Thresholds and triggers
What are the relevant thresholds for the review of mergers in the pharmaceutical sector?
Pursuant to sections 109 and 110 of the Competition Act (the Act), a transaction that meets the definition of a merger in section 110 of the Act would be subject to the merger reporting requirements if the size threshold of the party and the transaction size threshold are exceeded.
The party size threshold is exceeded when the parties to the transaction, as well as their affiliates, have assets in Canada that exceed C $ 400 million, or gross revenues from sales in Canada, originating in or destined for Canada. , which exceed C $ 400 million.
The transaction size threshold is exceeded when the aggregate value of the assets acquired, or gross revenues from sales in or from Canada, exceeds C $ 93 million (down slightly from $ 96 million of the previous year).
Is the acquisition of one or more patents or licenses subject to notification of merger? If so, when would this be the case?
The acquisition of one of the assets in Canada of a going concern is considered a merger, and if the thresholds of sections 109 and 110 of the Act are exceeded, the acquisition of a patent or a license would be mandatory.
How are product and geographic markets typically defined in the pharmaceutical industry?
As stated in the report of the Competition Bureau (the Bureau) Guidelines for the application of mergers (MEG), for the purposes of defining the product market, what matters is not the identity of the sellers, but the characteristics of the products and the ability or willingness of buyers to switch from one product to another by response to relative price changes. A relevant product market consists of a given product of the merging parties and all of the substitutes necessary for a small but significant and non-transient price increase (SSNIP) to be profitable.
In determining the relevant product market for a pharmaceutical merger, the Bureau will generally look for detailed product information currently provided by the merging parties in Canada in order to assess any competitive overlap. Given the sophistication of the pharmaceutical industry, parties may need to disclose information not only at the product category level, but also on a molecular basis of the product.
For example, with respect to the generic pharmaceutical industry, the Bureau will generally find that the parties’ products will generally be considered in the same relevant product market when they contain the same molecule or active ingredient and are supplied in the same format.
For the purposes of defining the geographic market, the Bureau will assess the ability or willingness of buyers to shift their purchases in sufficient quantity from suppliers in one location to suppliers in another, in response to relative price changes. A relevant geographic market includes all of the supply points that should be included for an SSNIP to be profitable.
The relevant geographic market for the supply of pharmaceuticals is generally defined as no larger than Canada, as significant regulatory barriers limit the entry of pharmaceuticals from outside of Canada. The Bureau noted that since pharmaceutical products are generally marketed nationally, the starting point of its analysis would be to consider the relevant geographic market to be national. However, since the provinces regulate health care, pharmacies, and generic drug pricing, the actual relevant geographic market is often provincial in scope.
Are the sector specificities of the pharmaceutical industry taken into account when examining mergers between two pharmaceutical companies?
Yes, the peculiarities of the pharmaceutical industry will be taken into account when the Bureau assesses a merger between two pharmaceutical companies. For example, the regulatory regime in which pharmaceutical companies operate in Canada will be an important factor in assessing a merger (eg, with respect to barriers to entry).
In the Bureau’s position statement on the proposed acquisition by Teva Pharmaceuticals Industries Ltd (Teva) of the generic pharmaceutical company Allergan plc in 2016, it stated that it has assessed the regulatory framework in Canada with respect to the development of new generic drugs. In particular, the Bureau reviewed some public and non-public information on drugs in development and coordinated with Health Canada to assess the expected timing of regulatory approval and market entry.
In a 2017 merger involving retail pharmacies in the province of Quebec, the Bureau considered the regulation of pharmacists and generic drug prices in Quebec to conclude that the transaction did not significantly lessen competition.
Respond to competition concerns
Can the merging parties advance arguments based on strengthening local or regional research and development activities or arguments based on effectiveness in addressing antitrust concerns?
Yes, as the MEGs indicate, when examining the cost savings generated by a proposed merger in relation to the efficiency defense under section 96 of the Act, the Bureau examines related claims, among others. , to the savings that result from the rationalization of research and development activities.
In addition, the Bureau is also examining claims that the merger has, or is likely to result in, dynamic efficiency gains, including those obtained through the optimal introduction of new products, the development of more productive processes. efficient and improving the quality of products and service. .
Under what circumstances will a horizontal merger of companies currently active in the same product and geographic markets be considered problematic?
A proposed merger that will result in a post-merger market share of 35% or more will generally be subject to careful consideration by the Bureau. Mergers that result in market shares that exceed this threshold are not, however, necessarily considered anti-competitive by the Bureau. In these circumstances, the Bureau examines various factors to determine whether such mergers would likely create, maintain or enhance market power, and thus significantly prevent or lessen competition.
For example, in April 2016, the Bureau found that Teva’s proposed acquisition of the generic pharmaceutical company Allergan plc would likely have resulted in a substantial lessening or prevention of competition for the sale of two pharmaceutical products in the United States. Canada (tobramycin inhalation solution and buprenorphine / naloxone tablets) due to the elimination of future competition between the parties.
When is an overlap in products under development likely to be a problem? How is the potential competition assessed?
Overlaps in products under development will, in all likelihood, be considered problematic under the provisions of the Merger Act where the products are likely to receive regulatory approval, the products will be sold in Canada within a reasonable time following merger and beyond – the merged company in the process of closing will be able to exercise market power over the products.
For example, under a consent agreement the Bureau entered into with Merck & Co, Inc and Schering-Plow Corporation in connection with their proposed merger, the parties agreed to transfer a health product to a third party. human that was currently under development for the treatment of postoperative and chemotherapy-induced side effects. This divestiture was designed to protect future competition for the supply of products used in the treatment of this medical condition.
What remedies will generally be needed to resolve the issues that have been identified?
Typical remedies required in anti-competitive mergers involve divestitures of assets (i.e. structural remedies).
For example, the remedy negotiated by the Bureau in connection with Teva’s acquisition of the Allergan generic pharmaceutical company in 2016 involved Teva entering into a consent agreement with the Commissioner, the terms of which required Teva to divest its own Canadian assets or Allergan for the buprenorphine / naloxone tablet solution to purchasers approved by the Commissioner.
Additionally, in December 2016, the Commissioner entered into a consent agreement with McKesson Canada Corporation to resolve issues related to its proposed acquisition of the Katz Group’s healthcare businesses, which include the drugstore chain Rexall and the ClaimSecure healthcare claims settlement activity. This consent agreement required McKesson to sell retail stores in 26 markets. It further prohibited McKesson from transmitting commercially sensitive information between its pharmaceutical wholesale business and Rexall’s retail business, in order to ensure that competition is preserved for the wholesale and retail supply. pharmaceutical products and services in local markets across Canada.
Declaration date of the law
Give the date that the above content is correct.
May 8, 2020