Takeda, Japan's biggest drugmaker, announced the sale of TachoSil, a surgical patch for bleeding control, to U.S. giant Johnson & Johnson's subsidiary Ethicon for $400 million (342 million pounds) last May.
The European Commission said a preliminary investigation found cause for concern because TachoSil is the market leader in Europe. Johnson & Johnson is also a major maker of surgical patches globally although it does not sell such dual patches in Europe.
The EU competition enforcer said high development costs meant rivals would find it difficult to enter the market.
"In this concentrated space, we need to carefully assess whether the proposed merger would lead to reduced choice for surgeons and patients, to higher prices for our health services, or to slower development of alternative solutions to manage problematic bleeding," European Competition Commissioner Margrethe Vestager said in a statement.
The Commission set an Aug. 10 deadline for its decision on the deal.
By Foo Yun Chee