Commission investigation into termination of pipeline drug: what next for R&D decision-making?

On 26 March 2024, the European Commission (the “Commission”) announced that it has opened a formal investigation into whether Zoetis, a US animal health company, abused a dominant position by engaging in exclusionary behaviour. The Commission’s concern is that Zoetis prevented “the market launch of a competing novel biologic medicine”.

In 2017, Zoetis was developing its now market-leading canine osteoarthritis product Librela and acquired another “late-stage” pipeline product for the same indication; Zoetis acquired Nexvet Biopharma and, along with it, the “experimental” drug ranevetmab.

After two years of investment, Zoetis terminated ranevetmab’s development and later refused to transfer it to Virbac, a French company with commercialisation rights to its distribution in the EEA. The Commission has said that it is concerned that this conduct could constitute an exclusionary abuse of dominance. The investigation was prompted by a complaint by the putative distributor in 2020 and follows dawn raids of Zoetis’ premises in October 2021.

What are the likely implications?

The Commission has indicated that the Zoetis investigation is based solely on antitrust grounds and is not a “killer acquisition” type of assessment that the Commission has conducted using its merger control powers. However, the Zoetis investigation suggests that this type of theory of harm may be creeping into the sphere of antitrust enforcement.

This investigation and any future decision has potentially wide ranging implications for the risk profile of companies’ unilateral decision-making on product development and R&D in the pharmaceutical industry and beyond. There is a very limited amount of information about the basis for the investigation in the public domain. The case raises significant questions around what factors will tip legitimate independent decision-making around investment and R&D into illegitimate (unilateral) abusive behaviour. In particular, what level of exclusionary intent is required?

Next steps

It may take a year or more for the Commission to reach a decision in this case.  Life sciences companies should monitor developments on this closely, including if any other antitrust authorities follow suit with investigations based on similar theories of harm.

Authored by Alice Wallace-Wright and Rhona Baillie.