Brussels, 11-12-2006

SG-Greffe(2006) D/207601

To the notifying party

Dear Sir/Madam,

Subject: Case No COMP/M.4314 - Johnson & Johnson / Pfizer Consumer Healthcare

Notification of 19/10/2006 pursuant to Article 4 of Council Regulation No 139/2004

1. On 19 October 2006, the Commission received notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 [1] by which the undertaking Johnson & Johnson (“J&J”, United States) acquires within the meaning of Article 3(1)(b) of the Council Regulation control of Pfizer Inc.'s (“Pfizer”, United States) entire Consumer Healthcare division (“PCH”) by way of a purchase of shares and assets.

2. After examination of the notification, the Commission has concluded that the notified operation falls within the scope of the Merger Regulation. Following submission by the parties of undertakings designed to eliminate competition concerns identified by the Commission, in accordance with Article 6 (2) of the Merger Regulation, the Commission has concluded that the notified operation 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. J&J is a group active worldwide in three business segments: (i) consumer products; (ii) pharmaceuticals; and (iii) medical devices and diagnostics.

4. PCH is Pfizer’s worldwide business division active in personal care products and over-the-counter pharmaceutical products (“OTC products”). OTC products represent 70% to 80% of PCH’s revenues.

II. THE CONCENTRATION

5. On 25 June 2006, J&J entered into a Stock and Asset Purchase Agreement with Pfizer whereby J&J intends to acquire sole control of PCH. The notified operation will confer to J&J sole control over PCH. It therefore constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.

III. COMMUNITY DIMENSION

6. The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5,000 million (J&J EUR 40,603 million, PCH EUR 3,117 million) [2]. Each of them have a Community-wide turnover in excess of EUR 250 million (J&J EUR […] million; PCH 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.

IV. THE RELEVANT MARKETS

7. The transaction gives rise to horizontal overlaps between the activities of J&J and PCH in the fields of OTC drugs and personal care products and to a vertical relationship in the field of nicotine replacement therapy ("NRT"). The definition of the relevant product markets for OTC drugs, personal care products and NRT products is discussed below.

A. OTC products

1. Introduction

ATC-3 level

8. In previous decisions dealing with pharmaceutical products [3], the Commission has used the Anatomical Classification Guidelines (or “ATC” classification) devised by the European Pharmaceutical Marketing Research Association ("EphMRA") as a reference for the definition of the relevant product markets. The ATC classification is hierarchical, and it includes 16 categories with each up to four levels.

9. The Commission has relied in previous decisions on the third level of the ATC classification (ATC3) which allows medicines to be grouped in terms of their therapeutic indications, i.e. their intended use, as a starting point for inquiring about product market definition in competition cases. However, in certain cases, it may be necessary to analyse pharmaceutical products at a higher or lower levels than ATC 3 or to combine ATC 3 classes on the basis of demand-related criteria. In the present case, the parties have accepted this view, subject to appropriate modifications on the basis of demand-related criteria.

Prescribed/non-prescribed (OTC)

10. The Commission has in the past [4] defined separate product markets for OTC (non prescription-bound) pharmaceuticals and prescription-bound pharmaceuticals because medical indications (as well as side effects), legal framework, marketing and distributing tend to differ between these categories. The parties have followed this subdivision between OTC and prescribed medicines. The present transaction only concerns OTC drugs, as PCH, the Pfizer division purchased by J&J, is only active in OTC drugs and personal care products.

Geographic scope of OTC markets

11. In previous decisions the Commission held that the relevant geographic markets for pharmaceutical products including OTC products were national in scope. The parties share this view and assessed the relevant OTC product markets on the basis of national markets. The market investigation has confirmed the national dimension of OTC product markets notably due to differences in the market structure, in the products marketed in the different Member States, in consumer preferences and in national health and drug reimbursement systems [5]. For the purposes of the present decision, all OTC product markets will thus be considered as national in scope.

Relevant markets

12. For the purposes of determining horizontal overlaps, the parties have verified, on a national basis and for each product that PCH sells, whether J&J has on the market a prescription and non prescription-bound drug within the same ATC 3 class (or where appropriate ATC 4 class or a combination of ATC 3 classes). On this basis, the concentration gives rise to overlaps between the activities of the parties in seven OTC product areas. The definition of the relevant product markets for each of these segments is discussed below.

2. Relevant product markets

a) Topical dermatological antifungals

13. Antifungals are pharmaceuticals used to treat infections caused by a fungus or yeast. Fungus can grow anywhere on the body (for example, on the skin or nails) or inside the body (organs, mouth or throat). At level 3 of the ATC classification ("ATC3"), antifungals can fall into three different classes: A1B (mouth anti-fungals), D1A (antifungals, dermatological) and G1B (gynaecological antifungals).

14. The parties' products overlap exclusively for D1A. Within this class, three sub-classes at the fourth level ("ATC4") can be distinguished: (i) D1A1: topical dermatological antifungals, which include topical forms of preparations for fungal infections of the skin, (ii) D1A2: systemic dermatological antifungals (taken orally), and (iii) D1A3: topical scalp antifungals. At the ATC4 level, the parties' activities only overlap in topical dermatological antifungals (D1A1).

15. In the case COMP/M.3544 – Bayer Healthcare/Roche (OTC business), the Commission considered topical antifungals (D1A1) as a relevant product market, although it excluded some of the products included in such category since, according to the results of the investigation, they were shampoos or other scalp treatments.

