COMMISSION DECISION of 08/05/2000 declaring a concentration to be compatible with the common market (Case No IV/M.1846 - *** GLAXO WELLCOME/SMITHKLINE BEECHAM) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

Brussels, 08.05.2000

To the notifying parties

Dear Sirs,

Subject: Case No COMP/M.1846-GLAXO WELLCOME/SMITHKLINE BEECHAM

Notification of 20.3.2000 pursuant to Article 4 of Council Regulation No 4064/89 [1]

[1] OJ L 395, 30.12.89 p.1; corrigendum OJ L 257 of 21.09.90, p.13; Regulation as last amended by Regulation (EC) No 1310/97 (OJ L 180, 09.07.97, p.1, corrigendum OJ L 40, 13.02.98, p.17).

1. On 20 March 2000, the Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EEC) No 4064/89 ("the Merger Regulation") by which the undertaking Glaxo Wellcome plc ("GW") and SmithKline Beecham plc ("SB") notified their intention to enter into a full merger within the meaning of Article 3(1)a of the Merger Regulation. The merger was announced on 17 January 2000.

2. In the course of the proceedings, the parties submitted undertakings designed to eliminate competition concerns identified by the Commission, in accordance with Article 6(2) of the Merger Regulation. In the light of these modifications, the Commission has concluded that the notified operation falls within the scope of the Merger Regulation as amended and does not raise serious doubts as to its compatibility with the common market and with the functioning of the EEA Agreement.

I. THE PARTIES

3. SB and GW both are active in human pharmaceuticals. SB is also active in vaccines, OTC products and health-care related products. GW was formed in 1995 following Glaxo's acquisition of Wellcome (Case IV/M.555 - Glaxo/Wellcome).

II. THE OPERATION

4. The proposed concentration is a merger of equals in the meaning of article 3(1)(a) of the Merger Regulation.

5. The merger is to be effected by way of a scheme of arrangement of GW and SB under Section 425 of the United Kingdom Companies Act ("the Scheme") and is subject to conditions, including the approval of the High Court of England and Wales. The new company will be called Glaxo SmithKline plc ("Glaxo SmithKline")

6. Post-merger, the new entity will rank first in the world in terms of total sales and will have 7.3% of world-wide pharmaceutical sales. Glaxo SmithKline will be followed by Pfeizer/Warner-Lambert [2], AstraZeneca and Aventis.

[2] Pending case COMP/M.1878- Pfizer/Warner-Lambert

III. CONCENTRATION

7. Following the merger, GW shareholders will hold approximately 58.75% and SB shareholders approximately 41.25% of the issued ordinary share capital of Glaxo SmithKline. The initial Board of Glaxo SmithKline will consist of 14 directors drawn equally from the Boards of GW and SB. The operation will result in a full merger between GW and SB and, therefore, is a concentration within the meaning of Article 3(1)(a) of the Merger Regulation.

IV. COMMUNITY DIMENSION

8. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 billion [3] (GW: EUR 12,888 million, SB: EUR 11,763 million). Each of them have a Community-wide turnover in excess of EUR 250 million (GW: EUR [...] million, SB: EUR [...] million), but they do not achieve more than two-thirds of their aggregate Community-wide turnover within one and the same Member State. The notified operation therefore has a Community dimension.

[3] Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission Notice on the calculation of turnover (OJ C 66, 2.3.1998, p. 25). To the extent that figures include turnover for the period before 1.1.1999, they are calculated on the basis of average ECU exchange rates and translated into EUR on a one-for-one basis.

V. COMPETITIVE ASSESSMENT

A. Relevant product markets

9. SB is mainly active in pharmaceuticals, vaccines, OTC products and health-care related products. GW has its main business activities in human pharmaceuticals, which is therefore the only area where the activities of the two parties materially overlap. While SB is relatively strong in the supply of human vaccines, GW is scarcely active in this market.

10. The Commission has on many occasions dealt with the definition of the relevant market in the case of pharmaceutical products and has established a number of principles in its previous decisions [4]. On the basis of these decisions, product markets in the pharmaceutical industry can be grouped into pharmaceutic specialities, active substances and future products.

[4] Case IV/M.072 - Sanofi/Sterling Drug; IV/M.323 - Procordia/Herbamond; IV/M.426 - Rhône-Poulenc/Cooper; IV/M.457 - la Roche/Syntex; IV/M.500 - AHP/Cynamid; IV/M.555 - Glaxo/Wellcome; IV/M.495 - Behringwerke AG/Armour Pharmaceutical Co.; IV/M.587 - Hoechst/Marion Merell Dow; IV/M.631 - Upjohn/Pharmacia; IV/M.737 - Ciba-Geigy/Sandoz; IV/M.950 - Hoffman La Roche/Boehringer Mannheim; IV/M.1229 - American Home Products/Monsanto; IV/M. 1403 - Astra/Zeneca; IV/M.1397 - Sanofi / Synthélabo; IV/M.1378 - Hoechst/Rhône-Poulenc.

1. Pharmaceutic specialities

11. Pharmaceutical products are used for the treatment of human illnesses and diseases. Prescription/ethical medicines are pharmaceutical products exclusively accessible by way of medicinal prescription and subject, for the main part, to reimbursement through social security schemes. OTC drugs are "over-the-counter" pharmaceutical products certain of which can be prescribed by a doctor and may be reimbursable through a social security scheme.

12. In its previous decisions, the Commission noted that medicines may be subdivided into therapeutic classes by reference to the "Anatomical Therapeutic Chemical" classification (ATC), devised by European Pharmaceutical Marketing Research Association (EphMRA) and maintained by EphMRA and Intercontinental Medical Statistics (IMS). It is to be noted that whilst similar in concept to the EphMRA ATC system, the classification system prepared by the World Health Organisation (WHO) differs to some extent from it. The parties have used the EphMRA ATC system as a starting point in their pharmaceutical products market definition. The ATC is hierarchical and has 16 categories (A, B, C, D, etc.) each with up to four levels. The first level (ATC 1) is the most general and the fourth level (ATC 4) the most detailed. The third level (ATC 3) allows medicines to be grouped in terms of their therapeutic indications, i.e. their intended use, and can therefore be used as an operational market definition. These groups of products generally have the same therapeutic indication and cannot be substituted by products belonging to other ATC 3 classes.

13. However, the Commission has in earlier decisions considered that the third level of the ATC is not in all cases an appropriate basis for the definition of products markets and that it may be appropriate in certain cases to carry out analyses at other levels of the ATC classification. For example, it may be necessary to combine certain groups of pharmaceutic specialities. This would be the case where certain products from different ATC classes are substitutes for the treatment of a specific illness or disease.

14. On the other hand, it may also be appropriate to apply a narrower market definition where the pharmaceutic specialities forming part of a certain ATC 3 class have clearly differing indications. In certain cases, pharmaceuticals may be further subdivided into various segments on the basis of a variety of criteria, and in particular demand-related criteria. A possible distinction is that between medicines, which can be issued only on prescription and those, which can be sold over the counter (OTC). Most medicines issued only on prescription are reimbursed, whereas most of those, which may be sold over the counter, are not reimbursed. There are also other key considerations such as indications variances between prescription and OTC products, disease severity, demographic differences in consumers who refer to prescription as opposed to OTC products, driven by attitudinal differences and pricing factors. Prescription medicines and OTC products can belong to different markets, even if they are indicated in the same diseases because the customers, the legal background, the inherent risk, the marketing and distribution may be different. The allocation of a medicine to the prescription or the OTC segment is based on decisions by the authorities, which may lead to changes between segments according to the country concerned. There are different overlaps between the prescription and OTC market depending to a large degree on the reimbursement systems of different Member States.

15. In this case, the parties have used ATC 3 classification as a starting point in their analysis and accept this as the market definition for most product markets. However, for some product markets which are further discussed below, the parties have suggested alternative market definitions.

16. In human pharmaceuticals, the parties have overlapping activities in 7 treatment areas where the combined market shares will remain below 15%. These treatment areas do not, therefore, give rise to competition concerns. These treatment areas are stomatological preparations (A1A), topical anithaemorroid (C5A), calcium antagonist - plain (C8A), anti-fungals, dermatological (D1A), thyroid preparations (H3A), nootropics (N6D) and nasal decongestants (R1B).

17. The parties' combined market shares exceed 15% in 12 product areas based on the ATC 3 classification: anti-virals, excluding anti-HIV (J5B), topical anti-virals (D6D), anti-emetics (A4A), broad spectrum penicillins (J1C), cephalosporins (J1D), anti-malarials (P1D), topical nasal decongestants (R1A), anti-peptic ulcerants (A2B), anti-epilectics (N3A), topical antibiotics (D6A), anti-Parkinson preparations (N4A) and expectorants (R5C). These treatment areas will be discussed in more detail below.

a) Anti-virals (J5B)

18. According to the parties, the ATC classification distinguishes at ATC 3 level between J5B (anti-virals excluding anti-HIV) and J5C (anti-virals for AIDS/HIV). The parties submit that the category for J5B covers anti-virals other than for HIV and includes drugs both for oral and parenteral administrations.

19. The parties submit that the greater part of this category is accounted for by anti-herpes treatments (most importantly treatments against herpes simplex, varicella zoster and cytomegalovirus ("CMV") but it also includes treatments for other viruses ranging from influenza to hepatitis B. According to the parties, the J5B systemic anti-herpes products are predominantly used in relation to herpes simplex (HSV-1 and HSV-2) and varicella zoster, which together account for over three quarters of usage of level J5B anti-virals. The parties' products in this area include most importantly "Zovirax", "Famvir" and "Valtrex".

20. The parties further submit that other J5B anti-virals include ribavirin for hepatitis B (from ICN, sold under various names including "Virazid") and ganciclovir for a particular herpes virus CMV (principally Roche's "Cymevene"). The parties submit that CMV is predominantly treated using ganciclovir although GW's "Valtrex" is also indicated in a limited number of EU markets for prophylaxis of CMV. GW also markets in certain Member States "Zeffix" for hepatitis B and "Relenza" for influenza.

