The European Commission’s Draft Merger Guidelines: implications for life sciences
July 2026 | SPECIAL REPORT: HEALTHCARE & LIFE SCIENCES SECTOR
Financier Worldwide Magazine
July 2026 Issue
On 30 April 2026, the European Commission (EC) issued its ‘Draft Merger Guidelines’ (DMG) for market feedback. The DMG are meant to replace the EC’s current ‘Horizontal Merger Guidelines’ and ‘Non-Horizontal Merger Guidelines’, by updating and consolidating them into a single framework for the assessment of concentrations under the European Union Merger Regulation (EUMR).
Under the EUMR, mergers can only be blocked if they “significantly impede effective competition” (article 2(2) and (3) of the EUMR). The DMG lay down the EC’s interpretation of this standard. While the DMG only bind the EC, and are without prejudice to the European Court of Justice’s (CJEU’s) interpretation of the EUMR, they carry substantial practical significance.
The DMG are part of a broader policy response that calls for a more strategically-oriented approach to European competition enforcement. They reflect the concerns raised in the September 2024 Draghi Report, which highlighted the need for the European Union (EU) to foster scale, innovation and resilience.
The DMG are intended, among other things, to avoid chilling effects on beneficial transactions. As a result, scale and consolidation can be viewed positively, especially when needed to compete on global markets, when contributing to the integration of the EU internal market or when improving the ability or incentive to invest and innovate.
As part of this shift, the EC will also consider ‘exogenous’ factors, such as potential trade disruptions and their impact on alternative sources of supply, when determining the competitive effects of a merger.
The most important changes proposed in the DMG are the expansion of dynamic theories of harm, the formal integration of innovation competition into the substantive assessment, the introduction of the ‘innovation shield’ and a broader recognition of efficiencies (including resilience and security of supply).
To this end, the DMG contemplate a diverse range of pro-competitive effects that may be taken into account as efficiencies.
However, most of the DMG’s theories of harm are already reflected in EC case practice and the merging parties will continue to bear the burden of demonstrating that any efficiencies are verifiable, merger-specific and benefit consumers.
As such, the practical significance of the DMG for life sciences mergers lies primarily in the codification of the EC’s existing analytical approach.
Merger control in the life sciences sector
The impact of a concentration on innovation in the life sciences industry has been front and centre in the EC’s case practice. The EC frequently assesses the risk of discontinuation, delay or redirection of research and development (R&D) projects. The EC’s review extends beyond late stage pipeline overlaps and includes early-stage R&D, as well as the broader competitive landscape for innovation.
For example, in Takeda/Shire (2019), the EC examined the overlap between Takeda’s marketed treatment for inflammatory bowel disease and Shire’s pipeline product for the same treatment. The EC was concerned that the merger could result in Takeda discontinuing Shire’s new treatment, leading to a reduction of innovation and future competition.
In Novartis/GlaxoSmithKline Oncology Business (2015), the EC found that post-merger there would only be two companies developing and marketing both cancer treatments B-Raf and MEK inhibitors. It was concerned that there would be a reduction of competition on innovation, with the expected abandonment of Novartis’ broader clinical trial programme for its B-Raf and MEK inhibitors.
In J&J/Actelion (2017), the EC raised concerns over the overlapping phase two development programmes for insomnia drugs. The EC concluded that the merger could reduce innovation competition by increasing the risk of discontinuation or delay of one of the pipelines as there were no competing pipeline products in the European Economic Area based on the same novel mechanisms.
In Illumina/GRAIL, the EC was concerned that the deal would stifle innovation and reduce choice in blood-based early cancer detection tests. It found that GRAIL and its rivals were engaged in “an innovation race to develop and commercialize early cancer detection tests. While there was still uncertainty about the exact results of this innovation race and the future of the market for early cancer detection tests, protecting the current innovation competition was crucial to ensure that early cancer detection tests with different features and price points will come to the market”.
The EC’s prohibition was later annulled by the CJEU on jurisdictional grounds, namely that the EC lacked the authority under the EUMR to review the deal.
In BMS/Celgene (2019), the EC again assessed the impact on innovation. It found that the relevant R&D landscape was highly competitive, with numerous large and small companies, academic institutions and research organisations active in late-stage and early-stage development.
The EC also noted that the likelihood of the merged entity discontinuing or delaying pipeline projects was low, given the commercial incentives to pursue promising assets and the public commitments made to investors.