16. In this case, the parties consider that ATC4 is the appropriate level to define the relevant product market and the market investigation has confirmed this view. In any case, for the purposes of this decision, the final question of whether the whole D1A1 group constitutes the relevant product market or whether some shampoos or other scalp treatments included in this group should be excluded from it can be left open as the final competitive assessment does not change under both alternatives.

b) Cold and flu treatments

17. The products classified in R5A (cold and flu treatments) treat the symptoms of common cold and flu. Because of the multiple symptoms associated with cold and flu, cold and flu medications are often combination products. They can combine an analgesic/antipyretic (relieving pain and fever), an antihistamine (reducing the histamine production), a cough reliever (anti-tussives or expectorants, suppressing or facilitating the cough), and/or a decongestant (clearing the respiratory tract and facilitating breathing).

18. The Commission has previously [6] considered the R5A classification as appropriate to define the relevant product markets. However, the Commission has also recently [7] considered the possibility of a broader market definition, adding to R5A the following classes: R4A (chest rubs and other inhalants), R1B (systemic nasal preparations), R1A7 and R1A9 (nasal decongestants without anti-infective and anti-allergic compounds), although ultimately the market definition was left open. The Parties did not take a view as to whether the relevant product market should be the broad (R5A, R4A, R1B, R1A7 and R1A9) or the narrow (R5A) product market definition.

19. The majority of the responses to the Commission's market investigation have confirmed a broader market definition. The responses were, however, diverging as regards the precise scope of such a wider market. Whereas some respondents proposed to include the same products as mentioned above (see recital (...)18), others have proposed a market that would include all nasal remedies (R5A, R1B, R1A7 and R1A9) and a separate market for throat/chest remedies (R5A and R4A). Other market players suggested to include, in addition to the above-mentioned ATC 3 categories, also cough relief products (anti-tussives, R5D, and expectorants, R5C); or to consider only cold and flu remedies (R5A) and systemic nasal preparations (R1B) as part of the same product market. It is, therefore, at this stage not clear what the scope of a broader market for cold and flu remedies would be [8].

20. In any event, the exact definition of the market can be left open, as the notified transaction would not raise serious competition concerns on any possible market.

c) Topical anti-haemorrhoidals

21. Haemorrhoids are like varicose veins, but in the canal of the anus. The parties only overlap as regards ATC classification C5A (topical anti-haemorrhoidals, which relieve the symptoms of haemorrhoids, but do not treat the cause), and not for C5C (Varicose Therapy, Systemic, which includes systemic anti-haemorrhoidals). The market investigation has confirmed that C5A and C5C pharmaceuticals are complementary and belong to separate relevant product markets.

22. The parties take the view that the topical anti-haemorrhoidal market should be defined based on the whole ATC C5A category, including both prescription-bound and non prescription-bound products. According to the parties, there is a clear competitive interaction between prescription-bound and non prescription-bound products in France, given that around 78% of all sales of the products in C5A are prescribed and that J&J’s products (with one recent exception) are semi-ethical (i.e., available without prescription but reimbursed if prescribed), while PCH’s product is not reimbursed even if prescribed. The market investigation has confirmed that prescription-bound products exert a strong competitive constraint on non prescription-bound products for topical anti-haemorrhoidals in France. In any event, the question of whether prescription-bound topical anti-haemorrhoidals and non prescription-bound topical anti-haemorrhoidals belong to the same relevant product market can however be left open for the purpose of the present decision since it does not modify the competitive assessment.

d) Analgesics and antipyretics

23. General purpose non-narcotic analgesics are classified under ATC 3 class N2B (analgesics and anti-pyretics). This class includes systemic products for the relief of non-specific pain, and excludes narcotic analgesics (e.g. morphine) (N2A), anti-migraine drugs (N2C), analgesics used in cold and flu remedies in combination with other active ingredients such as antihistamines or decongestants (R5A), and topical analgesic products (e.g. creams) (M2A). The Commission has considered in previous decisions [9] that the market for medicines to treat mild to moderate pain relief (non-narcotic analgesics) should be defined at the ATC 3 level of N2B.

24. The parties have also taken the view that this is the relevant product market definition. Whereas they admitted that the OTC-IMS classification makes a distinction between pain relief products for adults (O1A1) and for paediatric use (02A2), they explained that the distinction between adult and paediatric pain relief depends merely on the dosage (lower for children and infants). The parties submit that the boundaries between paediatric and adult use are blurred and that substitution is possible as adult pain relief is used adapting dosage for children (many adult SKUs have dosage instructions for children, for example breaking tablets in half for intake by children).

25. The market investigation has only partly confirmed the parties' view that non-narcotic analgesics for adults and paediatric use belong to the same product market. Several respondents have explained that the adjustment of the dosage is only a theoretical option in many cases. Gel capsules and tablets, for example, cannot be broken in order to adjust the dosage for children. This possibility only exists for powders and certain types of tablets. Moreover, there are specific products that are used for children (i.e. syrups and suppositories), whereas adults generally use different means of administering these products (i.e. tablets). The fact that the active ingredient is identical may therefore not be sufficient to classify all non-narcotic analgesic products as belonging to the same product market.

26. The product market definition can, however, be left open, as the proposed transaction does not lead to serious doubts on any possible market.

e) Laxatives and heartburn relief

27. J&J and PCH sell a range of non prescription-bound gastro-intestinal remedies for the treatment of minor gastro-intestinal ailments such as heartburn, acid stomachs, constipation, bloating, flatulence and diarrhoea. The parties’ activities overlap only with respect to laxatives and heartburn/indigestion products.

28. The Commission has previously concluded [10] that laxatives (used for the treatment of constipation) fall under the A6A class and constitute a separate relevant product market. The parties agree with this market definition. Laxatives will thus be considered as a separate relevant product markets for the purposes of the present decision.