21. The parties submit that the gold standard in the treatment of herpes has, since the early 1980's, been aciclovir, which was the first anti-viral agent to demonstrate selective and specific inhibition of viral replications. Aciclovir was initially introduced by GW under the "Zovirax" brand and has since been used to treat virtually all clinical manifestations of the herpes simplex and herpes zoster infections. The parties argue that the patent protection for aciclovir has been lost in most European markets and, in consequence, the first generation drug "Zovirax" faces competition from generic aciclovir.

22. Both parties have developed second generation drugs for the treatment of herpes. GW markets "Valtrex" or valaciclovir, a prodrug of aciclovir which, once orally administered, is metabolised to aciclovir in the body. SB's anti-herpes product is "Famvir" or famciclovir, which is the prodrug of penciclovir and metabolises to penciclovir in the body.

23. The parties submit that the principal advantage of the second generation drugs "Valtrex" and "Famvir" over aciclovir lies in their greater oral bio-availability, thereby permitting a more favourable dosing regime involving reduced frequency of oral daily doses. The parties submit nevertheless that these compounds are available only as tablets and are indicated for a less extensive range of treatments than aciclovir, and do not have the benefit of the long-established efficacy and safety profile of aciclovir.

24. The parties argue that where a drug has a well established efficacy and safety profile, a physician is likely to choose it and will consistently prescribe it for the majority of patients unless there are strong reasons not to. The parties argue that this approach favours aciclovir in the cases of first and recurrent herpes simplex or herpes zoster infections, where the treatment regime is episodic and of short duration (5-10 days). The parties submit that improved bio-availability and dosing regimes may have greater significance in cases where the physician decides on a suppressive therapy involving continuous medication (90-365 days per year). The parties nevertheless submit that a suppressive dosing is required only in 10% of cases of genital herpes and seldom with herpes zoster.

25. The Commission's investigation shows that most third parties consider the ATC 3 level as a proper starting point for the assessment of the markets. Some customers have, however, submitted that it is not correct to include for instance drugs treating influenza in the relevant product market as there is no substitutability with these drugs and anti-herpes drugs. Therefore, it has been submitted that anti-herpes drugs should constitute a separate relevant product market in themselves. This approach is supported by the fact that for instance ganciclovir and ribavirin are prescribed for the treatment of viruses other than herpes simplex and variella zoster, and "Relenza" is specifically targeted for influenza.

26. As to the question whether the first generation drug ("Zovirax") and the second generation drugs ("Famvir" and "Valtrex") should be considered to constitute separate product markets, the majority of third parties who replied to the Commissions enquiries have indicated that the first and the second generation drugs are substitutable. Although, the investigation shows that there are differences in frequency of administration and bioavailability of the drugs, the first and the second generation compounds have the same indications. In this respect, the investigation shows that "Zovirax" shows some limits due to its pharmacological characteristics in that it is quickly eliminated by the human body. As a result, patients have to take "Zovirax" in certain cases five times a day to ensure an efficient action of the drug. Therefore, if the treatment of the drug is not respected, the effect of the molecule is rendered inefficient. "Valtrex" allows dosage to be limited to twice a day in contrast with the need to administer "Zovirax" five times a day. A number of competitors have indicated that the less frequent dosage of the second generation drugs gives them an advantage over the first generation drugs and generics.

27. However, the Commission considers that given the same indications for first and second generation drugs, the less frequent dosing alone is not sufficient to warrant a market definition placing first and second generation drugs in separate markets. Therefore, for the purposes of this decision, first and second generation anti-viral compounds are considered to constitute one market. As to the question whether anti-herpes drugs should constitute a separate relevant product market from for instance drugs treating influenza, this question can be left open as serious doubts exist as to the compatibility of the common market on all alternative market definitions considered.

b) Topical anti-virals (D6D)

28. The parties submit that the principal use of prescription topical anti-virals is in the treatment of herpes labialis ("cold sores"). The parties submit that patients with herpes labialis can be treated with topical creams and ointments. Formulations are applied to the skin to treat labial herpes or, less commonly, outbreaks of genital herpes.

29. The parties submit the relevant product market as the ATC 3 level of topical anti-virals, that is, D6D. The parties' products include GW's "Zovirax" (aciclovir) and SB's "Vectavir" (penciclovir). "Vectavir" is a second generation drug and was previously only available on prescription. It has only recently been launched OTC in Sweden, Denmark, Finland and the Netherlands.

30. According to the parties, the normal treatment for cold sores is self-medication with OTC products and only a very small proportion (some [<10%]) of outbreaks of cold sores are treated on prescription. The parties argue that, exceptionally, in this market prescription and OTC medicines are functionally substitutable in the treatment of the same condition. The parties further submit that there is no necessary supply-side distinction between the two, as in some Member States "Zovirax" is available both on prescription and OTC, the only distinction being the size of the unit sold, with the formulation being the same. The parties therefore argue that the grounds for market separation rely principally on dispensing occasion, different distribution channels and absence of direct price correlation between OTC and prescription prices (except in those Member States [5] in which the pharmaceutical pricing rules require OTC products to be priced by reference to the prescription products).

[5] Belgium, Austria, Denmark and Germany

31. Third parties agree in general terms that the ATC 3 level is suitable for the assessment of this treatment area. In particular, they have submitted that while a distinction could be made between OTC and prescription only products, this would not materially affect the market position of the parties as GW is the market leader with similar market shares in both segments. Therefore, for the purposes of this decision, the question whether or not OTC and prescription only compounds consitute separate markets will be left open.

c) Anti-emetics/anti-nauseants (A4A)

32. Anti-emetics are most generally drugs that prevent or relieve nausea and vomiting. Nausea and vomiting can have various causes. They may be associated with no obvious disease process but with psychological determinants, due to symptoms of disease process or they may be a response to stimuli such as drugs (e.g. chemotherapy), radiation or motion. The parties submit that the main indications fall within post-operative nausea/vomiting, radiotherapy induced nausea/vomiting and chemotherapy induced nausea/vomiting. Chemotherapy induced nausea/vomiting is the major indication area.

33. The parties argue that, within the chemotherapy induced nausea/vomiting, the choice of anti-emetics is often based on the likely severity of emetic reaction. Chemotherapy generally falls into three segments: highly, moderately and low emetic risk. Emetic risk depends on the chemotherapeutic agent used. In this respect, the parties have submitted that for instance Cisplating carries the highest risk, with 98% or more patients experiencing emesis, while less than 10% of patients treated with vinca alkaloids experience emesis. The parties therefore submit that there is a broad spectrum of chemotherapy induced nausea/vomiting for which a wide range of drugs is available.

34. The parties submit that because the anti-emetics field comprises a large number of drugs for a variety of different uses and with different modes of action, the relevant product market is wider than ATC third level A4A and comprises also ATC third level A3F (gastroprokinetics). The parties contend that while not every one of these products may be substitutable in every given case, they form a range of anti-emetics products from which the most appropriate drug must be selected given the individual circumstances. The parties further argue that, given the high cost of one group of products within the A4A category, 5HT3-antagonists, physicians will often prescribe dopamine antagonists and gastroprokinetics in preference to 5HT3-antagonists, particularly where the risk of emesis is low or moderate. The parties argue more particularly that cancer research centres recommend a number of different drugs for the prevention of emetic reactions caused by chemo- and radiotherapy treatment. These according to the parties include 5HT3-antagonists (such as ondansetron and granisetron), dopamine antagonists (such as phenothiazines and butyrophenones) and gastroprokinetics (such as substituted benzamides). 5HT3-antagonists and dopamine antagonists are classed with ATC 3 category A4A (anti-emetics), while the gastroprokinetics fall within the third level ATC category A3F.

35. The parties submit that 5HT3-antagonists (serotonin) act to block the nausea and vomiting reflexes by blocking binding of 5HT3 to its receptor in both the small intestine and the brain. According to the parties, 5HT3-antagonists are generally thought to be more effective than the earlier developed dopamine antagonists, especially in treating highly emetic cases of chemotherapy and radiotherapy induced nausea and/or vomiting related to cancer treatment. GW's "Zofran" (ondansetron) and SB's "Kytril" (granisetron) are both 5HT3-antagonists. There are also two further 5HT3-antagonists on the market in Europe: "Navoban" (tropisetron), which is marketed by Novartis, and "Anzemet" (dolasetron), marketed by Aventis.

36. With regard to dopamine antagonists, the parties submit that even though these are older drugs, they are still widely used. They comprise phenothiazines and butryophenones which are used for treatment of drug-induced nausea and vomiting or associated with gastro-enteritis, pregnancy or uremia. SB has a phenothiazine product called "Compazine".

37. As for gastroprokinetics (A3F), the parties argue that they have a number of indications, but those used in hospitals are predominantly for anti-emetic use. The parties contend that oral or parenteral metoclopramide relieves the symptoms associated with acute and recurrent diabetic gastroparesis or gastroparesis related to delayed gastric emptying (e.g. nausea, vomiting). The parties submit that metoclopramide is also used for nausea and vomiting associated with for instance surgery, radiotherapy, chemotherapy, pregnancy and gastric ulcers. Trimethobenzamide is, according to the parties, used in preventing post-anaesthetic nausea. Moreover, the parties submit that corticosteroids (such as dexamethasone) are often used in conjunction with the 5HT3-antagonists, dopamine antagonists and gastroprokinetics.

38. Third parties in their replies to the Commission's enquiries have, however, dismissed largely the parties' argument according to which the relevant product market should be extended to include gastroprokinetics (A3F). The investigation shows that most products within the gastroprokinetic class are not indicated for emesis and nausea caused by cancer treatment and, therefore, do not play an important role in anti-emesis during cancer therapy. With the exception of metoclopramide, all other gastroprokinetic products are used for gastric motility (esophageal reflux and nocturnal heartburn). While it has been widely recognised that for instance metoclopramide is indicated as anti-emetics for use during cancer therapy, this is not indicated for severe and moderate emesis and, therefore, the use of that compound is limited. Moreover, the investigation shows that metoclopramide is used only relatively little in comparison with the use of 5HT3-antagonists in the treatment of cytotoxic nausea and vomiting. In this respect, the investigation shows that metoclopramide represents only 1% by value of the sales in gastroprokinetics class. Finally, the investigation shows that the majority of gastroprokinetics are considered to be less suitable for the treatment of cytotoxic nausea and vomiting due to labyrinthine disorders and the side-effect profile.

