EU move on mergers threatens innovation

  • Posted on 19.11.2021

EU move on mergers threatens innovation


Aline Lautenberg

General Counsel and Director General Legal & Compliance, MedTech Europe


At first sight, EU policy on mergers and acquisitions might not need to concern patients and frontline healthcare workers too much. However, a subtle shift in the rules on whether two companies can agree to become one could have a profound impact on access to medical innovation.

To understand why this might be, it’s important to think about where new technologies come from – and how they travel the complex path to the end user (either a patient or a clinician).

First, it is no secret that small and medium-sized companies (SMEs) are a key source of tomorrow’s technologies. Start-ups are typically established to develop an idea that its founders hope could solve a problem, such as treating a disease or diagnosing illness. Anyone who has met medtech entrepreneurs will recognise the enthusiasm that drives individuals and small teams to address unmet health needs.

Of course, not all will succeed. For those that do, developing a viable technology in a field such as diagnostics, monitoring or implantable devices is challenging. It is not enough for the product to work. Some of the biggest hurdles come when a company seeks to scale their business up and bring their technology to market. Achieving this in a timely fashion requires considerable investment, as well as expertise in regulatory and reimbursement.

Joining forces to reach the market

One well-worn path to market is to join forces with another company with the experience required. This is where mergers come in. Companies with complementary expertise often pair up. In some cases, a larger firm absorbs a smaller one because it has a game-changing technology. In return, the smaller partner has access to the infrastructure and expertise needed to go to the next level.

It comes with defined rules and processes. Long-standing EU rules are in place to ensure markets remain competitive. Imagine an extreme situation where the two biggest players in a market merged and, in so doing, suddenly had a monopoly. This can be blocked by national authorities or by the European Commission where mergers have an EU dimension.

Europe’s regulatory regime is highly regarded worldwide. Its key attraction is predictability. Since the EU Merger Regulation came into force in 1990, companies have benefited from the ‘one-stop-shop’ principle which gives the Commission sole jurisdiction to review mergers that have an EU dimension and prevents national authorities from conducting parallel reviews. This is vastly preferable to approaching authorities in multiple EU Member States, through multiple languages. Put simply, the one-stop-shop is much more efficient.

However, in practice this approach appears to have changed. Earlier this year, the European Commission issued new guidance on Article 22 of the EU Merger Regulation. The Article in question is not new – it was in the original Regulation and elaborated on in the 2004 recast of the Regulation. However, the interpretation of Article 22 is new.

In short, the Commission encourages Member States to refer merger transactions to it under certain circumstances. The original Article 22 was intended as a backstop for Member States that do not have domestic merger control regimes. In practice, it was used sparingly.

The new guidance published this year suggests Brussels is interested in transactions involving a wide range of innovative companies. As such the Commission will start accepting referrals of transactions from national authorities that fall below the national merger control thresholds. It offers examples [citing specifically digital and pharma/biotech even though not limited to these] which include early-stage innovative companies with low revenue but that conduct potentially important research. This includes many of the SMEs and start-ups that work on medical technology innovation.

The legal uncertainties around the new guidance

The impact of this change could be profound. It may discourage mergers in Europe due to the legal uncertainty it creates. It adds to the regulatory burden on companies which may need to engage with 27 national competent authorities. And it could slow down the whole process, making it less predictable and efficient. It gets worse. Even if companies close a merger, it could be  reviewed up to six months after it is completed. This brings further uncertainty.

Our worry is that the impact of this new guidance, requiring that even for mergers falling below national thresholds will now systematically need to be assessed, will ultimately harm the development and delivery of innovative medical technologies for European citizens.  

We call on Member States and the European Commission who currently reflect on the reality of Europe’s new approach to mergers to look at the full picture, including this worry of Europe’s medical technology sector. Anything less could be damaging to Europe’s ambition of being a leader in innovation and modern healthcare.


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