European Commission’s First-Ever Abuse of Dominance Probe for Shelving of a Novel Pipeline Therapy

The European Commission (EC) has launched a formal investigation under its abuse of dominance rules into US life sciences company Zoetis in the area of novel veterinary medicines. The EC alleges that the discontinuation of a pipeline therapy by Zoetis was exclusionary conduct preventing the launch of a rival therapy that could have been brought to market by a third party in Europe.

The case centres on Zoetis’s conduct after it acquired late-stage asset ranevetmab, a novel monoclonal antibody (mAb) indicated for chronic osteoarthritis pain in dogs. Ranevetmab targeted the same indication as Zoetis’s own late-stage pipeline product, bedinvetmab (under the brand name Librela).

When acquired, ranevetmab was subject to a preexisting licence agreement that granted exclusive commercialisation rights to Virbac, a French company specialising in animal health, for the drug outside the United States and Canada. About two years after the acquisition, Zoetis terminated the development of ranevetmab. Librela then became the first injectable mAb authorised in this indication when it obtained marketing authorisation in 2020. The potential abuse identified by the EC consists of the exclusionary discontinuation by Zoetis of the advanced pipeline product, ranevetmab, and refusal to transfer the product upon request of the third-party-right holder, Virbac.

This is the EC’s first formal investigation under the authority’s antitrust rules into the “killing” of an advanced pipeline product that was encumbered by third-party rights. Concerns regarding so-called “killer acquisition” theories of harm have been a hallmark of merger investigations in the pharmaceutical space, with agencies scrutinising incentives for an acquirer to buy an innovative rival and potentially discontinue the rival’s therapies in order to eliminate future competition with their own projects.¹

In its investigation into Zoetis, however, the EC is not challenging the acquisition of ranevetmab but rather the post-acquisition conduct by Zoetis. Informed by a 2020 complaint by Virbac and an unannounced “dawn raid” inspection at Zoetis’s premises in 2021, the EC is deploying its abuse of dominance powers under Article 102 TFEU² to probe post-acquisition conduct that may have killed off nascent competition.

This will be an interesting case to follow, with clear relevance and potential read-across into human medicines. It remains to be seen whether the EC can discharge its evidentiary burden without venturing too far into speculation regarding the incentives and decisions made during drug development. If it can make its case, it has the power to impose a fine of up to 10% of an infringing party’s global turnover.

Innovator companies may argue that they cannot predict ex-ante which therapies will be successful, and once a therapy has been “leapfrogged” by an R&D asset within a company’s portfolio, it is under no obligation to continue developing two competing therapies or to transfer any assets to a third party. This is characteristic of the hard choices that have to be made during expensive drug development when only a subset of pipeline products proceed. Indeed, Zoetis did seemingly develop the ranevetmab therapy for two years post-acquisition, and the EC may examine its efforts at development prior to termination. Zoetis contends that its decision to cease development of ranevetmab was “sound, rigorous, and lawful.”

It is also likely that there is important interplay between the terms of the exclusive license with Virbac and the inferences the EC will draw as to how this affected Zoetis’s incentives to develop the rival therapy. Parties in Zoetis’s shoes may argue that, once licensed, there is a continued incentive to commercialise so as not to be in breach of the license terms; naturally, however, this depends on the protections the counterparty has negotiated. Commonly, the company with the right to develop the drug will have an obligation to use “commercially reasonable efforts” to develop and commercialise, but even where this applies, it can be very challenging to prove breach. Counterparties wishing to protect themselves against “slow-pedaling” of development can seek to build in a range of protections in the agreement.

Much will turn on the specific facts as the investigation progresses. Above all, the probe signals the EC’s willingness to pursue theories involving the “killing” of nascent competition through the exercise of its antitrust powers based on conduct post-merger, even where transactions did not meet the thresholds for review under merger control rules (or were cleared on review at the time of the acquisition).

