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Spotlight on the UK: Review of the CMA's Recent Healthcare and Life Sciences Competition Portfolio

Bill Batchelor

Spotlight on the UK: Review of the CMA's Recent Healthcare and Life Sciences Competition Portfolio
Westend61 via Getty Images

Reflecting its enforcement focus, the CMA has imposed pharmaceutical sector fines exceeding £500 million over the last few years, including three record fine totals that, at the date of the respective decision, were the largest CMA had imposed (Phenytoin: £89.4 million (overturned on appeal and reduced to £70 million on remittal); Liothyronine: £101.4 million (reduced to £84 million on appeal); and Hydrocortisone: £266.5 million (reduced to £130 million on appeal)). In addition to fines, ex gratia payments to the UK National Health Service (NHS) have been made in some cases to head off potential claims. The CMA has made clear that protecting the NHS from allegedly exorbitant prices is a core enforcement priority.

The CMA recognises, however, that some collaboration between rival pharmaceutical providers may be necessary in some cases. Accordingly, the CMA has taken the novel step of issuing a prioritisation statement which clarifies the circumstances under which it will not take enforcement action against cooperation to make combination therapies available to the NHS.

Finally, in relation to merger control, the CMA has continued to call in and investigate mergers in the broader healthcare sector. The CMA has considered horizontal and vertical theories of harm relating to potential and dynamic competition in some of its recent reviews.

Antitrust Enforcement

Although the CMA has only opened one new investigation in the pharmaceutical sector in the last six years, the CMA has been involved in several appeals of its earlier decisions at both the Competition Appeal Tribunal (CAT) and the Court of Appeal.

Excessive pricing

Excessive pricing abuse of a dominant market position has been a particular area of focus for the CMA’s enforcement work, leading to the decisions in Phenytoin, Liothyronine and Hydrocortisone. These cases largely concern pharmaceuticals supplied in markets which do not see prices fall when generics enter (so-called niche generic drugs), which can result in concentrated markets and significant price increases.

Calculating whether a price is excessive is a complex task. Historically, competition authorities have pursued very few excessive pricing cases in line with the general consensus that excessive prices self-correct. The CAT, for example, noted in a recent CMA appeal that market price “is a matter for the market and not the courts.”

United Brands, read in light of subsequent judgments, established a framework for assessing excessive pricing with two limbs: (i) the difference between the costs actually incurred and the price actually charged is excessive (the excessive test), and (ii) a price has been imposed that is either unfair in itself or when compared to competing products (the unfair test).

In Phenytoin, the CAT overturned the CMA’s decision on excessive pricing, mainly on the basis that the CMA had assessed fairness “in itself” by comparing the actual price to a benchmark of the cost of manufacturing the drug plus a reasonable rate of return (the Cost Plus analysis), and had not taken sufficient account of the situation of comparable products, including a similarly priced generic of the same molecule in capsule form. The Court of Appeal substantively upheld, but did not agree with all aspects of, the CAT’s judgment, and remitted the case to the CMA. The CMA reached the same substantive conclusion in its new decision nearly six years later, and the CMA’s remitted decision is currently on appeal at the CAT.

The Court of Appeal in Phenytoin confirmed that the excessive nature of a price could be determined through the application of the United Brands test, but this was not the only method, and the CMA has a margin of discretion in deciding which methodology to use and which evidence to rely upon. The CMA was not required to compare prices to a benchmark price (beyond a Cost Plus approach) in all cases before concluding whether a price was excessive under the first limb of the test. The court also confirmed that the CMA was not required to consider both alternatives of the second “unfairness” limb, an assessment of whether the price was unfair in itself or when compared to competing products was sufficient. Finally, the court added that the CMA must, however, have due regard for alternative exculpatory evidence put forward by the defendants as to why their prices are in fact fair, such as prima facie valid comparators for other drugs.