29. Heartburn drugs can be segmented into two categories: antacids which neutralise excess acids (A2A1) and H2 blockers (or H2 antagonists) which act upon the stomach’s acid production (A2B1). Although they treat similar symptoms, they are not part of the same ATC3 class, and previous Commission decisions left open whether these products should be considered as a single relevant product market [11]. The Commission has also analysed [12] whether anti-flatulents (A2A2 and A2A7 classes) belong to the same relevant product market as antacids and H2 blockers, but the market definition was left open. The same approach can be taken for the purposes of the present decision, since the final assessment does not change if anti-flatulents are included in the relevant product market.

30. For the purposes of the present decision, it can be left open whether the A2A1 (antacids), A2B1 (H2 antagonists), A2A2 and A2A7 (anti-flatulents) ATC4 categories belong to the same relevant product market, , as the proposed transaction does not raise competition concerns on any possible market.

f) Cough relievers

31. The parties submit that there are three types of cough (i) a dry (non-productive) cough, (ii) a productive cough, which is accompanied with the secretion of mucus and relieves the respiratory tract, and (iii) an allergic cough, and that each of them is treated differently. Allergic cough is treated with anti-allergics (a different type of drugs); productive cough is treated with expectorants (R5C), and dry cough is treated with anti-tussives (R5D).

32. In line with previous Commission's decisions [13], the parties therefore submit that the ATC classification at level 3 is appropriate in order to define the relevant product markets regarding cough preparations. Whether cough relievers (R5D) and expectorants (R5C) belong to the same or two separate markets can be left open for the purposes of this decision, as the proposed transaction does not raise competition concerns on any possible market.

g) Ocular decongestants

33. Level 3 of ATC classification (S1G) groups together ocular decongestants and ocular anti-allergics. The parties however submit that eye decongestants and eye anti-allergics differ in indication and in mode of action (they are classified in two different groups at ATC 4 level) and therefore do not belong to the same relevant product market.

34. Ocular decongestants (such as PCH’s Visine) are vascular constrictors that narrow the blood vessels of the eye reducing occasional redness, irritation and dryness of the eyes caused by wind, sun and other minor irritants such as smoke, artificial light and dust. So, while Visine treats some of the symptoms which may be caused by an allergic reaction (or another cause), it does not treat the cause of the irritation by blocking the action of the histamine in the body. In contrast, ocular anti-allergics (such as J&J’s Livocab) actually prevent or stop the allergic reaction by blocking the body’s histamine receptor/mast cell. The parties submit that the Commission has already made a similar distinction [14] regarding the segmentation of topical nasal preparations into (i) topical nasal decongestants and (ii) topical nasal anti-allergics.

35. In any event, the relevant product market definition can be left open for the purposes of the present decision, since the transaction is not likely to create competition problems either at level 3 (ocular decongestants and ocular anti-allergics constituting a single relevant product market) or at level 4 (ocular decongestants and ocular anti-allergics constituting two separate relevant product markets).

B. Personal care markets

36. PCH sells a number of personal care products, in particular oral care, hair care and skin care products. The parties’ sales only overlap as regards mouthwash, toothpaste and shampoos.

1. Daily-use mouthwash

a) Relevant product markets

37. Mouthwashes are liquids to be rinsed or gargled around the mouth, usually after brushing teeth. Relying on a past Commission decision, the parties distinguish between (i) daily-use (cosmetic) mouthwashes which are mainly used to freshen the breath or protect the teeth or mouth against plaque development or tooth decay, and (ii) mouth infection treatments used to treat specific medical problems such as mouth ulcers, gingivitis and throat infections, only for a short period [15].

38. The market investigation has confirmed that daily-use mouthwash and mouth infection treatments belong to two separate product markets, in particular, because of the different duration of their respective uses (daily v. short-term use), the different sales channels (grocery/retail v. pharmacies), their different indications (cosmetic v. infection treatment) and price differences.

39. It has also been largely confirmed that within daily-use mouthwash no distinction can be made to further separate the market. For the purposes of the present decision, the relevant product market is thus the market for daily-use mouthwash.

b) Relevant geographic markets

40. The parties submit that the relevant geographic markets for daily-use mouthwash are national markets. The large majority of respondents to the market investigation has confirmed this approach.

41. One respondent however pointed out that several factors indicate that the market is increasingly European in scope, i.e. the presence of all major players in most EU Member States; the small presence of purely national players; minimal variation in market shares of main players across different Member States; the fact that brand names are used EU-wide; the lack of importance of different oral care habits per Member State; the similarity of trade prices (as opposed to retail prices); the consolidation of customers (for example, Carrefour, Tesco, Ahold, Metro, Aldi); and the absence of national regulation.

42. Notwithstanding these indications there are a number of factors that contradict the notion of an EEA-wide market. Firstly, the retail prices differ significantly in each Member State by 15% to 20%. Respondents to the market investigation explained that such price differences result inter alia from the differences local competitive environments and the different costs for business activities (taxation, administration, transport costs). Secondly, the label and marketing is national, given that these have to be prepared in each language separately. Thirdly, the distribution channels remain national and sometimes local in scope. Fourthly, customer preferences vary significantly by country.

43. The Commission therefore concludes that, for the purpose of the present decision, the market for daily-use mouthwash is national in scope.

2. Toothpaste

a) Relevant product markets

44. The Commission has previously [16] considered toothpaste as a relevant product market, leaving open whether a sub-segmentation according to the different variants (such as regular/family toothpaste, children's toothpaste, whitening or sensitive toothpaste) is needed. The parties claim that also in this case the product market definition can be left open since the final assessment does not change under any alternative.

b) Relevant geographic markets

45. As regards the geographic market definition, the Commission has previously [17] assessed the toothpaste market both at national and at EEA-level, leaving open the final geographic market definition. Also in this case the definition can be left open since the final assessment does not change under both alternatives.