Impact of the DMG on life sciences mergers
The DMG does not provide any indication that cases like these will be decided materially different in the future. The practical significance of the DMG for life sciences mergers lies primarily in the codification of the analytical approach developed through the EC’s decisional practice.
For example, the DMG expressly distinguish between “specific innovation competition” and broader “general innovation competition”. The first arises where there are identifiable overlaps between specific projects or between a pipeline asset and a marketed product.
The second involves overlapping R&D capabilities. In this respect, the DMG make clear that the EC will look beyond mere sales share increments. The impact of a transaction on innovation, as reflected by various R&D investment and output factors, will also guide the assessment.
The DMG also formalise concerns regarding so-called ‘killer acquisitions’ – acquisitions where an incumbent acquires a nascent innovator in order to suppress future competition, discontinue overlapping R&D or neutralise future competitive threats. Similarly, the DMG also confirms that the EC will consider countervailing factors, notably the presence of third parties with promising pipelines and innovation capabilities.
What is new is that the EC will apply a narrow presumption that certain deals will not raise competitive concerns, the so-called ‘innovation shield’. The innovation shield is applicable when a transaction involves a small innovative company, including a start-up or an R&D project with a dynamic competitive potential. While this is a welcome clarification, its practical significance may be limited. The innovation shield is subject to multiple conditions and carve outs, and it is narrowly construed.
The DMG also recognise that a negative impact on R&D investment in one product area can potentially be offset if the merged entity repositions its R&D investments to a different area.
Another potentially important development concerns resilience and security of supply efficiencies. The DMG expressly recognise that mergers may generate pro-competitive benefits through stronger supply chains and improved access to scarce resources.
In pharmaceutical markets, this could create greater scope to argue efficiencies linked to active pharmaceutical ingredients sourcing, EU-based manufacturing capacity, shortage mitigation and accelerated deployment of innovative therapies, provided these efficiencies are verifiable and do not themselves create foreclosure risks.
Finally, the DMG deal with points of evidence and standard of proof. The DMG repeatedly emphasise the importance of contemporaneous evidence and past patterns relating to innovation competition, and the assessment of the parties’ plans and incentives.
They also make clear that the standard of proof for efficiencies will be identical to that applied to anti-competitive effects; both require a cogent and consistent body of evidence. However, the DMG notes that the EC retains a margin of discretion in weighing efficiencies against harms to businesses and consumers.
Conclusion
The DMG confirm that merger review in innovation-driven sectors will increasingly focus on future competitive dynamics, including pipeline competition, R&D capabilities and post-merger incentives relating to investment and innovation.
However, it is questionable whether the DMG – if adopted in their current form – will create more predictability for transaction parties. For example, the DMG simultaneously recognise dynamic efficiencies arising from scale, consolidation and the integration of R&D capabilities, while also treating reductions in innovation rivalry and diminished incentives to innovate as potential theories of harm.
The tension is particularly visible in the EC’s treatment of innovation competition, where the DMG state that the dynamic competitive process may be adversely affected even if the merged entity brings the relevant R&D projects to market.
It is also reflected in the narrow scope of the ‘innovation shield’, which excludes several categories of transactions involving leading firms or broader innovation capability overlaps. Although the legal test for merger review remains unchanged, with the adoption of the DMG the EC will apply a framework for assessment that is broader, more discretionary and increasingly dependent on forward-looking assessments of innovation incentives and strategic market positioning.
The DMG will not ease the burden for merging parties either. While the EC is expected to be more open to engage with efficiency arguments, the standards set out by the DMG are demanding. It remains to be seen whether the EC will indeed apply the same standard of proof for finding competition concerns as it does to accepting efficiencies.
Ingrid Vandenborre is a partner, Michael Frese is counsel and Georgios Zacharodimos is European counsel at Skadden, Arps, Slate, Meagher & Flom LLP. Ms Vandenborre can be contacted on +32 (2) 639 0336 or by email: ingrid.vandenborre@skadden.com. Mr Frese can be contacted on +32 (2) 639 0315 or by email: michael.frese@skadden.com. Mr Zacharodimos can be contacted on +32 (2) 639 8568 or by email: georgios.zacharodimos@skadden.com.
© Financier Worldwide
BY
Ingrid Vandenborre, Michael Frese and Georgios Zacharodimos
Skadden, Arps, Slate, Meagher & Flom LLP