39. According to third parties, 5HT3-antagonists are the gold standard in chemotherapy induced emesis and 90% of cancer patients receiving chemotherapy are treated prophylactically with 5HT3-antagonists. Given that chemotherapy is the most commonly used form of cancer treatment, 5HT3-antagonists therefore represent a key class of anti-emetics used in patents undergoing treatment for cancer. "Zofran" and "Kytril" are both considered by many to be intrinsically linked to chemotherapy treatment.

40. As to the question whether corticosteroids should be considered as belonging to the relevant product market in this treatment area, third parties have indicated that although a number of compounds, such as corticosteroids, have a role in anti-emesis for patients undergoing treatment for cancer, each of these compounds has a distinct and non-overlapping role to play.

41. On the basis of the foregoing, there are clear indications that the relevant product market should not be extended to include also gastroprokinetics (A3F). The exact market definition can, however, be left open because the operation would lead to the creation of a dominant position in most Member States regardless of the market definition used.

d) Antibiotics (J1)

42. Antibiotics are antibacterial agents that inhibit the growth of certain micro-organisms. Systemic antibiotics (J1) are classes of semi-synthetically or fully synthetically prepared antibiotics, which followed the development of penicillin into second and third generation products. The parties submit that specific antibiotics are applied with regard to the suspected causative organism, its antibiotic sensitivity and the suitability for the specific patient. In cases where the organism causing the disease is not precisely known, the prescribing physician will choose an antibiotic with a broad spectrum of activity both in terms of organisms targeted and indication. A narrow spectrum antibiotic is likely to be chosen in those rarer cases where the organism responsible for the disease has been identified.

43. The parties submit that the market for antibiotics is dynamic due to the prescribing behaviour of the physician. They argue that factors related to the patient must be considered as well as the known or likely causative organism and its antibiotic sensitivity. The final choice of the physician depends on the microbiological, pharmacological, toxicological properties and local epedemiology. According to the parties, due to the development of pathogen resistance to antibacterial agents - which is one of the main problems in antibiotics - prescribing physicians select the following strategy, comprising first line agents, second line agents and reserve agents: The first line agents are used as the first prescription for most infections and suitable for most patients; the second line agents are used less frequently and usually where the first line agent is not appropriate for the patient or considered as unlikely to work against the suspected causative organism of infection due to resistance; reserve agents are used infrequently and held in reserve for special circumstances. The parties argue that the selection of what is used as first, second or reserve level antibiotic varies from one Member State to another.

44. The parties conclude that all systematic antibiotics classified on ATC third level are not directly substitutable for the same patient but form a range of drugs available for the treatment of bacterial infection. A range of different antibiotics is always required in order to meet individual needs. The parties contend that all major indications like throat, bronchitis, urinary tract infection, ear infection, sinusitis and pneumonia are treated by specific antibiotics, falling into the ATC third level penicillins (J1C), cephalosporins (J1D) and macrolides (J1F). Quinolones (J1G) are used against all major indications but otitis media (ear infection).

45. Third parties have supported the parties' view insofar as broad-spectrum penicillins (J1C), cephalosporins (J1D), macrolides (J1F) and fluoroquinolones (J1G) are all used as first line treatment for common infections, namely the largest indication of community acquired pneumonia. Thus, compounds of each of the distinct classes may be regarded as alternative treatment for the same condition from a medical diagnosing and prescribing perspective. Penicillin/cephalosporis resistant bacterial strains can be sensitive to macrolides and reciprocally. According to susceptibility of the microbe causing the disease, the risk for antibiotics resistance development, patient hypersensitivity, potential risk for complications from the disease etc., the prescribing physician will choose from a basket of compounds mentioned above.

46. However, third parties consider a market definition according to the ATC second level (J1) to be too wide. While there are occasions where cephalosposrins, macrolides, fluoroquinolones and broad-spectrum penicillins are interchangeable, each class has also varying spectra of activity and differing modes of action (bacteriostatic versus bacteriocidal). Interchangeability is therefore limited by patient hypersensitivity and because agents may only have specific fields of activities, with respect to atypical pathogens. Quinolones, for example, are original in their different side effects profiles and [...]. Thus quinolones are still contraindicated for children up to 16 years of age. Since the usage of antibiotics broadly depends on indication, pharmacokinetics and particular spectrum, substitutability is limited.

47. Some replies to the Commission's market investigation suggest that a market definition according to diseases/indications would be appropriate because the effect on the microbe causing the disease is the main criterion for an antibiotic product to be chosen. However, the Commission notes that 70% of the Community market is related to respiratory tract infections, followed by urinary tract infections (8%) and skin/soft tissue infections (8%). For the reasons outlined below, market definition according to disease groups would not create significant differences in market shares compared to ATC levels. In addition, it is to be noted that the parties' products have strong competitors in each of the different indications.

48. Other third parties who replied to the Commissions market investigation support the view that a distinction should be made between place and mode of usage, particularly between hospital use (mainly injectable antibiotics) and community use (mainly oral antibiotics). Parenteral preparations are mainly limited to a hospital setting, as are certain classes of antibiotics, in order to prevent the build up of resistance. Additionally, treatment within hospitals is more likely to be initiated following identification of the infecting organism, whilst in an out patient setting treatment is frequently commenced before test results are available. On the other hand, third parties submit that a further delineation of the market according to hospital or community use would be misleading. Often, treatment is begun with a parenteral drug in the hospital and is then continued with the oral form of the same drug when the patient is leaving the hospital. Furthermore, in hospital settings, due to cost-containment efforts, a significant trend can be identified towards an early switch from injectable antibiotics to oral therapies.

49. On the basis of the foregoing, the Commission considers that for the purposes of the present case the ATC third level appears to be the most appropriate market definition. As the parties, customers and competitors have pointed out, different antibiotics within ATC second level may be interchangeable to a certain extent but they are not completely substitutable. Within the ATC third level, three separate markets, namely broad-spectrum penicillins (J1C), cephalosporins (J1D) and fluoroquinolones (J1G) can be identified, in which both parties are active. The assessment of this case will therefore be carried out for each of these categories separately, so as to examine the narrowest possible market.

e) Anti-malarials (P1D)

50. Both GW and SB currently market anti-malarial products in Europe. GW's "Daraprim" (pyrimethamine) is indicated for prophylaxis and the treatment of malaria and has been off patent since 1967. GW's "Malarone" is currently marketed for the treatment of malaria [...]. SB's "Halfan" (halofantrine) is intended for the treatment of malaria and has lost its patent protection.

51. The parties submit anti-malarials (P1D) as the relevant product market. Given that the market investigation does not suggest otherwise, the assessment will be carried out on the basis of this ATC 3 category.

f) Topical nasal decongestants (R1A)

52. The parties consider ATC third level of topical nasal preparations too wide for an appropriate definition of the market. The parties submit that the third level category of topical nasal preparations comprises a number of drugs for the topical application to the nose which cover different indications and offer different modes of action. Such products, according to the parties, are not substitutable beyond the indication they are designed to treat.

53. The parties' products include SB's "Bactroban Nasal" and "Rinazina", and GW's "Flixonase" and "Beconase". The parties submit that SB's "Bactroban Nasal" falls within category R1A3 (nasal anti-infectives without corticosteroids) and is indicated for the prevention of nasal colonisation and subsequent infections. SB's other product "Rinazina" falls within category R1A7 (nasal decongestants) and is indicated for the symptomatic relief of nasal congestions. GW's "Flixonase" and "Beconase" by contrast fall within the category R1A1 (nasal corticosteroids without anti-infectives) which treat rhinitis, which is an inflammation of the nasal mucus membrane, principally caused by allergies.

54. The parties further submit that nasal anti-infectives (R1A3) are used to treat bacterial infections of the nose and eliminate nasal colonisation by bacteria, thereby preventing patients from spreading infection to others who may be vulnerable. "Bactroban Nasal", an anti-infective product, is used as part of a hospital infection control programme to eliminate nasal carriage of the bacterium methicillin-resistant staphylococcus aureas (MRSA). GW has no nasal anti-infective product and "Flixonase" and "Beconase" cannot be used for this purpose.

55. By contrast, the parties submit that nasal corticosteroids (R1A1) have no effect on bacteria of the nasal mucosa. According to the parties, these products affect the mucus membrane itself to reduce an inflammation of the nasal membrane (rhinitis) which is mainly caused by an allergy but can also be caused non-allergically (smoking, pollution, central heating). GW's "Flixonase" and "Beconase" are corticosteroids used for the treatment of allergic as well as non-allergic rhinitis. SB has no rhinitis product and "Bactroban Nasal" cannot be used for this purpose.

56. On the basis of the foregoing, the parties submit that their activities should not be regarded as overlapping in this area. Most third parties in their replies to the Commission's enquiries support the parties' view and have confirmed that the different products discussed above are not designed to treat the same indications. Third parties have confirmed that different products will be used for decongestant purposes only and for allergies, such as hay fever.

57. On the basis of the foregoing, the Commission considers that the parties' existing products do not overlap and, therefore, this treatment area will not be discussed any further.

g) Anti-peptic ulcerants (A2B)

58. The parties submit that anti-peptic ulcerants encompass a variety of drugs used to treat a range of common disorders considered to be related to acid secretion by the stomach. These disorders include peptic ulcer diseases and gastroesophagal reflux disease. The parties' products include GW's "Zantac" and SB's "Tagamet".

59. The parties have provided data on the basis of the ATC 3 class A2B. The market investigation does not suggest that any other market definition should be used.

h) Anti-epilectics (N3A)

60. Epilepsy results from an altered neurochemical state, leading to excess electrical activity in the brain. Anti-epilepsy treatments are aimed at controlling this activity through various mechanisms.

61. The parties submit that the relevant product market for anti-epilectics is the ATC level category N3A and they have provided data on this basis. This market definition has not been contested by third parties either.

i) Topical antibiotics (D6A)

62. Topical antibiotics are antibiotics used to treat bacterial infection of the skin and are applied topically, usually as a cream or ointment but also sometimes as a spray or powder.