3. Shampoos

a) Relevant product markets

46. J&J sells baby shampoos, anti-dandruff shampoos and regular shampoos, while PCH sales "Pregaine", a volumising shampoo designed for those with thinning hair. The Commission has previously dealt with hair care products and considered that shampoos constitute a separate relevant product market [18]. The parties agree with this market definition.

47. The question whether shampoos constitutes the relevant product market or whether it can be further segmented by their intended use can in any event be left open since the transaction does not give rise to competition concerns under any alternative.

b) Relevant geographic markets

48. The Commission has previously left open the question of the geographic market definition for shampoos, leaving open the question of whether it is national or EEA-wide. Also in this case the definition can be left open given that, on the basis of any of the alternative geographic market definitions, the concentration does not give rise to competition concerns.

C. Nicotine Replacement Therapy ("NRT") products

1. Relevant product markets

a) Introduction

49. Smoking cessation products are aimed at reducing and ultimately eliminating the nicotine addiction that comes with smoking. There exist several pharmacological treatments for smoking cessation to deal with the physical withdrawal symptoms, such as cravings, irritability, inability to concentrate, and anxiety.

50. Over time, inhalation of nicotine through smoking increases the number of nicotine receptors in the brain; as a result, a smoker's brain requires a regular supply of nicotine to function normally. The vast majority of smoking cessation products are nicotine replacement therapy ("NRT") products, which provide smokers with a slow release of nicotine in gradually smaller doses, thereby reducing slowly smokers' dependence on nicotine. There are, however, other types of smoking cessation products, such as substances that acts as an inhibitor or antagonist of the nicotine neural receptor, thereby blocking the reward experience provided by nicotine.

51. The three main types of NRT products are (i) nicotine patches, (ii) nicotine gums and (iii) nicotine lozenges. Other formats include nicotine inhalators, nicotine nasal sprays and nicotine sublingual tablets, but these products account for less than 8% of NRT products sales in the EU. Transdermal patches were developed to deliver precise quantities of a drug through the skin for a prolonged period of time. Compared to traditional oral administration, transdermal delivery can increase the therapeutic effect of a drug and reduce side effects for example on the gastrointestinal tract. The patches can be applied to any hairless part of the upper body or the outside of the arm and allow the drug to permeate through the skin at a controlled rate over a period of time. A nicotine patch incorporates a series of thin, flexible films: a backing layer, a rate-controlling film and an adhesive and is designed to release nicotine. Nicotine patches either have a drug reservoir to store the nicotine or incorporate the nicotine into the adhesive.

b) The parties' activities

52. J&J’s subsidiary ALZA [19] develops and manufactures drug delivery mechanisms, including transdermal drug delivery patches (based on ALZA's D-Trans technology platform) which are applied to the skin and serve as a mechanism for controlled release of a drug (such as pain relievers, hormones or nicotine) for a prolonged period of time. ALZA supplies nicotine patches to several third parties, under exclusive long-term supply contracts. ALZA supplies nicotine patches to Sanofi-Aventis (for sale in the U.S. and South Korea), to PCH (for sale in Canada), and to GlaxoSmithKline (“GSK”) for sale everywhere in the world, except in the U.S., Canada and South Korea [20]. GSK markets nicotine patches under its NiQuitin brand in Europe, pursuant to an exclusive […] agreement from 1997. J&J does not however market nicotine replacement products anywhere in the world.

53. PCH manufactures and markets under the Nicorette brand a range of NRT products, including patches, gums, microtabs, nasal sprays and inhalators. It also supplies NRT products to the UK retailer Boots which Boots sells under its private label NicAssist brand in the UK.

54. The parties distinguish an upstream market for the manufacturing and direct sale of nicotine patches to pharmaceutical firms or retailers (private labels), and a downstream market for the supply of nicotine replacement therapy (“NRT”) products which are classified as N7B in the ATC system. The parties take the view that it can be left open whether nicotine patches and other NRT products such as gums or lozenges are substitutable from the customers’ point of view and constitute distinct product markets, as the case does not give rise to any horizontal overlap in the sale of NRT products.

c) Upstream market for the manufacturing and direct sale of nicotine patches

55. The market investigation has confirmed that the existence of a product market for the manufacturing and direct sale of nicotine patches, which is distinct from the manufacturing of other transdermal patches.

56. From the demand-side, nicotine patches and other transdermal patches are clearly not substitutable.

57. From the supply-side, the market investigation has confirmed the parties' view that manufacturers of (non-nicotine) transdermal patches could not develop, and start producing and marketing nicotine patches "in the short term without incurring significant additional costs or risks". Some respondents point out that some aspects of nicotine patches are protected by patents and other intellectual property rights, and that it may be an infringement to shift manufacturing from non-nicotine to nicotine. One respondent estimates that product development, testing, approval, and manufacturing would cost somewhere in the range of 15-26 million euros. Respondents generally estimate that it would take a minimum of four to five years for a patch manufacturer to supply a nicotine patch based on an existing non-nicotine patch. The time required for product testing and regulatory approvals alone is estimated at 2 years, and the time to construct a nicotine patch manufacturing site and have a nicotine patch line certified is estimated to be between 2 to 4 years.

d) Downstream market for the supply of NRT product/nicotine patches

58. Most NRT products are sold as OTC in pharmacies or, in the UK, as general items in other retail outlets such as grocery stores. In Luxembourg and Sweden, certain NRT products are only available on prescription, generally due to the fact that the product has only recently been launched on the market in question, but these products are likely to move to OTC status in the future. In some countries, such as the UK and France, NRT products are semi-ethical, i.e. reimbursed if prescribed (but also available without prescription and without reimbursement).

