But over the 2014 Christmas holidays the deal was hanging by a thread after running into highly complex — and somewhat novel — competition concerns. The regulators’ worries struck at the heart of the transaction, in which the UK’s GSK was selling its portfolio of cancer drugs to Novartis for up to $16bn and bought the Swiss group’s vaccines unit for up to $7.1bn.
The European Commission insisted Novartis would have to divest two important cancer treatments that were under development, as GSK already had similar products for slowing the development of skin cancer. Brussels feared the asset swap could harm consumers by reducing the number of potential producers of such drugs from three to two, as the Novartis trials would probably be abandoned.
Sir Christopher Bellamy, chairman of the global competition practice at Linklaters, says frantic 11th-hour discussions to ensure the deal’s approval raised new challenges for his lawyers. How to ensure work continued on the two Novartis drugs was far from obvious.
Critically, Sir Christopher says Brussels was going to unusual lengths to target products that were still in development. “It was clear that the commission was developing a new theory of harm [to consumers] about competition in clinical research and innovation . . . that was a big development. They really looked in detail at competition in innovation,” he says.
The case was made more complex by the fact that the two drugs were designed to work in combination with each other, but only one of them, LGX818, was fully owned by Novartis. The other, MEK162, was produced under licence from Array BioPharma, a small Colorado-based company.
Competition lawyers at Linklaters made the unprecedented step of proposing two potential remedies to the commission. Under the terms of the first proposal, LGX818 and MEK162 would be owned by different companies and then it would be left to market demand to ensure that they reached consumers in a way that they could work together effectively as a treatment.
The second proposal was that Array BioPharma would acquire both products. However, there would need to be a significant European partner to ensure the drugs’ position in the EU market. Brussels preferred the second option after conducting its market tests.
Lawyers involved in the case noted that the deal was under intense time pressure as the costs of a long approval procedure could have undermined the attractiveness of the asset swap.
However, Novartis still needed to bear important costs associated with the remedy. The Swiss company is paying to ensure that clinical trials continue on the divested drug. It is also paying for a “monitoring trustee” to make sure that Array, which has no experience of operating in the EU, selects a suitable European partner.
Linklaters’ responses to the difficulties associated with securing quick regulatory approval gave it a narrow victory in the competition category in the FT’s Innovative Lawyers awards for Europe this year.
Berwin Leighton Paisner came second for its work seeking damages for Britain’s National Grid power company in the English courts.
In 2007, the European Commission imposed a fine of more than €750m on a number of leading companies, including Alstom, Areva, Schneider and Siemens, for running a cartel in the supply of gas-insulated switchgear — key equipment used by power transmission companies. These fines, however — the largest set of fines ever imposed on a single cartel — bolstered the EU’s own budget and National Grid decided to seek follow-on damages for its own losses.
Joby Davies, litigation partner at BLP, says the National Grid case charted new territory for the duration of the litigation battle, which dragged on for six years. “The world of follow-on damages is relatively new. Other cases have had skirmishes but they settled. This went right to the gate of the court.”
BLP says the case turned into a “tooth and nail” fight against 22 opponents and required a team of lawyers and economists that swelled to as many as 20 at its peak.
The case was also remarkable for two unusual precedents. It was the first in which the High Court ordered that leniency material could be disclosed. Under normal circumstances, companies win leniency from Brussels by whistleblowing and providing documentation on the operations of a cartel, but on the understanding that paperwork remains confidential. In this case, BLP successfully argued that the material was needed for follow-on damages.
The case also broke new ground by ensuring that the French defendants were unable to rely on the so-called French blocking statute, which companies can use to avoid obligations on open disclosure.
The defendants finally settled just before the case was due to go to trial last year. The sum sought was £275m, but the eventual settlement remains confidential.