63. The parties submit that their topical antibiotics are for different indications and therefore do not overlap. In this respect the parties submit that SB markets "Bactroban" (mupiprocin) which is only indicated for the topical application for the treatment of primary skin infections, principally impetigo, where a pre-existing abrasion is not required for the infection. GW's "Cicatrin" (neomycin sulphate/bacitracin zinc) and "Polyfax" (polymyxin B sulphate/bacitracin zinc) are indicated for topical application for the treatment of secondary superficial skin infections where abrasions of the skin have become infected and for other skin infections such as infection of the hair follicle.

64. While some third parties in their replies to the Commission's enquiries have confirmed that primary skin infections, principally impetigo, and skin infections following abrasion represent two different diagnostic situations, some third parties contend, however, that the minor difference in indications between the products does not materially affect the interchangeability of the products concerned and that the parties' products do overlap to a significant extent.

65. It is not necessary, however, to reach a definite conclusion on the scope of the relevant product market, because regardless of the market definition used, competition concerns would not arise in this treatment area.

j) Anti-Parkinson preparations (N4A)

66. Parkinson's disease is caused by a shortage of dopamine, a chemical messenger in the brain. Dopamine, in combination with another messenger, acetylcholine, is responsible for feedback mechanisms in the brain which enable movement to be undertaken.

67. The parties submit that the third level ATC category N4A, anti-Parkinsons's preparations, generally aim to restore the balance between dopamine and acetylcholine in the brain and have provided information on this bases. Third parties have not contested this market definition.

k) Expectorants (R5C)

68. Expectorants are medicines which promote the secretion of sputum by the air passages, used especially to treat coughs. GW and SB both sell expectorants which fall within the ATC 3 category R5C.

69. Given that the market investigation has not suggested that some other market definition should be used, the assessment will be carried out at the ATC 3 level of R5C.

2. Future markets

70. In the pharmaceuticals industry, a full assessment of the competitive situation requires examination of the products which are not yet on the market but which are at an advanced stage of development, (normally after large sums of money have been invested). These products are called pipeline products. As noted in the Ciba-Geigy/Sandoz decision [6], research and development projects undergo three different phases of clinical testing: Phase I marks the start of clinical testing on humans, currently some eight to ten years before a product is marketed. Statistically, projects in phase I generally have no more than a 10% chance of being successful. Phase II, some four to five years before the product is marketed, involves working out the proper dose for the patient and defining the areas of application. The success of phase II is generally acknowledged to be approximately 30%. Phase III, starting three years before the product is marketed, involves establishing the product's effectiveness on larger groups of patients. The risk of failure in phase III is reported to be over 50%.

[6] IV/M.737 - Ciba-Geigy/Sandoz, Commission decision of 4.2.1998

71. The potential for these products to enter into competition with other products which are either at the development stage or already on the market can be assessed by reference to their characteristics and intended therapeutic use. The Commission has to look at R&D potential in terms of its importance for existing markets, but also for future market situations.

72. In so far as research and development must be assessed in terms of its importance for future markets, the relevant product market can, in the nature of things, be defined in a less clear cut manner than in the case of existing markets. Market definition can be based either on the existing ATC classes or it can be guided primarily by the characteristics of future products as well as by the indications to which they are to be applied.

B. Relevant geographic markets

1. Pharmaceutic specialities

73. The Commission has previously defined the geographic markets for pharmaceutical products as being national in scope, despite the trend towards standardisation at a European level. The sale of medicines is influenced by the administrative procedures or purchasing policies which the national health authorities have introduced in Member States. Some countries exercise a direct or indirect influence on prices, and there are different levels of reimbursement by the social security system for different categories of medicines. For this reason, the prices for medicinal products may differ from one Member State to another. In addition, there are far reaching differences in terms of brand and pack-size strategies and in distribution systems. These differences lead to national market characteristics.

74. The results of the investigation do not suggest that the Commission should deviate from its previous practice in assessing pharmaceutical markets at the national level. Therefore, the markets for pharmaceutic specialities affected by the concentration will be regarded as national.

2. Future products

75. To the extent that products not yet on the market must be taken into account on the basis of research and development in particular areas, national restrictions do not have the same degree of effectiveness than for existing pharmaceuticals. Normally, a characteristic of such products is that they have not yet been registered. Because research and development is normally global, the consideration of future markets should therefore at least focus on the territory of the Community and, possibly, on world-wide markets.

C. Assessment

1. Pharmaceutic specialities

76. The operation involves a number of treatment areas where the combined market share of the parties exceeds 15%. These treatment areas are anti-virals, excluding anti-HIV (J5B), topical anti-virals (D6D), anti-emetics (A4A), broad spectrum penicillins (J1C), cephalosporins (J1D), anti-malarials (P1D), topical nasal decongestants (R1A), anti-peptic ulcerants (A2B), anti-epilectics (N3A), topical antibiotics (D6A), anti-Parkinson preparations (N4A) and expectorants (R5C).

77. For the reasons set out below, competition concerns are not likely to arise in anti-peptic ulcerants (A2B), anti-epilectics (N3A), anti-Parkinson preparations (N4A) and expectorants (R5C). Competition concerns do not arise in the markets for broad spectrum penicillins (J1C) and quinolones (J1G) either. These markets will however be discussed in connection with antibiotics.

78. More particularly, in the market for anti-peptic ulcerants (A2B), the parties' combined market shares do not exceed [20-30%] in any Member State where both parties are present and the parties will face strong competition from a number of other companies. In particular, the Commission notes that AstraZeneca is the market leader in a number of Member States with its drug "Losec".

79. In anti-epilectics (N3A), the only overlap between the parties' activities occurs in Italy, where the combined market share is only [15-25%]. Other competitors on that market include most particularly Novartis ([20-30%] of the market), Warner-Lambert ([20-30%]) and Sanofi-Synthélabo ([10-20%]). Competition concerns are therefore unlikely to arise.

80. In the market for anti-Parkinson preparations (N4A), the only Member State where the parties' activities overlap is Italy, where the combined market share is [10-20%], with an increment of [<5%]. The leading competitors on this market are Roche ([20-30%]), DuPont Pharma ([10-20%]) and Eli Lilly ([10-20%]). The operation is therefore not expected to lead to adverse competition effects on this market.

81. Finally, in the market for expectorants (R5C), the parties' combined market share is [20-30%] in Belgium, with an increment of [<5%]. The market leader in Belgium is Zambon Group, with [30-40%] of the market. Competition concerns are therefore unlikely to arise.

82. In 18 national markets, the combined market share of the parties is over 15% but less than 40%. In 7 markets, the combined market share is above 40% but with an accretion of less than 1%. Finally, in 40 markets, the combined market share is above 40%, with an accretion of more than 1%. These markets will be discussed below.

a) Anti-virals (J5B)

83. Following the operation, the parties would attain very high market shares in a number of Member States. Based on the market share data submitted by the parties and covering the 12 month period ending 30 September 1999, the parties' combined market shares would be as follows at the ATC third category J5B: in Ireland [90-100%] (GW: [60-70%], SB: [30-40%]), Greece [90-100%] (GW: [70-80%], SB: [10-20%]), Luxembourg [80-90%] (GW: [80-90%], SB: [<10%]), Belgium [80-90%] (GW: [80-90%], SB: [<5%]), Austria [70-80%] (GW: [50-60]%, SB: [10-20%]), the Netherlands [60-70%] (GW: [50-60%], SB: [10-20%]), the UK [60-70%] (GW: [30-40%], SB: [25-35%]), Sweden [60-70%] (GW: [60-70%], SB: [<5%]), Spain [60-70%] (GW: [30-40%], SB: [20-30%]), France [60-70%] (GW: [60-70%], SB: [<5%]) and Denmark [50-60%] (GW: [45-55%], SB: [<5%]). The parties' products do not overlap in Italy and Portugal, because SB's "Famvir" has not been introduced in these markets. The parties would equally achieve similarly high market shares if the compounds prescribed for the treatment of other than herpes simplex and varicella zoster were excluded from the market share calculations.

84. Although the increment of market share is less than [<10%] in France, Belgium, Luxembourg, Denmark and Sweden, the increment has to be considered sufficient to lead to the creation of a dominant position given the already very high market shares in these Member States. The only Member States where the parties' market shares are not indicative of a dominant position are Finland and Germany, where the parties account for less than [30-40%] of the markets and competitors are strong.

85. In Denmark, France, Sweden and the UK, the largest competitor accounts for some [15-25%] of the market. More particularly, in Denmark and Sweden, the Hexal Group has [15-25%] and [15-25%] of the markets respectively with its product "Geavir". In France, Schering Plough accounts for [15-25%] of the anti-virals market with its products "Rebetol" and "Virazole". Similarly, in the UK, the largest competitor has [15-25%] of the market with "Aciclovir" and "Tribavirin". However, given the fact that the new entity's market shares in these Member States would be [<5] times that of the largest competitor and that the remaining players have less than [5-15%] in market share, the Commission concludes that the competitors are not sufficiently strong to be able to offset the market power of the new entity. The new entity's position would be even more pronounced in other Member States, where the competitors' market shares are at most around [5-15%] or less.

86. The parties argue that, over the last five years, dynamic changes in the market for anti-virals have led to the erosion of the combined market share of GW and SB in the markets for anti-virals. More precisely, the parties argue that GW has lost patent protection for the aciclovir molecule in all European markets save in France, where the expiration date of that patent is in [...]. The parties argue that following patent expiry, "Zovirax" faces considerable competition from generic aciclovir.

87. According to the parties, generic aciclovir competes with "Zovirax", "Valtrex" and "Famvir" across most of the EU. This, according to the parties, has led to a significant decline in the combined market share of the parties in anti-virals. In this respect, the parties argue that the market share of "Zovirax" practically [...] between 1995 and 1999 over the EU as a whole from [65-75%] to [30-40%] in terms of value. The parties argue that there is a close correspondence between the decline of "Zovirax" and the growth in generic sales of aciclovir. The parties claim further that this process is particularly marked in countries where patent expiry occurred relatively early.

88. The Commission notes, however, that during the same period when "Zovirax" lost market share, "Valtrex" increased its market share from [<5%] to [10-20%] and "Famvir" from [<5%] to [<10%] in value terms at the EEA level. Therefore, while it is true that "Zovirax" lost a total of [30-40%] market share between 1995 and 1999, "Famvir" and "Valtrex" increased some [15-25%] their market share. At the same time, generic products increased their market share only by some [<5%]. In volume terms, generic aciclovir increased its EEA-wide market share only by [<5%], although the market share of "Zovirax" decreased from [60-70%] to [35-45%].