59. In their notification, the parties considered the NRT products only available on prescription as belonging to a prescription-bound market for N7B anti-smoking products, including Zyban (active substance bubropion, which acts as an inhibitor or antagonist of the nicotine neural receptor, thereby blocking the reward experience provided by nicotine) and prescription-bound NRT products.

60. The market investigation has clearly confirmed that other (non-NRT) smoking cessation products are not substitutable to NRT products. All respondents except two take the view that Zyban (with the active substance bupropion) is not substitutable as it is only available on prescription, and it relies on another mechanism of action to protect against physical cravings. Products based on clonidine (an anti-hypertension compound) and on nortriptyline (an antidepressant) are not registered for smoking cessation in Europe and are generally considered as "second line" therapies that should be given under close medical supervision.

61. Within the NRT products segment, the parties recognize that from a demand-side perspective, there are certain differences between different types of NRT products linked to customer preferences and possible side effects. PCH internal research indicates that patch users tend to be more serious about their quit attempt and more likely to have tried quitting before (with or without NRT), and tend to be more dependent on nicotine. They prefer the patch as it provides a steady dose of nicotine throughout the day. By contrast, gum users tend to be less serious about their attempt to quit and like the fact that gum keeps them from smoking and/or eating while trying to quit.

62. Most respondents in the market investigation take the view that there is some demand-side substitutability between nicotine patches and the other NRT products (nicotine chewing gums, nicotine lozenges, nicotine sublingual tablets, nicotine nasal sprays and nicotine inhalators [21]) on the grounds that they all rely on the same mechanism of action (slow delivery of nicotine into the patient's bloodstream) and do not need to be prescribed. However, some of the reasons provided for the reply point on the contrary to different product markets. In particular, respondents also stress that user preference for different NRT formats is very important as customers choose to use the form that it most suitable for them depending on side effects (for example, patches may cause skin irritation or a feeling of overdose at night while oral form allows a better control) or administration mode (patch being the easiest).

63. However, four respondents take the view that nicotine patches form a distinct product market from other NRT products on the ground that (i) patches are used differently from other products, as they are applied to the skin only once daily and constitute a passive and 'more medicinal' treatment (different administration mode); and (ii) consumer loyalty is high and consumers tend not to change between different NRT formats (user preference); patch users tend to purchase patches almost exclusively and gum users tend to purchase gum almost exclusively.

64. Given that the transaction raises problems on a separate market for OTC nicotine patches or a broader OTC market including other NRT products such as gums, lozenges, sublingual tablets and inhalators, the exact product market definition can be left open for the purpose of the present decision.

2. Relevant geographic markets

65. The parties take the view that the market for the manufacturing and direct sale of nicotine patches is worldwide, and the market for the supply of nicotine patches/NRT products is national.

66. The market investigation has entirely confirmed the parties' view that market for the manufacturing of nicotine patches is at least EEA-wide, and for most respondents, worldwide, and that the market for the supply of nicotine patches/NRT products is national for the same reasons as other OTC pharmaceuticals.

V. COMPETITIVE ASSESSMENT

67. Based on its market investigation, the Commission has identified serious competition concerns in three product areas: (i) topical dermatological antifungals in Italy; (ii) mouthwash in Greece; and (iii) nicotine patches and NRT products in general in the EEA markets.

A. OTC pharmaceuticals and personal care products

1. OTC products

a) Topical dermatological antifungals in Italy

68. In the field of antifungals, the only market affected by the proposed transaction is the market for topical dermatological antifungals in Italy, where the parties’ combined market share in 2005 would be [60-70]% (J&J, [40-50]% and PCH, [10-20]%).

69. J&J is present in Italy with its brands Daktarin, Pevaril and Nizoral. These products are based on the following active ingredients: miconazole (Daktarin), econazole nitrate (Pevaryl) and ketoconazole (Nizoral). Nizoral is sold exclusively in cream, Daktarin is sold in emulsion and tincture, and both Daktarin and Pevaryl are sold in cream/spray, powder and sachets [22].

70. PCH is active in Italy with its brand Trosyd, whose active ingredient is tioconazole and it is sold in the same forms and for the same applications as J&J's products (except for the treatment of fungal infections of the nails, for which Trosyd is in the form of ungueal solution instead of tincture).

71. The market investigation has confirmed that J&J's and PCH's products are close substitutes, and in particular that J&J's products constitute most of the times either the best or one of the best alternatives to PCH's products.

72. The most important competitor of J&J and PCH is Bayer with a market share of [20-30]% and other competitors are very fragmented with market shares around or below [0-5]%: Menarini ([0-5]%), Recordati ([0-5]%), Italfarmaco ([0-5]%) and others ([0-5] %).

73. Therefore, the transaction consists of the acquisition by the main player of the third largest player in the market, resulting in a combined market share of over [50-60]% and increasing the HHI [23] from 2,904 to 4,482, with a delta of 1,578.

74. Although the investigation has not revealed concerns from the competitors' point of view, it has confirmed that antifungals are not among the priority business of the smaller competitors who are more focused on other product areas. Therefore, it is highly unlikely that the remaining competitors (except Bayer) can constitute a credible competitive constraint to the merged entity given the small size of their activities in topical dermatological antifungals and the different focus of their current pharmaceutical activities.

75. Concerns were raised by certain wholesalers as regards the possible negative effects that the transaction may have on them due to the increased concentration of the market. These negative effects could be in particular related to supply restrictions that can be imposed by pharmaceutical producers [24] and deterioration of business terms.

