COMMISSION DECISION of 29.04.1993 declaring a concentration to be compatible with the common market (Case No IV/M.323 - PROCORDIA / ERBAMONT) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic) Official Journal C 128 , 08/05/1993 P. 0000 COMMISSION DECISION of 29.04.1993 declaring a concentration to be compatible with the common market (Case No IV/M.323 - PROCORDIA / ERBAMONT) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic) The paper version of the decision is available through the sales offices of the Office of Official Publications of the European Communities.
PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION Registered with advice of delivery To the notifying party Dear Sirs, Subject: <ind> Case No. IV/M.323 - Procordia/Erbamont <ind> <ind> Notification of 23.03.1993 pursuant to Council Regulation (EEC) No. 4064/89 1. <ind> The above mentioned notification concerns the acquisition by Procordia AB (a Swedish company active in the production of pharmaceuticals, scientific biotechnology related products and instruments, food, beverages, tobacco and confectionery products as well as in the provision of miscellaneous services unrelated to pharmaceutical operations) of Montedison by purchasing two companies, Farmitalia Carlo Erba (FICE) Srl, incorporated in Italy, and Erbamont Inc, incorporated in Minnesota, USA.
2. <ind> After full examination of the notification the Commission has come to the conclusion that the notified operation falls within the scope of Council Regulation No. 4064/89 (Merger Regulation) and does not raise serious doubts as to its compatibility with the common market. THE PARTIES AND THE NOTIFIED OPERATION 3. <ind> The Procordia Group has six business areas; however, only the pharmaceutical area, Kabi Pharmacia, is involved in the concentration. The whole pharmaceutical sector of Montedison, represented by the two target companies known as Erbamont and referred to as such hereafter, will be the object of a three-step acquisition by Procordia.
However, it should be noted that EC production and marketing of pharmaceuticals derive exclusively from Farmitalia Carlo Erba Srl; it seems then suitable to make reference only to the last mentioned company activities in discussions of affected markets, market shares etc. 4. <ind> The first stage of the proposed operation will be the acquisition of 51% of the whole of Erbamont, that will take effect immediately after the entry into force of the proposed operation. In any case the initial stage will already give Procordia the voting control as well as immediate management control of both target companies; the minority shareholder, in fact, will have no more than a minority position in equity and voting rights, and no further veto or contractual rights are given to it.
Procordia will delegate management responsibility involved by the sole control to Kabi Pharmacia. Procordia will have options to increase its ownership in two steps, the first in January 1994 to 60% and the second in January 1995, in order to complete the takeover and to give Procordia virtually 100% of the equity in both target companies. COMMUNITY DIMENSION 5. <ind> The worldwide turnover in 1991 for Procordia was 5 119 mECU and for Erbamont 800 mECU. In the same year Community turnover was 1 163 mECU for Procordia and 514 mECU for Erbamont. Both parties meet the requirement of Article 1(2)(b) of the Regulation 4064/89, and not more than two-thirds of their turnover has been achieved in one and the same Member State.
Consequently the proposed concentration has a Community dimension. THE CONCENTRATION 6. <ind> The proposed transaction is a concentration within the meaning of Article 3 (1) (b) of Regulation 4064/89. In arriving at this conclusion the following elements were taken into account: by purchase of shares Procordia will acquire from the very beginning sole control of the whole of Erbamont, previously an independent undertaking. The Management of Kabi Pharmacia, the Procordia pharmaceutical area, will be responsible for any decision concerning Erbamont business plans and strategic decisions; Erbamont will have no more powers of decision after the closing of the deal.
COMPATIBILITY WITH THE COMMON MARKET 7. <ind> The transaction will create a unit that could rank among Europe's 10 biggest producers of pharmaceutical products and the world's 20 top pharmaceutical firms, while the actual position of Kabi Pharmacia is considered to be the 35th in the world and the 20th in Europe. In addition to Sweden and Italy, the group will be strongly represented in USA, Japan and some of the main Western European countries. Although the transaction will also give the new unit a global R&D capability, it will not have such conglomerate effects as to lead to the creation of a dominant position.