89. With regard to the market share development in individual Member States, the parties have provided data between 1995 and 1999. According to this data, the value share of generic aciclovir for instance in Denmark doubled from [10-20%] in 1995 to [25-35%] in 1999. In Sweden and the UK, the value share of generic aciclovir grew to over [20-30%]. Moreover, based on the information submitted by the parties, between 1997 and 1999, GW's "Valtrex" practically doubled its market share in Denmark (from [5-15%] to [20-30%]) and in Sweden (from [20-30%] to [45-55%]) and SB's "Famvir" increased its market share in the UK (from [20-30%] to [25-35%]). In fact, apart from Germany, either "Valtrex" or "Famvir" or both products together gained market share in all Member States between 1997 and 1999.

90. Third parties in their replies to the Commission's enquiries have indicated that the competition from generic products is likely to have some impact on the market share of the first generation drug "Zovirax" but not on the second generation products "Famvir" and "Valtrex", because these are still protected by patents. Moreover, competitors and customers have indicated that although the competition from generic aciclovir has led to some price reductions of "Zovirax", generic products have not been able to counterbalance the dominating market position which "Zovirax" enjoys in a number of Member States. In this respect, the Commission notes that the share of sales of "Zovirax" in Belgium are still [70-80%] and in Luxembourg [40-50%] although the product lost its patent protection already in 1995. In Greece, where "Zovirax" is off-patent since 1990, it still accounts for [40-50%] of the market.

91. The parties argue that, in the majority of EU markets, "Valtrex" [...]

92. [...]

93. The Commission's investigation confirms the parties' argument that [...]. Third parties have submitted that pricing has been relatively low in order to induce doctors and patients to use the second generation drug instead of "Zovirax" and push them to abandon the first generation drugs altogether. In this context, some third parties have indicated that even though the first and the second generation drugs may be substitutable at the moment, the first generation drugs will be replaced by the second generation drugs and become obsolete within the next 3-5 years.

94. On the basis of the foregoing, the Commission draws the conclusion that while it is true that part of the market share lost by "Zovirax" has been taken over by generic aciclovir, a large part of that market share has migrated to "Valtrex" and "Famvir". The parties' submission that where "Valtrex" and/or "Famvir" are established to any significant degree, they have achieved their position at the expense of "Zovirax" rather than at the expense of generic aciclovir is not relevant for the analysis at hand, since this merely indicates that generic aciclovir has not been able to take market share from the parties' products to the extent that generic competition should be considered to counterbalance the new entity's market position in the market for anti-virals.

95. Customers and competitors have expressed serious concerns over the notified operation. They have indicated that the existing competition in the second generation drugs between "Valtrex" and "Famvir" would be completely eliminated by the merger and further consolidate the parties' position. While several new entrants into the generic aciclovir segment have been reported, there has been no new entry into the segment of second generation drugs for the past 3-5 years.

96. Competitors have also indicated that the operation as notified would discourage any tentative research and development attempts by third parties to develop anti-viral drugs. They have also indicated that a new but substantially smaller player would have difficulties in penetrating the market. In this respect, the investigation shows that the operation as notified would lead to a significant increase of market entry barriers for those competitors who have pipeline products in anti-virals under development. In this respect, the parties have submitted that Flamel Technologies has developed a mechanism for controlled release delivery of aciclovir. Although this product could be considered to compete in particular with the parties' second generation drugs, the Commission's investigation shows that the launch of this new compound has been difficult and this product cannot therefore be considered to constitute an immediate competitive constraint to the parties' products.

97. On the basis of the foregoing, serious doubts as to the compatibility of the operation with the common market exist in anti-virals.

b) Topical anti-virals (D6D)

98. According to the parties, the category for D6D is intended to comprise only prescription drugs but they submit that the data provided may also include some OTC sales of "Zovirax" in those countries where it is available OTC (the UK, France, Germany and Finland). The parties argue that the information provided exaggerates the "Zovirax" prescription market share because other topical anti-virals are not generally available both on prescription and OTC and, thus, the same double counting does not occur for these products. SB's "Vectavir" (penciclovir) was previously only available on prescription but has recently been launched OTC in Sweden, Denmark, Finland and the Netherlands. These OTC sales do not, however, appear in the 1999 IMS sales data.

99. In order to assess whether the inclusion of the OTC sales of "Zovirax" would significantly distort the parties' market position, the Commission requested the parties to estimate if the deletion of "Zovirax" sold OTC from the market share information would materially affect the parties' market position. On the basis of the further information provided by the parties, the Commission draws the conclusion that the changes are only few percentage points and, therefore, the parties' market shares are not materially affected.

100. Based on the IMS data provided by the parties, their combined market shares in the ATC third level category D6D would be very high in most Member States. The parties would attain [90-100%] of the market in France (GW: [90-100%], SB: [<5%]), [80-90%] in Denmark (GW: [70-80%], SB: [10-20%]), [80-90%] in Belgium (GW: [75-85%], SB: [<5%]), [80-90%] in the UK (GW: [75-85%], SB:[<5%]), [75-85%] in Finland (GW: [60-70%], SB: [10-20%]), [70-80%] in Greece (GW: [70-80%], SB: [<5%]), [70-80%] in Luxembourg (GW: [70-80%], SB: [<5%]), {70-80%] in Austria (GW: [70-80%], SB: [<5%]), [60-70%] in Italy (GW: [50-60%], SB: [<10%]), [55-65%] in the Netherlands (GW: [50-60%], SB: [<5%]), [50-60%] in Spain (GW: [50-60%], SB: [<10%]) and [40-50%] in Germany (GW: [40-50%], SB: [<5%]). SB's "Vectavir" has not been launched in Portugal and Ireland yet and, therefore, no overlap occurs. In Sweden, there is no overlap between the parties' products because "Zovirax" is not approved for sale in this category there. If considering the OTC segment separately, the investigation shows that the parties' position in those countries where overlap occurs would not be materially affected as GW would have similar market shares also in this segment.

101. The parties submit that, in Italy, they would face strong competition from Sigma Tau who currently accounts for [20-30%] of the market with this product. However, this company's market share is only about third of that of the new entity. In Finland, Luxembourg, Germany and Spain, the largest competitor accounts for 11-13% of each of those markets. However, given that the market shares of the parties range between [40-50%] and [75-85%] in those countries, it must be considered unlikely that competitors could constrain the market behaviour of the new entity. In all other Member States, the largest competitors are small, accounting for between 2.1% and 10% of the market. In conclusion, actual competition is relatively weak in most Member States.

102. The parties argue that topical "Zovirax" is under competition from suppliers of generic topical treatments. In this respect, the parties have submitted that the patent protection for the aciclovir molecule in "Zovirax" has expired. The parties have provided information showing that, over the three year period 1997 to 1999, "Zovirax" has lost [<10%] market share by value and [5-15%] by volume on an EU level. At the same time, the parties argue that generic aciclovir gained [<5%] of the market by value and [<10%] by volume.

103. The information submitted by the parties indeed shows that, in value terms, generic aciclovir has gained market share in a number of Member States while the market share of "Zovirax" has declined. However, the Commission notes that in Greece, Italy and Spain "Zovirax" has more or less maintained its position while the market share of generic aciclovir has declined. Therefore, the Commission concludes that the evolution of the market share of "Zovirax" is not necessary linear with the introduction of generic aciclovir.

104. Indeed, the market share data submitted by the parties shows that "Zovirax" has been able to maintain very high market shares despite the introduction of generic competition. On the basis of the information provided by the parties, during the period between 1997 and 1999, the market share of "Zovirax" deteriorated only relatively slightly and, in any case, did not drop below [65-75%] in Greece (from [70-80%] to [70-80%]), Austria (form [75-85%] to [70-80%]), Belgium (from [85-95%] to [75-85%]), Denmark (from [85-95%] to [70-80%]), the UK (from [90-100%] to [75-85%]) and Luxembourg (from [80-90%] to [70-80%]). The most pronounced decline in the market share of "Zovirax" can be seen in the Netherlands, where the market share fell from [90-100%] in 1997 to [50-60%] in 1999. In any event, the Commission notes that the market share of "Zovirax" has not declined below [40-50%] (in Germany), despite the fact that "Zovirax" lost the patent protection in all Member States mentioned above between 1995 and 1997, in Germany in 1993 and in Greece already in 1990.

105. In France, "Zovirax" gained market share of [<5] percentage points from [85-95%] to [90-100%] between 1997 and 1999, although the Commission notes that aciclovir came off patent only in 1999. However, there was a slight increase in the market share also in Spain from [45-55%] to [50-60%], although aciclovir came off patent in that country already in 1997.

106. In volume terms, the decline of "Zovirax" market share has been more marked than when assessed in value terms. However, the fact that "Zovirax" has been able to maintain its market position in value terms at a relatively high level despite generic competition is more relevant for the assessment of this case than the fact that the sales volumes have declined. Indeed, this demonstrates that, despite generic aciclovir taking sales volumes, "Zovirax" has been able to generate revenue for GW at far higher levels than competing generic products.

107. Third parties in their replies to the Commission's enquiries have indicated that generic competition to "Zovirax" has not been very successful. In this respect, the investigation shows that "Zovirax" is a very strong, established brand on the market and is considered to constitute a significant barrier to entry for generic products. Customers have indicated for instance that, due to heavy advertising and brand awareness, the topical branded "Zovirax" holds a far higher market share than generic products. Competition against such a strong brand is reported to be difficult.

108. The Commission notes further that not all the market share lost by "Zovirax" has migrated to generic aciclovir. Indeed, almost half of the market share lost by "Zovirax" in value terms and some third in volume terms on an EU level migrated to SB's "Vectavir" between 1997 and 1999. In this respect, the parties argue that, on an EU level, the market share accretion is less than [<10%]. The Commission notes that "Vectavir" has been launched only very recently in a number of Member States, like in France, Italy, the Netherlands and Spain only in 1999. Therefore, in some Member States, the accretion of market share is indeed very small (for instance only [<5%] in France). However, as will be explained below, "Vectavir" has gained market share rapidly in most Member States where it has been launched. It is also considered to be a very important prescription brand. Therefore, the Commission considers that even a de minimis accretion of market share needs to be taken into account in the assessment of the case, especially in view of the fact that GW's "Zovirax" has a very strong market position in most Member States.