76. Given the high market share that J&J will acquire in the market post-transaction and the fact that only one strong competitor will remain in the marketplace with no other credible alternatives, the Commission considers that the transaction is likely to create competition problems in this market. In particular, the elimination of one of the two significant competition constraints to J&J and the fact that J&J will have an appreciably larger market share than its immediate competitor (Bayer) may give rise to non-coordinated effects resulting in price increases for the final consumers that Bayer may find profitable to follow. Therefore, the proposed transaction raises serious doubts as to its compatibility with the common market and the EEA agreement.

b) Cold and flu treatments in France

77. The parties are both active in France with products classified in R5A. PCH sells one of the leading cold and flu medications in France, Actifed Rhume and Actifed Jour et Nuit. J&J's product in France is Rhinofebral (Rhinofebral Vit C and Rhinofebral Vervaine, Miel and Citron).

78. On the basis of a market comprising only products classified under ATC R5A, the parties would have a combined market share of [20-30]% in France (J&J [0-5]%, PCH [20-30]%). On the basis of a larger product market definition as discussed above (see recital (...)19), the parties would have a combined market share of [10-20]% in France (J&J [0-5]%, PCH [5-10]%).

79. After the proposed transaction the parties will continue to face competition from the leading cold and flu medication in France, Oscillococcinum (sold by Laboratoires Boiron, with a [20-30]% market share) and a number of other strong brands of other competitors (e.g., Bristol Myers Squibb with Fervex, [10-20]%, Urgo with Humex Rhume, [5-10]% and Sanofi-Aventis with Doli Rhume, [5-10]%). Oscillococcinum is a homeopathic product used by consumers as a cold and flu medication. It does therefore exercise competitive pressure on the parties' products.

80. Further competing products with lower market shares (under [0-5]%) are Rhinureflex and Nurofen Rhume (Reckitt Benckiser) and L 52 Antigrippe (Lehning). All of these products are classified in R5A and have a market share that is similar to Rhinofebral's share.

81. The Commission, therefore, concludes the proposed transaction does not raise serious doubts even on the basis of the narrowest possible product market definition (R5A).

c) Cold and flu treatments in Belgium and Luxembourg

82. On the basis of a market comprising only R5A, the parties’ combined market share in Belgium would be [60-70]% (J&J [10-20]% and PCH [40-50]%) and in Luxembourg [60-70]% (J&J [30-40]% and PCH [20-30]%) [25].

83. PCH's product in R5A is Sinutab, which is indicated for nasal and sinus congestion accompanied with a headache. J&J sells Rhinofebryl, which is positioned as a cold and flu remedy. Rhinofebryl is exclusively distributed in Belgium and Luxembourg by Melisana, which holds the marketing authorisation for this product.

84. The parties consider that, although included in the same R5A class, J&J’s and PCH’s products are not close substitutes. Sinutab combines an analgesic (paracetamol) and a decongestion ingredient (pseudoephedrine), while J&J's Rhinofebryl [26] combines an analgesic (paracetamol) and an antihistamine (chlorpheniramine). The parties state that these products have different therapeutic indications, are positioned differently and are prescribed and used for different purposes (if prescribed, both are available OTC).

85. In fact, under the OTC-IMS classification, Sinutab is classified under 01B2 (nasal decongestants) and Rhinofebryl is classified under 01B1 (cold remedies). Under the OTC-IMS classification, the combined market shares would thus be much lower (in Belgium the combined market share would be [20-30]%).

86. The market investigation has not confirmed the parties view. Most respondents to the market investigation explained that the parties' products are substitutable and that the fact that they are marketed and/or positioned differently by the parties has only a very limited effect on the actual use of the products as competing products.

87. Nevertheless the market investigation has largely confirmed the parties' view that the transaction does not cause and concerns on the markets for cold and flu treatments in Belgium and Luxembourg. It has been pointed out by most respondents that there is a large number of competing products that will continue to exercise competitive pressure on the parties' products. Products that respondents considered to be direct competitors are in particular Niocitran (Novartis, ATC R5A), Oscillococcinum (Boiron, R5A); Ratiogrippal (Ratiopharm, R5A); Lemsip (Reckitt-Benckiser); Afebryl (SMB); Cirrus (UCB, ATC R1B) and Rhinatiol (Sanofi-Aventis, ATC R1B) [27]. The market share of Oscillococcinum is significant with [20-30]%. Only a few respondents raised some moderate concerns about the effects of the transaction on the markets for cold and flu treatments in Belgium and Luxembourg due to the increase in competitive strength of the merged entity. These concerns have, however, not been substantiated.

88. It should finally be noted that no concerns would arise if the market were defined as being wider than R5A, which is supported by most market players (see recital (...)19).

89. For these reasons it can be concluded that the transaction does not give rise to competition concerns on the markets for cold and flu treatments in Belgium and Luxembourg (even if defined narrowly as R5A).

90. […].

d) Topical anti-haemorrhoidals in France

91. J&J’s Titanoreïne is the leading topical anti-haemorrhoidal product in France (non prescription-bound), the second largest product being Pfizer's Proctolog (prescription-bound). If a product market for all topical anti-haemorrhoidals is considered, J&J would have a market share of [30-40]% (Titanoreïne [30-40]% and Anoréïne [0-5]%), Pfizer [30-40]% (Proctolog), the other main competitors being Cooper ([5-10]%, Sedorrhoide), Wyeth ([5-10]%, Preparation H) and Pierre Fabre ([5-10]%, Cirkan). PCH would have a market share of [0-5]% with Anusol. If a product market only for non prescription-bound topical anti-haemorrhoidals is considered, J&J would have a market share of [60-70]% (Titanoreïne [60-70]%, Anoreïne [0-5]%), Cooper [10-20]% (Sedorrhoïde), Wyeth [5-10]% (Preparation H) and Merck [5-10]% (Phlebocreme and Phlebosup). It should be noted that Proctolog is not acquired by J&J in the context of the present transaction since it is not part of PCH.

