The Competition and Markets Authority (CMA) has announced that it hasdecided not to refer the acquisition by LEO Pharma of certain dermatological products belonging to Astellas Pharma for an in-depth Phase 2 merger inquiry. The CMA concluded that the merger was unlikely to result in a substantial lessening of competition, on the basis that the companies’ products were not sufficiently close substitutes.
There have been few recent national merger decisions in the UK in relation to the pharmaceutical sector, as many such transactions are caught by the significantly higher EU merger thresholds. Interestingly, in the other recent case, McKesson/UDG Healthcare, the EU referred the UK aspects of the proposed transaction back to the CMA to review.
Who did the case involve?
LEO Pharma is a Danish pharma company that develops and sells dermatological products. Astellas Pharma is a Japanese pharmaceutical company that develops cancer, immunology, and dermatology products. Both companies are active on the UK market.
Why was the CMA concerned?
The CMA took the view that a ‘relevant merger’ situation had arisen as the ‘share of supply’ test was satisfied, due to the parties’ combined shares of supply of non-steroidal products for inflammatory skin disorders. As is commonly done in merger cases at EU level, it took level 3 of the of the Anatomical Therapeutic Chemical classification as its starting point for this consideration (category D5X).
What did the CMA find?
The CMA found that, in relation to dermatological products, Leo and Astellas’s products are not the closest alternatives to each other. In relation to the supply of products in the D5X category, the parties’ products are not close substitutes as they are used to treat different skin conditions. It also found that the market would remain competitive post-merger, as there will remain several competitors to constrain the merged entity.
In relation to hydrocortisone products, the CMA found that the increment in the combined share of supply post-merger would be very small (less than 5%). The CMA also found that the parties’ products are not close substitutes and that there will again remain several competitors post-merger to constrain the merged entity.
In relation to topical psoriasis products, again the increment in the combined share of supply post-merger is very small (less than 5%), indicating that the competitive impact of the merger will very limited, and as regards the supply of topical eczema products, the parties’ respective products do not compete closely and there will remain several competitors post-merger.
What does this case tell us?
This case demonstrates the importance of contesting Phase I merger reviews as there is often a reasonable prospect of a clearance decision without a referral to Phase II.