must navigate a complex legal and economic environment, characterized by inter-jurisdictional differences in regulatory frameworks, enforcement approaches, and market structures. Companies considering mergers, facing prospective litigation, or contending with regulatory investigations need to consider these factors in approaching these transactions and legal matters.

Decisions and guidance from regulators about assessing market definition, competitive constraints, and other topics can have long-lasting implications for how pharmaceutical firms plan, invest, and compete, which may affect the availability and accessibility of medicines for patients. Pharmaceutical executives can prepare themselves for prospective litigation or investigation by evaluating market-specific economic evidence and conducting rigorous analyses tailored to relevant jurisdictions.

Here, we explore the salient features of the pharmaceutical industry in the UK and EU, identify regulatory changes that may affect players in the industry, examine emerging theories of harm used by competition authorities, and discuss the competition authorities’ concerns over mergers involving drug companies in the region. 

Industry Considerations

Understanding the challenges that the pharmaceutical industry presents to competition regulators begins with recognizing its distinct features. For instance, because multiple treatment options often exist for the same disease, determining which products belong in the same market can be particularly complex.

One dimension of market definition for pharmaceutical products is clinical substitutability, including consideration of their therapeutic use or mode of action. But additional complexities can arise if certain products are more or less suitable for certain subsets of patient populations or could otherwise not be functionally interchangeable.

That said, clinical substitutability is only one element in a nuanced analysis of whether certain products may be considered economic substitutes of one another. Critical elements of such analyses could include differences in local regulatory frameworks, marketing authorizations, consumer preferences, and pricing dynamics. However, traditional economic price analyses may offer limited insight into competitive dynamics because drug pricing in the EU and the UK is heavily regulated, and purchasing decisions are often made by prescribers or public payers, rather than end consumers. These factors, among others, make defining relevant product markets for competitive assessment particularly complex.

The European Commission’s (EC’s) updated Market Definition Notice reflects the regulator’s evolving approach to assessing the complexities of dynamic, innovation-intensive industries like pharmaceuticals. It emphasizes the importance of including non-price parameters such as the degree of innovation, future competition considerations, and dynamic market developments in such analyses.

For example, when evaluating products still in development and not yet commercialized, the EC may consider a pipeline product as part of an existing market, or it may think of it as part of a distinct market alongside its closest substitutes. In cases of early-stage innovation (where specific product features or potential patient populations are not yet possible to determine), factors such as the nature and scope of the at-issue innovation, research objectives, specialization, and past innovation efforts may help define competitive boundaries. The EC has increasingly relied on the concept of “innovation spaces” in its evaluation of early-stage R&D efforts.

In cases involving pharmaceuticals, claims related to market definition should be supported with reliable evidence reflecting the unique characteristics of the products and innovation efforts under review. Such evidence could include identifying potential substitutes and analyzing data related to sales, pricing, marketing channels (e.g., hospitals or pharmacies), competition for public tenders, prescribing patterns, and marketing expenditures.

Additionally, pharmaceuticals often have long and complicated product life cycles characterized by high development costs, regulatory hurdles, and significant commercial uncertainty due to the requirement of clinical trials and rigorous regulatory approval processes. Because of this, intervention into pharmaceutical markets could lead to unforeseen consequences on innovation incentives and future product introductions. 

Owing to these complexities, a dynamic competitive assessment can be useful in the pharmaceutical industry. Engagement with competition authorities therefore requires a multifaceted, analytical approach that takes into account dynamic competition and builds on a deep understanding of the interactions between pricing, regulatory requirements, and R&D efforts.

Regulatory Changes

Against this backdrop, regulators play a central role in shaping competition. European pharmaceutical markets are dominated by public health care systems, where state agencies or insurers act as key payers. These entities determine reimbursement and pricing, giving them strong buyer power to negotiate prices and, in many cases, impose pricing controls on medicines.

To manage health care costs, regulators also actively encourage the use of generics and biosimilars using tools like automatic substitution, prescribing quotas, and tenders. As a result, changing policy objectives can significantly impact competitive dynamics in the pharmaceutical industry and affect incentives for developers to innovate and enter markets.

The EU is currently undergoing its most significant pharmaceutical legislative reform in over two decades, aiming to improve patient access, support innovation, and ensure the security of medicine supply across member states. This reform may also influence how regulatory agencies assess pharmaceutical companies, particularly in relation to innovation incentives, market access, and exclusivity strategies.