109. More particularly, on the basis of the information submitted by the parties, it can be seen that "Vectavir" has gained rapidly market share in value terms in most Member States where it has been launched. Only in the UK, the market share has remained stable. The growth of "Vectavir" has been particularly strong in Sweden, where it has taken [50-60%] of the market since its introduction in 1997. Since 1997, "Vectavir" has increased its market share to [10-20%] in Finland and, since 1996, to [10-20%] in Denmark In Italy, "Vectavir" gained [<5%] market share in two years time, in Belgium [<5%] and in Luxembourg [<5%]. The market share data by volume shows that "Vectavir" has gained market share even more rapidly in particular in Sweden, where it has [55-65%] of the market. In Italy the market share of "Vectavir" by volume is [10-20%], in Belgium [10-20%] and in Spain [5-15%].

110. Third parties have indicated that "Vectavir" is a significantly rising prescription brand. Third parties have indicated that it is difficult to compete against an established brand in the prescription market in Europe, because no direct consumer advertising is permitted. In this respect, third parties have submitted that advertising for OTC products may lead to an increase in the market share for the prescription form also. However, given that topical anti-virals other than GW's "Zovirax" are not generally available both on prescription and OTC, this effect may be useful only to GW.

111. It has further been indicated to the Commission that a product which is well established in the prescription market will be easier to launch OTC. In this respect, "Vectavir" has only recently been launched OTC in Sweden, Denmark, Finland and the Netherlands. The Commission notes that "Vectavir" has gained rapidly market share in the prescription market in Sweden, Finland and Denmark, where it holds its highest market shares. The parties have submitted that it is their intention to launch "Vectavir" in other Member States as well.

112. Third parties have expressed concern over the operation and argue that the merger would lead to the creation of a dominant position in the market for topical anti-virals. As noted above, although competitors have entered the market with generic aciclovir in recent years, this has not lead to any significant changes on the market and "Zovirax" has been able to largely maintain its position. Third parties have indicated that, as in anti-virals, the operation as notified would discourage any research and development attempts by third parties to develop drugs for herpes for the topical anti-virals market and new entry would be more difficult.

113. On the basis of the foregoing and in particular in view of the new entity's very high market shares in most Member States, serious doubts exist as to the compatibility of the operation with the common market in topical anti-virals.

c) Anti-emetics/anti-nauseants (A4A)

114. Following the operation, the parties would attain very high market shares in most Member States. Apart from Germany and Portugal, where the operation does not create an overlap, only in Spain the parties' market share is not indicative of a dominant position, as they account for less than [20-30%] of that market.

115. On the ATC third level A4A, the parties' combined market shares would be as follows: in Luxembourg [85-95%] (GW: [85-95%], SB: [<5%]), Denmark [80-90%] (GW: [75-85%], SB: [<5%]), Ireland [75-85%] (GW: [60-70%], SB: [10-20%]), the Netherlands [75-85%] (GW: [60-70%], SB: [10-20%]), Belgium [65-75%] (GW: [60-70%], SB: [<10%]), France [70-80%] (GW: [40-50%], SB: [20-30%]), the UK [65-75%] (GW: [45-55%], SB: [15-25%]), Greece [60-70%] (GW: [40-50%], SB: [10-20%]), Italy [60-70%] (GW: [30-40%], SB: [25-35%]), Finland [60-70%] (GW: [35-45%], SB: [20-30%]) and Sweden [50-60%] (GW: [45-55%], SB: [<10%]). The increment of market share is less than [10%] in Denmark and Luxembourg. However, given the very high market shares attributable to GW's "Zofran" and relatively weak actual competition, the increment has to be considered sufficient to raise serious doubts also in these Member States.

116. The market shares would not change essentially if, as the parties have suggested, some gastroprokinetics would be included into the market definition: the market shares would be still far higher than those of the closest competitors and in the region of [45-55%] and more in most Member States (from [40-50%] in Greece to [80-90%] in Denmark).

117. The parties argue that effective competition exists from "Navoban" (Novartis) and, in certain countries, also from "Anzemet" (Aventis). The parties submit that "Navoban" has achieved a share of [10-20%] of all 5HT3-antagonists sold in the EU by 1999. The parties further submit that "Anzemet", which is a new market entrant, would be in a good position to compete with the parties' products. Namely, the parties argue that the ability of "Anzemet" to capture market share from "Zofran" and "Kytril" has been demonstrated by the US experience, where "Anzemet" has grown successfully after market entry. Finally, the parties submit that the existence of "Navoban" and, in some cases, "Anzemet" would be sufficient to constrain any attempt to raise prices.

118. The Commission notes, however, that the 5HT3-antagonists dominate the market for anti-emetics and that the parties' position in 5HT3-antagonists is extremely strong. GW's "Zofran" was launched in 1990 and was the first product to reach the market. It was followed by SB's "Kytril" in 1991. Currently, "Zofran" and "Kytril" are the number one and number two leading products in France, the Netherlands, the UK, Italy and Ireland. In Belgium, Austria, Denmark, Finland and Greece "Zofran" and "Kytril" are number one and three leading products. Apart from Austria and Sweden, where Novartis has a relatively strong presence, the parties' market share would be between three and eight times higher than that of the closest competitor in all other Member States.

119. The Commission also notes that, since its launch across Europe between 1992 and 1996, "Navoban" accounts only for [10-20%] of the EU market, while the parties' combined market share is currently [75-85%]. Furthermore, the Commission notes that although "Navoban" holds [30-40%] of the market in Austria (depending on the market definition used) and [30-40%] of the market in Sweden, the parties would still be twice as large as Novartis in Austria and their market share would be around [45-55%] or exceed that figure also in Sweden. Therefore, although "Navoban" has been available across EU by 1996, it has not been able to challenge the market position of the parties. Therefore, "Navoban" cannot be considered to have been particularly successful in competition against the two leading suppliers.

120. With regard to "Anzemet", this compound was first launched in the US in 1997 and subsequently in a number of European countries between 1997 and 1999. It is currently available only in Germany, France, Austria and Italy. The Commission notes, however, that the current market share of "Anzemet" is merely [<5%] at the EU level and it is also relatively weak in all those Member States where it is currently available. Third parties in their replies to the Commission's enquiries have confirmed that "Anzemet" has had little impact on the sales of "Zofran" and "Kytril" and they do not anticipate "Anzemet" to be able to constrain the parties' market power and their ability to raise prices. Although the parties submit that "Anzemet" has been registered to be launched in Finland, the Netherlands, Sweden and the UK and pre-registered in Spain, in view of the market development of "Anzemet" and the favourable image of the gold standard held by the parties' compounds, the Commission does not consider it likely that "Anzemet" would to be able to counterbalance the dominant market position of the new entity across the EU.

121. According to the parties, competition is intensified by the buying power and tendering practises of the major customers. 5HT3-antagonists are predominantly used in cancer treatment and, therefore, typically purchased by hospitals (particularly those anti-emetics which are given intra-venous). The parties argue that these large buyers are in a position to exercise buyer power mainly through tenders. As a consequence, the parties argue that aggressive competition has taken place and that the majority of markets have been characterised by aggressive price competition among companies and heavy discounting.

122. Third parties have indicated to the Commission that hospitals most generally try to obtain lower prices either by tenders, buying in consortiums or agreeing to buy only one single drug from a particular category if a quantity discount is granted. In this respect, it has been indicated that the competition between GW, SB, Novartis and, recently also to some extent from Aventis, has helped in keeping the prices for 5HT3-antagonists down. However, given that "Anzemet" is only available in a few Member States, in practice, the merger would basically reduce the number of competitors from three to two, bringing together the two leading companies in this market. Third parties in their replies to the Commission's questionnaires have indicated that neither "Anzemet" nor "Navoban" are considered to bring substantial medical benefits over "Zofran" and "Kytril" and are not expected to replace these drugs.

123. Post-merger, the parties would capture some [75-85%] of the market, leaving only some [15-25]% to Novartis and Aventis. Third parties have indicated that the operation as notified would lead to the creation of a dominant position and a near monopoly in 5HT3-antagonists indicated for the treatment of cytotoxic induced nausea and vomiting, which forms the main part of this market. In view of the parties' post-merger strong position, the Commission considers it likely that the operation reduces the possibilities for major customers to negotiate discounts. Third parties have expressed concern that the operation as notified would lead to price increases of the two leading drugs. Moreover, the combination of the parties' products would give them the possibility to set up barriers for market entry by granting quantity discounts for hospitals. It would be extremely difficult for the two remaining, substantially smaller competitors to respond to this.

124. In view of the foregoing, the Commission considers that serious doubts as to the compatibility of the notified operation with the common market exist in the treatment area of anti-emetics in most Member States.

d)Antibiotics (J1)

d.1) Broad Spectrum Penicillins (J1C)

125. With regard to the ATC 3 category J1C, SB holds a market share of [50-60%] in the EU. GW is not present in these market, expect in Spain, where GW markets a generic product, currently purchased in bulk from SB. In Spain the market share of SB is [50-60%] and GW holds [<5%] of the market. The operation would lead to a joint market share of [50-60%].

126. The parties submit that, in Spain, their products are not protected by patents. Thus, the parties argue that they will not only be exposed to competition from other penicillins but will also face increasing competition from generic products. SB produces and markets a range of broad spectrum penicillins, the principal of which are "Augmentin" and "Amoxil". "Amoxil" consists of amoxillin, a member of the penicillin antibiotic class, whereas "Augmentin" contains amoxillin in combination with clavulanic acid, a beta-lactamase inhibitor. According to the parties Amoxillin has been off patent for some time. SB's "Augmentin" has recently gone off patent in the majority of EU Member States, including Spain.

127. With special regard to the Spanish market, the parties claim that a number of major manufacturers supply broad spectrum penicillins, including Columbia ([5-15%] of the market), Pharmacia & Upjohn ([<10%]) and J. Uriach ([<5%]). Additionally, a large number of pharmaceutical companies market generic amoxicillin in Spain, including Ratiopharm, Sabater, Norman, Geminis and Belmac.