Since the Court of Appeal’s important judgment in Phenytoin, the CAT has upheld the CMA’s substantive decision in two further excessive pricing cases, which both concerned dramatic price increases following the de-branding of drugs: Liothyronine and Hydrocortisone. In these appeals, the CAT applied the Court of Appeal’s ruling in Phenytoin, confirming that there is no single method or way in which an excessive pricing abuse might be established. In both cases, the CMA had concluded that the prices were excessive on a cost plus basis: the differential between the dominant firm’s prices and its Cost Plus in Liothyronine was found to range between 900 and 2,500 percent, even applying a variety of adjustments, and in Hydrocortisone the differential ranged between 474 percent and 2,752 percent and had, notably, increased by 10,000 percent between 2008 and 2016, a price increase that the CMA found did not reflect costs, in particular as the dominant firm did not make any investment or produce any innovation to justify the price increases. The CMA concluded that the “unfairness” limb was satisfied in both cases because the prices were unfair in themselves having regard to a number of factors, including the substantial disparity between price and economic value, the lack of willingness on the part of the NHS to pay a premium for the product and the prices of competing tablets.

The CAT’s pending ruling in Phenytoin may shed further light on the CMA’s correct application of the excessive pricing test.

Market sharing and information exchanges

The CMA has also fined competitors for market sharing in the pharmaceutical sector, including most recently in Prochlorperazine, Hydrocortisone and Fludrocortisone. The CMA’s focus is on addressing the use by companies of market sharing arrangements to maintain higher prices or to forestall entry by a potential competitor. In Nortriptyline, the CMA concluded that the only two UK suppliers of the drug had entered into a horizontal agreement to share markets, fix prices and fix quantities in order to jointly respond to a competitive threat posed by a customer. The CMA also found in a separate decision that the parties had exchanged commercially sensitive information over a two-year period, in order to try to keep the prices of nortriptyline tablets high. The information shared was wide-ranging, such as market entry plans, pricing and market strategy, and a discussion of market intelligence and beliefs on parallel import volumes and price.

A number of the CMA’s decisions have been appealed to the CAT. The CAT upheld the CMA’s Hydrocortisone decision (ruling not yet published as it was handed down as a closed judgment until the CAT orders otherwise), as well as the CMA’s decision concerning information sharing in relation to Nortriptyline. The appeal in relation to the Prochlorperazine decision is ongoing.

The CMA has pursued director disqualification in some of these cases, which disqualifies the individual from acting as a director of any UK company for up to 15 years. The CMA has the power to apply to the court to order director disqualification, or to accept disqualification undertakings instead of bringing legal proceedings, in the case of directors of companies involved in infringements of UK competition law. The CMA successfully secured a total of 5 director disqualification undertakings in the Fludrocortisone and Nortriptyline cases, and is pursuing 7 further director disqualifications in Prochlorperazine at the CAT.

Enforcement statement on combination therapies

Cooperative agreements have always played a role in the pharmaceutical industry. One such example is combination therapies, which involve the use of two or more separate medicines in combination to treat a disease instead of the “one drug one target” approach. Each treatment in the combination is often developed by different firms and, to be effective, the parties with complementary products may need to exchange substantial amounts of detailed information in order to make the combination therapy available in the market.

The CMA published a prioritisation statement on combination therapies in November 2023 (Prioritisation Statement) which sets out the circumstances under which the CMA will not open an investigation into competing pharmaceutical companies’ exchanging information or entering into commercial agreements on combination therapies for NHS patients. The Prioritisation Statement was published in response to feedback from the healthcare industry that competition law concerns were preventing the formation of commercial agreements necessary to enable patient access to combination therapies, as part of a long-running consultation with the Association of the British Pharmaceutical Industry (ABPI), NHS England and National Institute for Health and Care Excellence.

The Prioritisation Statement sets out five conditions under which competing suppliers can negotiate and agree that one of the component medicine suppliers who contribute to a combination therapy can be compensated for lowering its prices to make a combination therapy cost-effective. The CMA commits not to prioritise investigations into agreements that meet the five conditions, but does not exclude that it may investigate combination therapy agreements. The five conditions include:

  1. Negotiations must follow a specific framework to compensate the “add-on” (non-established therapy) manufacturer for price decreases
  2. Specific market features are present, e.g., confidential maximum net price for the respective drugs independently agreed with the NHS
  3. Information exchanged between component manufacturers is limited
  4. Agreement terms are directly related, and necessary, to calculate and make contribution payments that have been agreed under the negotiation framework
  5. Measures are implemented to limit/contain the information that the manufacturers exchange