92. The market investigation has shown that Titanoreïne's most significant competitor is Proctolog and that Anusol does not exercise any meaningful competitive pressure on Titanoreïne. Market players confirm that the vast majority (around 80%) of anti-haemorrhoidals are prescribed and that Titanoreïne and Proctolog are viewed by physicians as the two main alternatives. The two products are also reimbursed at the same rate (35%) if they are prescribed. According to the parties, Titanoreïne is prescribed in 75% of cases.

93. Most of the respondents consider Anusol as a marginal brand in France, confirming the parties' statements that the Anusol was a declining brand, not actively marketed and advertised by PCH. Certain respondents also pointed out that Anusol has an old formulation and that the brand name has a poor notoriety.

94. Thus, even if a narrow market definition is considered (only non prescription-bound anti-haemorrhoidals), the transaction does not give rise to any competitive concerns since PCH Anusol brand is marginal and J&J will remain mainly constrained by Pfizer's Proctolog and by other prescription-bound and non prescription-bound products.

e) Analgesics and antipyretics in Belgium and Luxembourg

95. On the Belgian and Luxembourg markets for analgesics and antipyretics, J&J sells Perdolan and Perviam, which are paracetamol-based. Perdolan is available in various formulations for adults and for children and infants. PCH sells Curpol, a paracetamol-based drug which is only available in formulations for infants and children.

96. The pain relief markets in Belgium and Luxembourg would only be affected markets if a distinction were made between pain relief for adults and pain relief for paediatric use. The parties' combined market shares on the market for analgesics for paediatric use would be [40-50]% in Belgium (J&J, [30-40]% and PCH, [0-5]%) and presumably similar in Luxembourg, for which such detailed data is not available [28]. The parties' activities would not overlap on a separate market for analgesics for adults, as Curpol is only for paediatric use.

97. On a wider market comprising analgesics for adult and for paediatric use the parties' combined market share would be [10-20]% in Belgium (J&J, [10-20]% and PCH [0-5]%) and [5-10]% in Luxembourg (J&J, [5-10]% and PCH, [0-5]%).

98. Even considering at a separate market for systemic analgesics for paediatric use, the overlap between the parties is limited with only a small increment from PCH’s product, Curpol of [0-5]%. Furthermore, there remain strong competitors: Reckitt Benckiser sells the leading product Junifen ([50-60]%, which is based on ibuprofen), Bristol Myers sells Dafalgan ([0-5]%, which is based on paracetamol), both of which have been growing over the years in the paediatric segment. Other products that compete with Curpol and Perdolan for paediatric use are Panadol (by GSK) and Algostase (by SMB), which are both based on paracetamol. Most respondents to the market investigation have confirmed that there is strong competition with a variety of different products to choose from. Moreover, market participants expect continuing competition from producers of generics. Accordingly, no serious concerns have been raised by any of the market participants.

99. For these reasons the Commission concludes that the proposed transaction does not raise any competition concerns under even the narrowest possible market definition.

f) Laxatives and heartburn relief in Germany

100. The parties’ activities only overlap in Germany, both for laxatives and antacids/H2 blockers [29]. If a market for antacids/H2 blockers and anti-flatulents (A2A and A2B1) is considered, it would not be affected (J&J, [5-10]% and PCH, [5-10]%). If a market for the combined antacids/H2 blockers (excluding anti-flatulents) (A2A1 and A2B1) is considered, it would be affected with a combined market share of the parties of [10-20]% (J&J, [5-10]% and PCH, [5-10]%). If antacids and H2 blockers are considered as separate markets, there would be no overlap, as PCH markets antacids and J&J markets H2 blockers. Even if a market for the combined antacids/H2 blockers (excluding anti-flatulents) is considered, the presence of a number of credible competitors with strong and well-know brands such as Bayer ([30-40]%), Klosterfrau ([10-20]%) or Altana ([10-20]%), and the fact that products are not close competitors as they belong to different ATC4 levels, lead to the conclusion the transaction does not give rise to any competition concerns as regards heartburn relief products in Germany.

g) Cough relievers in Spain

101. The parties overlap in cough relievers and/or expectorants in various Member States, but the transaction would give rise to an affected market only for cough relievers in Spain.

102. In Spain, PCH sells certain products that are indicated as cough suppressant: Iniston Antitussivo, Iniston Antitussivo y Decongestivo, Inistolin Pediatrico Antitussivo, and Benylin Decongestivo Infantil. These products are classified under R5D. J&J sells a plain cough suppressant classified in R5D, Frenatus. The parties combined market share on a market defined as R5D would be [20-30]% (PCH, [20-30]% and J&J, [0-5]%).

103. The combined entity will be faced with strong competition from other products. The market leader is Boehringer Ingelheim with Bisolvon ([30-40]%). Other strong competitors are Bayer with Romilar ([10-20]%) and Pastillas Dr Andre ([5-10]%), Ferrer with Pilka ([5-10]%) and Cinfa with Cinfatos ([5-10]%).

104. Given the strong competition that the combined entity will face post-transaction and the fact that the overlap is minimal, the Commission concludes that the transaction does not raise serious doubts on the market for cough relievers in Spain.

h) Ocular decongestants and ocular anti-allergics in Belgium, Czech Republic, Germany and Spain

105. If ocular decongestants and ocular anti-allergics are considered as a single product market, there would be affected markets in Belgium (J&J [20-30]% and PCH [0-5]%), the Czech Republic (J&J [0-5]% and PCH [20-30]%), Germany (J&J [10-20]% and PCH [10-20]%) and Spain (J&J [0-5]% and PCH [40-50]%). However, given the moderate levels of combined market shares post transaction (Belgium, Czech Republic and Germany) and/or the minimal accretion of market shares (Belgium and Spain), the transaction does not give rise to any competition problems.

