Affected market: Manufacture of pharmaceuticals
No. ME/4136/09
Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisidction, third party views, assessment and decision.
The OFT's decision on reference under section 33(1) given on 9 July 2009. Full text of decision published on 21 July 2009.
Please note that the square brackets indicate figures or text which have been deleted or replaced in ranges at the request of the parties or third parties for reasons of commercial confidentiality.
PARTIES
GlaxoSmithKline plc (GSK) is a global healthcare company active in the discovery, development, manufacturing and sale of pharmaceutical and non-pharmaceutical products, including for the treatment of Human Immunodeficiency Virus (HIV). [see note 1]
Pfizer Inc (Pfizer) is currently the world's largest research-based biomedical and pharmaceutical company. It sells products across eleven different treatment areas, including HIV. Pfizer's UK turnover for its HIV business in 2008 was approximately [ ].
TRANSACTION
The parties propose to place the entirety of their respective HIV businesses [see note 2] into a new joint venture (JV) company, GlaxoSmithKline Newco Limited (GSK Newco). GSK will acquire a controlling interest over GSK Newco and Pfizer may acquire material influence over GSK Newco (although the OFT has not found it necessary to conclude on this point) [see note 3].
The parties' rationale for the transaction is to create a specialist JV company, which will focus solely on the research, development and commercialisation of HIV medicines [see note 4], with an appropriate level of independence from its parent companies to prioritise internal and external investments.
The merger was notified by the parties on 27 May 2009 and the administrative deadline for a decision is 22 July 2009.
JURISDICTION
As a result of this transaction GSK will cease to be distinct from the HIV business contributed to GSK Newco by Pfizer (and Pfizer, to the extent that it acquires material influence over GSK Newco, will cease to be distinct from the HIV business contributed by GSK). The parties' contributed businesses overlap in the supply and research and development (R&D) of HIV drugs and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met by virtue of the contributed businesses' combined share of an all HIV market at [20-30] per cent by value [see note 5].
The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
THIRD PARTY COMMENTS
The vast majority of third parties indicated that GSK and Pfizer were not close competitors in either the supply or the development of HIV drugs; and as such, they did not express concerns about the proposed JV. Several third parties noted that the transaction might foster R&D activity in the HIV area, especially since GSK is currently perceived to be in a difficult position, considering the maturity of its product portfolio and the lack of compounds it has at Phase 3. These third parties argued that the anticipated JV would ultimately benefit HIV patients. One competitor expressed concerns about the 'enhanced basket of products and services' offered by the new company; these concerns have been examined and dismissed in the context of 'portfolio effects' above.
ASSESSMENT
GSK and Pfizer intend to place their entire HIV businesses [see note 25] into a new JV company. Pre-merger they overlap in the discovery, development, manufacturing and sale of pharmaceutical products for the treatment of HIV. In particular, GSK currently sells six products in the NRTI class (of which three - Combivir, Kivexa/Epzicom, and Trizivir - are co-formulated), and two PIs. It is also developing one NNRTI and one II at Phase 2. In turn, Pfizer sells the only CCR5 currently available on the market (Selzentry), and it is developing one NNRTI and one CCR5 at Phase 2, as well as one PI at Phase 1.
There is a range of plausible potential product market definitions for this case. However, since the anticipated JV does not lead to competition concerns, the question of the relevant product market has been left open. The geographic frame of reference has also been left open for the same reason. For the purposes of the assessment, the relevant geographic scope is deemed to be national in scope for marketed HIV products, while for HIV pipeline products at least EEA wide (if not worldwide).
In relation to marketed HIV products, the increment attributable to the transaction is less than [0-10] per cent under all credible market definitions. GSK's share of the supply of all marketed HIV products was [20-30] per cent in 2008, and has been in steady decline over the last three years. Additionally, the parties' products belong to different classes within the HIV therapeutic area and are not close substitutes. Nor is GSK about, or likely, to launch a product in direct competition with Pfizer's Selzentry (or vice versa). As a result, there is no substantial lessening of competition in relation to marketed HIV products.
As regards the development of new HIV drugs (HIV pipeline products), even if the parties were to terminate any of the compounds they are independently developing at present, rival pharmaceutical companies have other compounds at the same (that is, Phase 2) or more advanced stage of development. In addition, in the relevant drug classes there are several products already available on the market, some of which were launched as recently as 2007 and 2008. As a result, the anticipated JV may not be expected to lead to any detriment in terms of future choice (or pricing) of drugs available for the treatment of HIV.
Furthermore, the typical treatment of HIV requires a combination of drugs from different classes (typically, two NRTIs plus one NRTI or one PI). This may indicate that the different drugs are in fact complements, rather than substitutes.
In light of the possible complementarities between the parties' products, the OFT has considered whether this transaction could lead to anti-competitive 'conglomerate' or 'portfolio' effects by 'tying' or 'bundling' together their products. However, on the evidence available to it, the OFT has concluded that it is highly questionable whether the anticipated JV would have the ability to foreclose its rivals but that even if it did, it would lack the incentive to do so. On this basis, the proposed transaction does not give rise to competition concerns as a result of foreclosure through combining different HIV drugs produced by the parties, or portfolio effects.
Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
DECISION
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.
1. The term Acquired Immune Deficiency Syndrome (AIDS), often used in conjunction with HIV, applies to the most advanced stages of HIV infections. In this decision, the acronym HIV (as defined) includes AIDS.
3. GSK and Pfizer have agreed an initial equity split of 85:15 respectively, which may vary depending on certain targets being met.
4. See: http://www.gsk.com/media/pressreleases/2009/2009_pressrelease_10041.htm
5. The transaction does not create a concentration with Community dimension pursuant to Article 1 of the Council Regulation 139/2004/EC on the control of concentrations between undertakings. To the extent that Pfizer does have material influence over GSK Newco, the transaction would then also qualify on the turnover test, as the combined UK turnover of the contributed businesses would be above £70 million - see paragraph 3.49 of the OFT's Jurisdictional and Procedural Guidance OFT527.
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