It should also be noted that the Commission, in the analysis of the transaction, has referred to and taken into account only the production and the market share of FICE, which is the only unit active in the EC market. Relevant product market 8. <ind> In the pharmaceutical sector the definition of the relevant market should take into account the arbitrariness naturally involved by the fact that substitutability among medicines may not only depend on the intrinsic characteristics of the drugs themselves, but also their intended use, and particularly each individual patient's condition. 9. <ind> In defining pharmaceutical product markets the Commission, in case no.
IV/M.072 - Sanofi/Sterling Drug, has considered the use of the third level ATC classification (which describes the groups of products having the same therapeutic application and similar features) as an appropriate market definition instrument to identify possible competition problems. In general the fourth level results are too specific for the purpose of defining the relevant markets, though it can be used to descend to narrower categories where appropriate. 10. <ind> With this approach it can be noted that some product markets are affected by the proposed concentration. However, given the basic complementarity of the parties' products, it does not result in a significant overlap of their activities in the majority of these product markets.
The distinction, generally considered as existing in the pharmaceutical industry, between OTC and ethical products markets is not relevant in the case being examined, as there are no OTC product markets affected by the concentration. Geographic reference market 11. <ind> The European pharmaceutical industry is generally operating within a very tight legal framework. For this specific reason the pharmaceutical market should be considered as still having essentially a national dimension. No drug may yet be marketed in any Member State without the previous approval of the respective national administration, although centralised evaluation and procedures for mutual recognition of marketing authorizations exist.
In spite of the considerable harmonization achieved so far in the Community with regard to pharmaceutical registration procedures, the evaluation of a drug and the final decision whether or not to authorize its marketing remains at present with the competent authorities of the Member States. 12. <ind> It should be also noted that prices of ethical drugs are directly or indirectly regulated by national laws in very different ways including direct price fixing, overall control of company profits, and special provisions affecting the reimbursement of the cost of drugs by the national health insurance systems.
Because of the differences in the pricing and reimbursement mechanism, wide disparities arise in drug price levels among different Member States. Affected markets 13. <ind> On the above basis, the affected markets should be considered national, and can be described as the following: <tab> - antidiarrhoeals / antibacterials (A 7 A) in Belgium <tab> - antidiarrhoeals / antibacterials (A 7 A) in Spain <tab> - oral electrolytes replacement (A 7 D) in Spain <tab> - anabolic hormones (A 14 A) in Germany <tab> - other urological preparations (G 4 B) in Ireland <tab> - broad spectrum penicillins (J 1 A) in Italy <tab> - alkylating agents (L 1 A) in Spain <tab> - local anaesthetics (N 1 B) in Italy.
14. <ind> For the first class of products, antidiarrhoeals/antibacterials, the affected markets are the Belgian and Spanish, where the parties are present each with one product. In a competitive and strongly import-orientated market with a total value in Belgium of 7 mECU, the parties will have a market share of around 30% after the concentration, a share that has shown a tendency to decrease in the last three years. On the same market another 18 competitors are present, some of which have a market share higher than 10%, one having 26%. In any case, the two products sold respectively by Kabi Pharmacia and Erbamont have different indications, i.e. therapeutic properties, and do not appear to be substitutable.
In particular, Solazopyrine, the Kabi Pharmacia product, is used to treat chronic inflammatory bowel diseases and it is prescribed by gastro-enterologists, while Gobrorol, the Erbamont product, is prescribed by general practitioners. 15. <ind> In the Spanish market, with regard to the above mentioned products, the parties are in a weaker position with a market share of around 11% (a value of 6 mECU). In addition Erbamont will add only a very small market share (0.6%) to the already existing Kabi Pharmacia market share. 16. <ind> In respect of the oral electrolytes replacement products, the only affected national market is the Spanish one where Kabi Pharmacia is present with three different products that, with a value of about 0.4 mECU, allow it to reach a 18% market share and Erbamont is present with only one product and an almost 9% market share.