128. As GW is not manufacturing broad spectrum penicillins but markets a product purchased from SB, the operation will have only limited effects on the level of distribution. The Commission notes that the market share increment is small and the parties are facing competition by a number of manufactures and also by generic products. Customers who replied to the Commission's market investigation do not expect that the operation will lead to adverse competition effects. In view of the foregoing, the Commission considers that the operation does not raise serious doubts as to its compatibility with the common market in the market for broad spectrum penicillins (J1C) in Spain.

d.2) Cephalosporins (J1D)

129. As to cephalosporins (J1D), GW has a EU-wide market share of [15-25%], whereas SB's sales amount to only [<5%]. However, the only national markets affected are those of Belgium, Italy and Spain, where SB markets its products "Monocid" and "Cefizox".

Belgium, Italy

130. In Italy, the market share of GW and SB amounts to [10-20%] with an increment of [<5%]. Given this comparatively small combined market share and the fact that the parties face severe competition from the market leader Roche ([20-30%] of the market) and other potent pharmaceutical companies such as Aventis ([<10%]) and Bristol-Myers Squibb ([<10%]), competition concerns are unlikely to arise.

131. In Belgium, the combined market share of the parties in is [40-50%] with an increment of [<5%]. Considering in particular the de minimis overlap in Belgium and the fact that there is strong competition on the market, the largest competitor being Bristol-Myers Squibb accounting for [15-25%] of the market, the Commission draws the conclusion that the operation does not raise serious doubts as to its compatibility with the common market in Belgium.

Spain

132. In Spain, the merger would lead to a combined market share of [40-50%] with a significant overlap of [10-20%] arising first and foremost from SB's "Monocid". The parties argue that the market share increment results from the prescribing praxis in Spain, where for historic reasons SB's product "Monocid" is frequently used by doctors in rural areas of Spain, to provide antibiotic cover for elderly patients undergoing minor surgery, which carries a risk of infection.

133. The parties submit that except for this local prescribing habit, GW's and SB's products can not be considered to be direct competitors. GW markets four broad spectrum cephalosporins in the EU: "Zinnat", administered in oral form and covering a wide range of community indications; "Fortum", mostly used in cases of severe hospital infections; "Zinacef", which is injected; and "Ceoprex", which is orally administered for community indications. On the other hand, SB's agent "Monocid" (also distributed as "Cefonicid"), an injectable cephalosporin, is principally used only in hospitals and is limited in its use against a relatively narrow spectrum of organisms within each indication. Because of this limited applicability, the parties argue that it cannot be considered to be substitutable to GW's products "Zinacef", "Zinnat" and "Fortum". In addition, SB also distributes "Cefizox" in Spain. This injectable cephalosporin, however, accounts for only negligible sales [7].

[7] The sales of "Cefizox" are so small that they are not even reported in IMS data.

134. Furthermore, the parties submit that "Zinacef" and "Ceporex" are already off patent and "Zinnat" will come off patent in [...] in Spain. The parties indicate that under these circumstances, potential competition by generics is likely to increase within the next years. Also the parties argue that there are many other cephalosporins available on the market. With regard to the Spanish market, the main competitors include Eli Lilly ([10-10%] of the market), Merck ([5-15%]) and Menarini ([<10%]).

135. The arguments of the parties can not remove serious concerns on the J1D segment. GW and SB are the number one and number two suppliers on the Spanish market, and the largest competitor, Eli Lilly, would have less than one third of the aggregated market share of the parties. Both parties market a range of well established brands. Certain historic prescribing habits do exist, which are not likely to change in the short run, and do form considerable barriers to entry for new competitors. In addition, GW's product "Fortum" is still under patent protection and is, according to the parties, frequently used as an empiric initial treatment. On the basis of the foregoing, the Commission concludes that no evolution in favour of generic products or new pharmaceuticals is likely to occur.

136. On the basis of the foregoing, serious doubts as to the compatibility of the operation with the common market exist in the J1D segment in Spain.

d.3) Quinolones (J1G)

137. As to the market for quinolones (J1G), no significant market overlap occurs between the parties, due to the fact that SB's European presence is limited to the market in Italy with a negligible market share of only [<5%]. The combined market share of the parties in Italy is [10-20%].

138. In addition, GW has indicated that it has withdrawn its product "Raxar" which accounted for almost all its sales in the European market (EU market share of GW of [<5%]), except for the Italian market. It is to note, however, that SB currently has a quinolone, "Factive", in phase III clinical trials. This product is a [...].

139. The parties state, however, that there are several quinolones on the market and in development in Europe and in the United States. With special regard to the Italian market, competitors include leading companies such as Bayer ([40-50%] market share), Aventis ([10-20%] market share) and Ibi ([<10%] market share). In addition, a number of quinolones marketed in Europe are in-licensed from Japanese pharmaceutical companies. These companies are described as "power house" for discovery and development of new quinolones with promising drugs in their R & D pipeline. The parties claim that many of those pharmaceuticals are likely to be available for in-licensing in Europe, since those Japanese companies did not have European operations.

140. On the basis of the foregoing, in view of the negligible overlap and the withdrawal of GW's "Raxar" from the market, the Commission considers that the operation does not raise serious doubts as to its compatibility with the common market in the market for quinolones (J1G) in Italy.

e) Anti-malarials (P1D)

141. The parties' activities in anti-malarials overlap in Belgium, Germany, Luxembourg, the Netherlands, Spain and the United Kingdom. However, apart from Spain, the parties' combined market shares remain below [5-15%].

142. In Spain, the IMS data suggest that the parties would account for [90-100%] of the market. The parties argue, however, that a number of anti-malarial products can be acquired through "Medicamentos Extranjeros", a department of the Spanish Ministry of Health. The "Medicamentos Extranjeros" system enables physicians to prescribe a limited number of products for very specific diseases in Spain, although they are not expressly licensed in Spain. According to the parties, this is the case for malarial products, which include mefloquine and chloroquine/proguanil. The parties submit that the products which are supplied through the "Medicamentos Extranjeros" system are not sold through pharmacies but supplied directly to the physician who asked for the product. Consequently, the parties argue that such products are not registered in IMS sales audit and, therefore, the parties' market share is significantly overstated by the IMS figures. The parties estimate that, including the sale of mefloquine and chloroquine/proguanil in the Spanish market, their combined market share is below [5-15%].

143. The Commission has obtained confirmation from "Medicamentos Extranjeros" that the size of the total anti-malarials market when including mefloquine and chloroquine/proguanil is indeed considerably larger than the IMS data suggest (some EUR 1.3 million instead of EUR 50 000). On the basis of this information and together with confidential figures obtained from third parties, the Commission has estimated that the parties' market share in the Spanish market does not exceed [5-15%]. Therefore, no competition concerns are likely to arise in this market.

144. The parties submit that SB is in the process of developing "Tafenoquine". The product is [...].

145. Although some third parties have indicated that the parties' pipeline products could enhance the parties' combined market position, the Commission considers that no competition concerns are likely to arise given the parties' current low market shares.

f) Topical antibiotics (D6A)

146. In topical antibiotics, the parties' activities overlap in Germany, Ireland and the UK. The parties would account for [30-40%] of the market in Ireland (GW: [15-25%], SB: [5-15%]), [25-35%] in the UK (GW: [<5%], SB: [20-30%]) and [<10%] in Germany (GW: [<5%], SB: [<10%]).

147. On hypothesis that the parties' products have different indications, no overlap occurs and there is no aggregation of market share. Assuming that the products belong to the same product market, the operation will not lead to the creation of a single dominant position because in Ireland and the UK, where the parties attain their highest market shares, they would face strong competition. The market leader Leo has [50-60%] of the market in Ireland and [40-50%] in the UK. A number of other competitors are also on the market.

148. The operation is unlikely to lead to the creation of a collectively dominant position either, even if the three largest companies active in the UK market (Leo, SB and Smith & Nephew) and in the Irish market (Leo, GW and Smith & Nephew) will have an aggregated market share of more than [75-85%]. The respective market shares of these companies are not static but fluctuate and are asymmetric. For example, in the UK, Leo increased its market share from [30-40]% in 1997 to [35-45%], while the parties' aggregated market share fell from [30-40%] in 1997 to [25-35%] in 1999. Also, Smith & Nephew lost some market share during this period from [20-30%] to [15-25%]. It may also be noted that demand has grown from EUR 11,757 million in 1997 to EUR 12,466 million in 1999. Similarly, in Ireland, Leo increased its market share from [45-55%] to [50-60%] and Smith & Nephew its market share from [5-15%] to [5-15%] in 1997-1999. The market has grown from EUR 658,000 million in 1997 to EUR 682,000 million in 1999. Thus, each company may increase its sales without necessarily implying a reduction in the other companies' market shares.

149. On the basis of the foregoing, the Commission does not consider that the operation as notified would lead to any adverse competition effects

2. Future markets

150. The areas of overlap where either one or both parties have existing products on the market and pipeline products are asthma/COPD, anti-migraine (N2C), therapeutic vaccines ("pharmaccines") and other urologicals, including antispasmodics (G4B). Areas where neither party is currently active on the market but where both parties have pipeline products are diabetes (A10B), oncology (L1) and irritable bowel syndrome. These treatment areas will be discussed in more detail below.

a) Asthma/COPD

a.1) Asthma/COPD conditions

151. The parties submit that although asthma and COPD ("Chronic Obstructive Pulmonary Disease") are both diseases of the respiratory tract, the two diseases are characterised by different clinical presentations, different risk factors, different inflammatory processes and different therapies.

152. Asthma is an inflammatory disease which is characterised by acute episodes of airflow limitation. These episodes are transient and fully reversible. Airflow obstruction in asthma is due to bronchoconstriction and inflammation of the airway wall. The former is caused by spasms of the muscle layer within the airway wall resulting in a narrowing of the air pipes (bronchi), whereas inflammation causes a thickening of the airway wall, due to the accumulation of cells and fluid. Bronchodilators are used to reverse the bronchoconstriction, while anti-inflammatory drugs are used to treat the inflammation.