If the EC is successful in its case, we might see more cases brought under the Article 102 framework as a complement to ex-ante merger control scrutiny into acquisitions that may reduce competition and innovation in the pharmaceutical sector.

Background

Zoetis is a leading US-based animal health company with locations around the world. Among other products, Zoetis developed bedinvetmab (brand name Librela), a novel veterinary medicine for treatment of osteoarthritis pain relief in dogs. On 10 November 2020, the EC granted Zoetis Belgium SA marketing authorisation for Librela, making it the first injectable monoclonal antibody (mAb) therapy to be approved in the EU. In 2017, Zoetis acquired Nexvet Biopharma, a biologic therapeutics company headquartered in Ireland, including Nexvet’s pipeline mAb therapies: ranevetmab for osteoarthritis pain relief in dogs, and frunevetmab for pain relief of the same disease in cats. At the time of the acquisition, Zoetis commented that ranevetmab “would, upon approval, be the companion animal industry’s first monoclonal antibody therapy administered monthly by injection for chronic pain.” In fact, Librela would go on to leapfrog ranevetmab. Ranevetmab was the subject of an exclusive 10-year cooperation agreement between Nexvet Biopharma and Virbac, a third-party French company also specialising in animal health, signed in 2014. Under the terms of the cooperation agreement, Virbac held exclusive commercialisation rights for ranevetmab outside the United States and Canada. After buying Nexvet Biopharma, Zoetis developed ranevetmab and Librela in tandem for two years before terminating ranevetmab and focusing on Librela.

The EC’s Probe

In November 2020, Virbac submitted a complaint to the EC about Zoetis’s conduct. In March 2021, Virbac brought an action for annulment before the EU General Court regarding the EC’s decision to grant marketing authorisation for Librela, alleging inter alia that the decision gives rise to an abuse of dominance. In October 2021, the EC carried out unannounced inspections (“dawn raids”) at Zoetis’s premises in Belgium — a preliminary investigatory step into suspected anticompetitive practices. On 29 July 2022, Virbac informed the EU General Court that it was withdrawing its action, and the case was removed from the register on 31 August 2022. The reasons for the withdrawal of its complaint were not disclosed. The EC initiated proceedings on 26 March 2024, a procedural step with a view to adopting a formal decision under Article 102 TFEU. The EC will now continue its fact-finding process and, if it determines there are sufficient grounds to do so, it will issue a Statement of Objections and final decision in due course. There is no legal deadline for the EC to complete its review. Zoetis Inc. and Zoetis Belgium SA are named in the investigation, registered by the EC under case number AT.40734.

The EC is actively pursuing other abuse of dominance cases under Article 102 in the life sciences space. Teva is accused of engaging in practices intended to delay competition to its blockbuster medicine Copaxone by artificially extending patent protection of Copaxone and spreading misleading information about a competing product.³ The EC also has an open investigation into possible anticompetitive disparagement by Vifor Pharma of its closest competition in Europe in the market for IV iron treatment Pharmacosmos.⁴ In June 2024, the EC published draft commitments offered by Vifor to address the EC’s preliminary concerns.

We would like to thank Clodagh Kelsh, Trainee Solicitor, for her assistance with this alert.

 

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^[1] In notified merger cases, in the context of such concerns, the EC has considered overlaps even in early-stage pipeline products, and in a recent policy briefing, outlined “killer acquisition” theories of harm as one of its central substantive areas of investigation in pharma mergers. The EC has also commissioned an ex-post evaluation “to assess the prevalence of killer acquisitions in the pharmaceutical industry.” That study is in progress. See Competition Policy Brief, “Assessing Innovation Competition in Pharma Mergers” (April 2024).
^[2] Article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits the abuse of a dominant position that may affect trade within the EU and prevent or restrict competition. The EC will have to demonstrate first that Zoetis held a dominant position before establishing the existence of abusive (exclusionary) conduct.
^[3] Case AT.40588
^[4] Case AT.40577

 

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