Additionally, EC Executive Vice President Teresa Ribera announced an intention to modernize EU competition policy so that European companies can continue to innovate and compete internationally while regulators maintain fair, sustainable, and secure economies across the region.

To meet these goals while strengthening the availability, production, and supply of essential medicines within the EU, the EC and national oversight bodies are updating their merger guidelines and reassessing competition policies to comport with the current realities of EU markets. These developments merit close attention, as they may influence how regulators assess the impact of mergers on innovation or supply chain robustness, for example.

Preparing for these changes and the newly adopted EU Product Liability Directive (which broadens the scope of liability for manufacturers), requires strategic evaluation of potential regulatory impacts. Effective engagement with competition authorities should be supported by evidence-based approaches.

Theories of Harm

In considering potential theories of harm, it is important to recognize that the global pharmaceutical market is not monolithic and consists of varieties of entities that are active across the supply chain. Some companies specialize in the research and development of early-stage drugs, while others focus on managing a large portfolio of medications. Additionally, some companies focus on manufacturing and packaging, while others serve as marketing entities for drugs acquired from another company. And, among integrated pharmaceutical firms, some companies focus on a single therapeutic area or even a single drug, while others adopt a broader, more diversified approach. 

This heterogeneity means that there is no “one size fits all” theory of harm when competition authorities review mergers, or even investigations of similar conduct by different firms. Instead, competition authorities may assess transactions under a large array of theories, including horizontal, vertical, or conglomerate theories of harm. Authorities have also increasingly advanced novel theories of harm relating to potential competition and innovation.

These latter two theories are increasingly relied on by competition authorities in the EU and UK in their reviews of pharmaceutical transactions. Policymakers have shifted their focus toward protecting innovation by raising concerns about the foreclosure of novel or potential future products and addressing conduct that may delay the entry of lower-cost alternatives. Recent investigations by the EC have applied theories of harm involving allegations of disparagement (e.g., CSL Vifor), misuse of patent strategies, or agreements to delay the entry of generic competitors.

Merger Concerns

In merger control matters involving pharmaceutical companies, the application of novel theories of harm has become particularly prominent in the UK and EU, with agencies focusing their investigations on potential and dynamic competition, as well as innovation.

These approaches are especially relevant in industries where innovation plays a critical role. Examples include allegations related to so-called killer and reverse-killer acquisitions that competition authorities have advanced about the potential for merging parties to eliminate overlapping R&D pipelines. Relatedly, authorities are increasingly focused on healthy supply structures for critical medicines, a trend that looks set to continue following the Draghi report and the mission letter to the new competition commissioner, both of which focus on resiliency as a key factor in the growth of the EU.

Merger reviews in this sector often involve forward-looking assessments. Understanding whether an acquisition could constitute a “killer” of one or more pipeline products requires a detailed analysis of the acquiring firm's and the target's R&D portfolios - often down to the molecular or clinical trial level. Evaluating the broader competitive implications of such acquisitions thus becomes a fact-specific exercise, requiring consideration of the value of the treatments at-issue, uniqueness, and development trajectory of pipeline treatments that could be affected by a transaction.

In this context, identifying innovation capabilities that are not yet reflected in a company’s turnover or market value could be especially important. Many potential pharmaceutical acquisitions involve early-stage or low-turnover targets that may fall below traditional merger notification thresholds. Nonetheless, these targets could hold high strategic value due to their future innovation potential. This has led to an ongoing debate within the EU about how best to capture and examine such below-threshold acquisitions, leading enforcement bodies to intensify their monitoring of transactions in the industry.

Given these dynamics, market participants must be cognizant of the many ways in which pharmaceutical assets may be valued and have access to the appropriate tools for assessing these questions. Economic experts with HEOR, Epidemiology & Market Access resources are well positioned to conduct these complex evaluations.

Conclusion

Taken together, these developments underscore the increasingly complex interplay between regulation, innovation, and market dynamics in the pharmaceutical sector. Engaging with competition authorities in the industry requires not only a broad and detailed understanding of the regulatory landscape, but also knowledge of the evolving complexities of the industry and competition law. Additionally, UK and EU regulators have wide discretion to explore novel theories of harm in competition matters involving pharmaceuticals.

As enforcement approaches evolve, industry players with access to real-world data and those who can deploy robust analytical approaches to assessing jurisdiction-specific markets and economic effects will be better equipped to manage risk and gain a competitive advantage. Anticipating regulatory decisions can help solidify firms’ strategies around prospective litigations, combinations, or investigations.