153. The Commission considered products indicated for the treatment of asthma in case M.1403 - Astra/Zeneca. In line with this decision, the parties submit that asthma-related respiratory drugs may broadly be categorised into short-acting treatments (or "relievers") and treatments for prophylactic or long-term management of the illness (or "preventers"). Short-acting symptomatic treatments are aimed at reversing the broncho-constriction which results in the wheezing and breathlessness during an asthma attack, without necessarily having any therapeutic effect on the underlying disease. Drugs used in prophylaxis or long-term management may result in the patient being symptom free for extended periods of time or having only minor symptoms which do not affect his or her daily life.

154. In M.1403 - Astra/Zeneca, the Commission concluded that there is a clear differentiation between the objectives of therapy for these two types of treatment and that therefore competition occurs more within than across types. This distinction is meaningful from a medical point of view as it allows the treating physician to balance the need for primary intervention with short-acting relieving agents, with or without disease modification depending on the severity, and the appropriate addition of long-term symptom controllers. Moreover, short-acting symptomatic drugs are used only on a needed basis whereas prophylactic and long-term drugs are taken regularly daily.

155. The parties submit that, broadly speaking, the prophylactic and long term management treatments of asthma tend to be regarded as those under non-steroidal respiratory anti-inflammatories (R3C), corticoids (R3D) and leukotriene receptor antagonists ("LTRAs") (R3J). Moreover, long-acting B2-agonists (R3A), theophylline (R3B) and cromones are used. The short-term symptomatic treatments are regarded as those under B2-stimulants (R3A, short-acting B2-agonists), xanthines (R3B), antichloinergics (R3G) and R3X (all other bronchodilators). The prophylatic and symptomatic combinations are those at R3E (combinations of B2-stimulants with R3C) and R3F (combinations of B2-stimulants with corticoids R3D). The parties nevertheless submit that the distinction is not clear cut as for instance the R3A category includes drugs which are both short and long acting. Indeed, in M.1403 - Astra/Zeneca, the Commission noted that for instance the long acting B2-stimulants salmeterol and formoterol in R3A are used for long-term management of asthma. There are also classes of combination drugs which combined symptomatic drugs and drugs for prophylaxis/long term management.

156. The parties argue that unlike asthma, COPD is not a single disease, but a spectrum of poorly reversible conditions including, in particular, chronic bronchitis (chronic cough and sputum production), inflammation and emphysema (permanent destruction of lung units). The key defining characteristic is airflow obstruction. Patients with COPD suffer chronic symptoms, including shortness of breath, cough, phlegm and a limitation on their ability to take an active part in daily life. According to the parties, the fact that the symptoms are chronic, i.e. continuing rather than episodic, is in sharp contrast to patients with asthma who do not suffer symptoms all the time. Patients with COPD also have an increased susceptibility to bacterial infections. Furthermore, COPD is a progressive disease, with acute severe worsening leading to hospitalisation and, even death.

157. The parties submit that whereas asthma is well understood and well treated, the products that are used to treat COPD are largely ineffective and, therefore, patients are generally treated with multiple therapy. In this respect, the parties submit that patients with mild COPD on average use between [<5] and [<5] products, while patients with severe COPD use as many as [<5] products on average.

158. As opposed to asthma, there is currently limited agreement between the various sets of COPD guidelines worldwide, in terms of diagnosis and management of the disease. The parties submit that the only point of agreement among the existing guidelines is the recommendation for first line therapy which is either inhaled anticholinergics (R3G) or short acting B2-agonists (R3A). As disease severity increases, a variety of agents are added to improve symptomatic control such as combination bronchodilators (belonging to R3G), inhaled long-acting B2-agonists (belonging to R3A), inhaled corticosteroids (R3D), xanthines, principally theophylline (R3B), B2-stimulants and corticoid inhalants (R3F) and leukotriene antagonists (R3J). Oxygen is the therapy of last resort.

a.2) Actual competition

159. While SB has not current respiratory products on the market, GW has a long-established position in the respiratory field and has products in several major categories, most importantly in R3A, R3D and R3F. GW's products include a short acting beta-agonist "Ventolin" (salbutamol), a long acting beta-agonist "Serevent" and inhaled corticosteroids "Becotide" (beclomethasone) and "Flixotide"( fluticasone). GW also has "Seretide", a combination product of B2 agonist/inhaled corticosteroid, in the R3F category. "Seretide" has been approved for asthma and has been launched in most EU Member States.

160. In 1999, the total sales of anti-asthmatic/COPD products (ATC level 2 - R3) in the EEA reached a value of EUR 3,099 million. At this aggregated level, GW achieved sales of EUR [...] million, corresponding to [40-50%] of the total market. GW has increased its market share from 1997, when it accounted for EUR [...] million of the total market of EUR 2,560 million, corresponding to [35-45%] of the total EEA-wide market. On this level, the largest competitors are AstraZeneca ([15-25%]), Boehringer Ingelheim ([<10%]), Novartis ([<5%]) and Aventis ([<5%]).

161. At the national level, in R3F (combinations of B2 stimulants/corticoids), GW has currently [90-100%] of the market in ten Member States in which it is present with its combination products "Seretide" and faces no competition from other pharmaceutical companies.

162. In R3A (B2 stimulants), GW's market position is relatively strong is most Member States. Apart from Germany and Italy, GW's market share ranges between some [45-55%] and [75-85%] in most Member States. More particularly, GW accounts for [75-85%] of the market in Luxembourg (AstraZeneca: [10-20%]), [70-80%] in Belgium (AstraZeneca: [5-15%]), [70-80%] in the UK (AstraZeneca: [10-20%]), [60-70%] in Ireland (AstraZeneca: [10-20%]), [60-70%] in Finland (AstraZeneca: [20-30%]), [55-65%] in Greece (Novartis: [20-30%]), [55-65%] in France (Novartis: [20-30%]), [60-70%] in the Netherlands (Novartis: [10-20%]), [50-60%] in Denmark (AstraZeneca: [20-30%]), [50-60%] in Sweden (AstraZeneca: [30-40%]), [40-50%] in Spain (AstraZeneca: [10-20%]), [40-50%] in Portugal (Bial: [15-25%]) and [40-50%] in Austria (AstraZeneca: [25-35%]). In Germany and Italy, GW accounts for [30-40%] and [30-40%] of the market in each Member State respectively. It can be seen from these figures that while GW faces relatively strong competition from AstraZeneca in Austria and Sweden, in all other Member States GW's closest competitors are much smaller.

163. In R3D (corticosteroids), where GW accounts for some [35-65%] of the market in ten Member States, the market situation is more balanced in most Member States, with a number of competitors, most importantly AstraZeneca, on the market with market shares between [25-35%] and [35-45%]. However, GW has a particularly strong position in Austria (GW: [50-60%], AstraZeneca: [35-45%]), Finland (GW: [45-55%], AstraZeneca: [30-40%]), France (GW: [50-60%], AstraZeneca: [30-40%]), Luxembourg (GW: [55-65%], AstraZeneca: [35-45%]), the Netherlands (GW: [55-65%], AstraZeneca: [25-35%]) and the UK (GW: [55-65%], AstraZeneca: [20-30%]).

164. With regard to asthma, the Commission has estimated in line with case M.1403 - Astra/Zeneca on the basis of IMS data that GW accounts, on the segment for short-term management of asthma, for some [25-35%] of the sales on an EEA level. The largest player in this segment is Boehringer Ingelheim with [30-40%] of sales. AstraZeneca accounts for some [5-15%] and Novartis [<10%] of the sales in this segment on an EEA level. On the segment for the long-term management of asthma, the Commission has estimated that GW has currently a share of sales of some [40-50%] on an EEA level. AstraZeneca holds a share of sales of [20-30%], while all the remaining competitors such as Aventis and Novartis have less than [<10%] of that segment.

165. With regard to COPD, the investigation shows that the sales attributable to COPD can be divided as follows: some 30% of the sales derive from B2-agonists (R3A), 29% from corticosteroids (R3D), 25% from anticholinergics (R3G) and 10% from xanthines (R3B). The remaining 6% is divided amongst other categories, most importantly to leukotriene receptor antagonists (R3X). Given that GW is mainly active in R3A and R3D, its products cover therefore about the half of the COPD segment.

166. The parties do not consider mild, moderate and severe COPD to constitute separate markets, the reason being that the same products are used in all three categories. The parties have not been able to supply market data split by severity of the disease as IMS does not provide these data. The parties submit that as the severity of the disease increases, the use of all products increases roughly in proportion with total increase of products used. On this basis, GW has estimated that its market share in mild, moderate and severe COPD is [...].

167. The parties submit in the notification that although there is no observable split as between respiratory products used in treatments of asthma and COPD, as a broad indication, asthma accounts for [75-85%] and COPD [15-25%] of the total EEA-wide market encompassing all categories in R3. The parties have estimated the market position of GW in the overall COPD segment and, separately, on first and second line treatment segments [for the purposes of this decision, "second line treatment" shall refer to treatments used in combination with other therapies]. The parties have explained that it is possible to split the IMS data on the basis of prescriptions and, to this end, they have used four different types of COPD diagnoses [8] as a basis for the market share calculations. Following this method, the parties submit that GW's market share in the overall segment for the treatment of COPD is [30-40%] in value. AstraZeneca accounts for [10-20%] of this segment and Boehringer Ingelheim some [10-20%]. In first line therapy of COPD, GW accounts according to the parties only for [20-30%]. The parties argue that this relatively low market share can be explained by the fact that while GW is a key player in inhaled short-acting B2 agonists (R3A) with its product "Ventolin", it is not present in anticholinergics (R3G), which is dominated by Boehringer Ingelheim with its products "Atrovent" and "Combivent". The parties submit that Boehringer Ingelheim is the clear leader in this segment with [50-60%] of the sales. Finally, the parties submit that GW's current market share in second line of treatment of COPD is [35-45%]. AstraZeneca has some [15-25%] of the segment and Boehringer Ingelheim only around [<5%].

[8] J41 Simple Mucopurulent Chronic Bronchitis, J42 Unspecified Chronic Bronchitis, J43 Emphysema, J44 Other Chronic Obstructive Pulmonary Disease

168. The parties have further split the four diagnoses areas according to first and second line therapies. These market shares reflect largely the parties position in the overall first and second line segment