It is to be noted that the major competitor, Fisons, has 49% of the market while the global market share of the new unit will be around 26%, and that the market is dominated by generics. 17. <ind> The anabolic hormones affected national market is Germany, a market that has a value of 5 mECU. Kabi Pharmacia is present with one product and a market share of around 8% with a tendency to decrease, while Erbamont has two products on the market and an increasing market share of around 50%. Kabi Pharmacia's product, Anadur, and Erbamont's main product, Megagrisevit+N, are not fully interchangeable. Anadur is a pure anabolic steroid, normally used in hospital care, while Megagrisevit, a combination of vitamins and anabolic hormones, is normally prescribed by general practitioners for outpatients.
The already current trend to reduce the use of these drugs will most probably lead to a strong decrease of market volume. In addition, anabolic hormones are being withdrawn from the market by several companies (Sterling- Winthrop, Gruenenthal and others). The parties themselves have programmed short-term withdrawal of the anabolic hormones products. In this market the parties face competition from both large pharmaceutical firms (Schering with 24% of the market and Organon with 15%) and up to ten other smaller competitors including generic distributors such as Gehe and Eurim-Pharma. 18. <ind> The Irish market of other urological preparations, used to treat urinary incontinence, is affected by the concentration.
Erbamont is present with one product (Cystrin) and a turnover of 0.2 mECU while Kabi Pharmacia sells one product (Cetiprin) for a total amount of 0.6 mECU. Even if the total turnover is of minor importance (0.8 mECU) both parties have a high market share that, after the concentration, will lead to the company having an almost 85% market share. However, there has been a strong decrease (minus 12%) over the last three years of the parties' market share. In addition, several large multinational companies (Smith-Klein Beecham, Fisons, Syntex and Smith & Nephew) market urological preparations in neighbouring Member States.
Pharmaceuticals in these therapeutic groups are old and off-patent, and competition from generics exists. Erbamont's Cystrin itself, for instance, is a generic. 19. <ind> Another market where a minimum overlap can be registered is the broad spectrum penicillins market in Italy. The concentration will add the 0.1% market share of Kabi Pharmacia to the already existing 21.2% market share of Erbamont. After taking into account the minimal contribution of Kabi Pharmacia, it should be noted that on this market there are 67 similar products being sold by 41 different companies. 20. <ind> Other products relevant to the evaluation of the concentration are local anaesthetics used in connection with surgery in Italy.
Both Kabi Pharmacia and Erbamont are present on the Italian market; Erbamont has a decreasing 0.3 market share, while Kabi Pharmacia has become a leader in the last years with a market share of approximately 78%. This market has grown strongly over the last three years from the 6 mECU in 1989 to 29 mECU today, but nowadays it presents a decreasing tendency and it seems to have stabilised. All current local anaesthetic products lack patent protection, rendering entry relatively easy if prices were to increase in this market. In addition, Kabi Pharmacia markets its products, Marcaina, Carbocaina and Xilocaina, under licence from Astra, a multinational pharmaceutical company.
This arrangement will be terminated within two years when Astra will take over all remaining rights and Kabi Pharmacia will retain no business related to local anaesthetics. 21. <ind> The last affected market, the Spanish market for treatment of cancer with alkylating agents, is a mature market with a value of 0.5 mECU where the parties will have, after the concentration, 28% market share with total sales of 0.1 mECU. On the same market there exist 14 competitors, one of them with a 39% market share. COMPETITION ANALYSIS 22. <ind> The examination of the market conditions leads the Commission to the conclusion that the proposed concentration does not create or strengthen a dominant position in any of the reference markets for the above reasons and particularly: <tab> - <ind> the products of Kabi Pharmacia and Erbamont are mostly non-substitutable and the two enterprises' activities are therefore to be considered as mainly complementary; <tab> - <ind> the affected markets can be divided in two main categories: some are characterized by the presence of strong competitors that have a higher market share than the concentrating parties and that are in a position to assure the existence of sufficient competition after the concentration; in other affected markets, the overlap of the parties' activities is so marginal that the transaction cannot lead to the creation or strengthening of a dominant position; <tab> - <ind> in some of the affected areas the parties have been losing market shares and face strong competition from generic products.
FINAL ASSESSMENT 23. <ind> For the above reasons, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market. This decision is adopted in application of Article 6(1)(b) of Council Regulation No. 4064/89. For the Commission