Looking ahead

The CMA has been successful in recent enforcement appeals. The final outcomes of the appeals will not only have strengthened the CMA’s defence in the ongoing Phenytoin case, but will also inform its future enforcement priorities and strategy, in particular the extent to which the CMA may continue to investigate excessive pricing in the sector. The CMA may also consider pursuing other, more novel, forms of abuse and collusion. As an example, the CMA opened its first investigation based on a disparagement theory of harm at the end of January 2024. The CMA is investigating, in parallel with the European Commission (EC), whether Vifor Pharma abused its dominant position by making misleading claims to healthcare professionals about the safety and effectiveness of a rival’s iron medicine.

Merger Control

The CMA’s recent mergers work demonstrates that it remains focused on examining all aspects of the healthcare and life sciences sector. The CMA has undertaken merger reviews in this sector with some predictability in the past five years; while many of the cases resulted in remedies, none resulted in total prohibitions. The CMA has also carried out two reviews in the sector in parallel with the EC.

Jurisdictional thresholds

The CMA can review a merger where the UK turnover of the target is over £70 million (approximately US $88 million) (the turnover test) or the merger creates or enhances a 25 percent share of supply or purchases of a particular good or service in the UK, or a substantial part of it (the share of supply test). Under the share of supply test, the CMA can consider a very broad or narrow scope to take jurisdiction, and it has applied the test expansively. As an example, the CMA asserted jurisdiction over the acquisition of a biotech pipeline treatment portfolio with no marketed products or turnover in the UK, by identifying a pipeline treatment which the CMA found would compete with a treatment already commercialised by the acquirer and determining that the 25 percent threshold was met based on number of UK employees in the relevant area or on share of procurement of relevant patents.

Moreover, the “particular good or service” over which the CMA determines that the parties have a combined share of supply may be very specific. For example, in Stryker/Cerus, the relevant good was “intrasaccular devices used for the treatment of intracranial aneurysms,” and in Illumina/Pacific Biosciences (PacBio), the CMA exercised jurisdiction based on a narrow definition of DNA sequencing systems and innovation concerns.

Proposals are currently going through the UK legislative process to expand the CMA’s jurisdiction, including a new threshold for vertical mergers and acquisitions of small, innovative firms that may not yet be generating significant revenue. These proposals are targeted, amongst other sectors, at life science transactions.

There is no requirement to notify the CMA of a merger; however the CMA may call in a non-notified transaction that meets the jurisdictional thresholds for review, and it frequently does so.

Largely straightforward reviews

The CMA’s merger caseload in this sector over the last five years has focused on markets that are adjacent to pure pharmaceutical and healthcare markets (e.g., retail of pharmaceuticals and healthcare software). The majority of the CMA’s cases were cleared unconditionally in phase I. This includes merger reviews concerning pharmaceuticals; hospitals; medical devices; healthcare software; private medical insurance; optical services and clinical research services.

The CMA has referred only three cases in the sector for an in-depth, phase II review. This included cases concerning healthcare software (cleared unconditionally); hearing aids (which resulted in a partial prohibition relating to the acquisition of one target business); and medical equipment (which resulted in the parties abandoning the transaction during the phase II investigation).

The CMA has not sought to impose remedies in pure pharmaceutical mergers in recent years. In adjacent markets, it has only accepted structural remedies; namely, the divestment of a business. A number of these cases were cleared with remedies at phase I, with only one case cleared with remedies at phase II. The CMA has a strong preference for structural remedies over behavioural remedies such as commitments to provide certain services or goods under specified conditions or to maintain certain price levels.

Theories of harm

Many of the CMA’s recent reviews have concerned a traditional horizontal theory of harm. For example, in Bestway/Lexon and Asurex, a case involving pharmacies, the CMA’s substantive analysis focused on local overlaps in the provision of retail pharmacies and filtered local areas where there was a realistic possibility of a substantial lessening of competition. The CMA followed the approach in its earlier Celesio/Sainsburys decision by concluding that the frame of reference included all retail pharmacies within different catchment areas, depending on the location of the pharmacy. Bestway addressed the CMA’s concerns at phase I by selling its pharmacies in a number of local areas to pre-approved purchasers.

The CMA’s competitive assessment increasingly includes a consideration of future developments, such as potential competition, in line with its revised merger assessment guidelines. In Cochlear/Oticon Medical; the CMA found that one of the merger parties was developing a hearing device product which would, if launched, compete with the other party’s product, and that third party solutions imposed only limited competitive pressures. This concern fed into the CMA’s decision to prohibit part of the transaction. The CMA advanced a similar potential competition theory of harm in Roche Holdings, Inc./Spark Therapeutics, Inc., which concerned an acquirer (Roche) with a marketed product, and a target (Spark) with products still in clinical development and not yet marketed to UK patients. The CMA found that Spark would be likely to commercialise its products within the foreseeable future and that Roche’s competing product – while only accounting for a low market share (under 5 percent) – was already a significant competitor and was moreover likely to develop a strong market position by the time Spark’s GT product comes to be commercialised in the UK. The CMA ultimately cleared the transaction following a phase I review on the basis that the parties would continue to be sufficiently constrained by other competing products (that were already being commercialized or at a relatively advanced stage of development).

On the other hand, potential competition can be used by the merger parties to address competition concerns, such as by presenting evidence that third-party solutions are expected to be launched in the near future that could place a significant constraint on the merged entity (Stryker/Cerus).

The CMA is also paying heightened attention to the potential loss of dynamic competition. This was a key feature of the CMA’s Illumina/PacBio decision, in which it considered that the market was dynamic and that the parties’ genome-testing technologies were likely to converge in the future. Accordingly, the CMA decided that the merger was likely to reduce future competition. In AstraZeneca/Alexion, the CMA considered whether the merger may impact the merger parties’ incentives to invest in the continued development of their products, but ultimately cleared the merger on the basis that there would be sufficient competition on innovation post-merger.

Together with the EC, the U.S. Federal Trade Commission and Canada’s Competition Bureau, the CMA is also participating in the Multilateral Pharmaceutical Merger Task Force, which aims to identify concrete and actionable steps to review and update the analysis of pharmaceutical mergers.


The National Security and Investment Act 2021 (NSIA) came into force on 4 January 2022, introducing a new foreign direct investment regime in the UK. The list of sensitive sectors where a mandatory pre-completion notification to the UK government may be required includes sectors that are or could be relevant to healthcare and life sciences, such as synthetic biology (e.g., gene editing and therapy), artificial intelligence and advanced robotics. The first merger in the sector to be notified under NSIA was UnitedHealth/EMIS; the Secretary of State confirmed that no further action would be taken in relation to the acquisition before the CMA had started its merger review.

Parallel reviews

Following the UK’s departure from the EU, mergers can be subject to parallel investigations by the CMA and the EC, as the “one-stop shop” principle no longer applies. The CMA has carried out two reviews in the healthcare and pharmaceutical sector in parallel with the EC so far.

The first such case was AstraZeneca/Alexion Pharmaceuticals in 2021, which was cleared by both regulators unconditionally following a phase I review. The second case was Cochlear/Oticon Medical in 2023, a case concerning hearing aids which was partially cleared by the CMA following a phase II review. The CMA prohibited the sale of one of the bone conduction solution business divisions to Cochlear, while allowing the transfer of the cochlear implant business division. The merger parties ultimately notified the sole acquisition of Oticon’s cochlear implant business by Cochlear, which the EC reviewed following an Article 22 referral request and cleared unconditionally.

Looking ahead

The introduction of more expansive jurisdictional thresholds in the UK may further enable the CMA to review deals in the sector, in particular those where large firms seek to acquire innovative start-ups, as well as vertical deals such as the ongoing Illumina/GRAIL deal in the EU (which, possibly, did not meet the UK’s jurisdictional tests due to the lack of a UK nexus).

The CMA is also paying increasingly more attention to dynamic competition concerns. Its revised Merger Assessment Guidelines contain an entire section on dynamic competition and note that such concerns are likely to arise in pharmaceutical cases. It is expected that the CMA will continue to examine pharmaceutical mergers from this perspective going forward.

Update to article posted January 30, 2023, reflecting the most recent agency announcement of investigation.