106. If ocular decongestants and ocular anti-allergics are considered as two separate product markets, then the only overlap would occur in Spain, which would be an affected market for ocular decongestants with a combined market share of [60-70]% (J&J, [0-5]% and PCH, [50-60]%). Given the minor accretion of market share, the transaction does not change significantly the Spanish competitive market structure and therefore the transaction does not give rise to any competition problems either.

2. Personal care markets

a) Daily-use mouthwash

107. J&J sells daily-use mouthwash under the ACT or REACH brands only in the United Kingdom (REACH), Ireland (REACH), the Benelux (ACT), Greece (ACT) and Portugal (REACH) [30]. PCH sells a daily-use mouthwash, Listerine, in all these countries, except Hungary. Listerine is a best selling mouthwash in many countries. PCH also sells a range of medicated mouthwashes containing hexitidine as their active ingredient (Hextril), an antiseptic used to treat mouth infections. J&J does not sell such mouth infection treatments. Accordingly, the parties' activities only overlap in daily-use mouthwash products.

108. The markets of daily-use mouthwash in Belgium/Luxembourg [31], Greece, Ireland, the Netherlands and the United Kingdom are affected.

| PCH (Listerine) | J&J (ACT or REACH) |

Belgium/Luxembourg | [20-30]% | [0-5]% |

Greece | [70-80]% | [5-10]% |

Ireland | [70-80]% | [0-5]% |

Netherlands | [30-40]% | [0-5]% |

United Kingdom | [40-50]% | [0-5]% |

109. The Commission's market investigation focused on the markets in Greece and The Netherlands, as these are the only countries where the overlap was noticeable (above [0-5]%). It has found out that the transaction raises serious doubts as regards the effect of the transaction on competition only on the Greek market for daily-use mouthwash. The vast majority of respondents to the market investigation raised concerns about the strength of the parties in the Greek market with a combined market share of at least [80-90]%.

110. As regards the Dutch, Irish, Belgian, Luxembourg and UK markets, no competition concerns were identified due to the small overlap between the parties and the existing strong competition. The only other market with a noticeable overlap, The Netherlands, is characterised by strong competitors and strong private label products. Accordingly, no concerns were raised by the respondents to the market investigation.

111. In Greece, the parties' argument that J&J's brand ACT is […] brand, into which no investment is made and that is losing market share has been accepted, in principle, by many respondents. However, ACT alone has a market share in Greece that equals the market share of the numbers 3 and 4 players combined. [32] The decline of ACT – mostly due to a lack of advertising and promotion by J&J in recent years [33] – has, therefore, not been perceived as endangering its position as number 2 player in the Greek market. The market investigation has also shown that private labels are not yet very strong in Greece with an overall market share of below [0-5]%. Private labels would, therefore, not be able to exercise significant competitive pressure on the combined entity. There have been no indications that this would change in the near future, given the relatively strong brand recognition of the established brands.

112. A majority of respondents has raised concerns as regards the increased ability of the combined entity to compete for shelf space, advertising and promotional activities at retailers, which could lead to a marginalisation of competitors in Greece. The parties would, therefore, be able to dominate in store marketing opportunities and could leverage their position to negotiate favourable shelf space and promotional opportunities with retailers. These are important aspects for the effectiveness of daily-use mouthwash competitors in Greece, as the main barrier to entry is to achieve listings with retailers and obtain attractive shelf space. This is confirmed by the fact that in the past shelf space that was liberated by de-listed competitors has been occupied by the leading player rather than by smaller competitors or new entrants. Moreover, new entrants, such as GSK with Sensodyne, have not managed to gain significant market shares after their entry (Sensodyne had a market share of approximately [0-5]% in 2005 and entered in late 2003).

113. Accordingly, there are serious concerns that the proposed transaction would significantly strengthen the parties’ market power on the Greek market for daily-use mouthwash, leading to a significant lessening of efficient competition.

b) Toothpaste

114. The transaction does not give rise to affected markets as regards toothpaste. On the basis of an overall market for toothpaste, the parties’ combined market share at any national level would be well below [0-5]%. The same stands at the EEA level, with a combined market share of around [0-5]%. If narrower product markets are considered, there would be no overlap since J&J sells only whitening toothpaste under the Rembrandt brand while PCH does not sell whitening toothpaste.

115. The transaction therefore does not give rise to competition concerns as regards toothpaste.

c) Shampoos

116. PCH sells a specialised volume-enhancing shampoo under the Pregaine brand, designed to care for thinning hair, in several Member States. J&J sells shampoos in most countries in Europe with the brands Neutrogena (regular and therapeutic anti-dandruff shampoos), Johnson’s (baby shampoos), Nizoral (anti-dandruff/antifungal shampoo) and Aveeno (regular shampoo).

117. There are no affected markets either at national or at EEA level if an overall shampoo market is considered (J&J’s market share is below [0-5]% and PCH’s market share below is [0-5]%), the clear market leaders being Procter & Gamble (with the brands Pantene and Head & Shoulders, with a market share of around [20-30]%), L’Oreal (e.g., Elsève and Fructis, with a market share of [10-20]%), and Unilever (e.g., Dove, with a market share of [5-10]%). If a narrower product market definition according to the intended use of the shampoo is retained, the transaction does not lead to any horizontal overlap.

118. The transaction therefore does not give rise to competition concerns as regards shampoos.

B. NRT products

1. Introduction

119. The three main players active in national markets for NRT products, including nicotine patches, in the EEA are PCH, GSK, and Novartis. In addition, Pierre Fabre is active in France, and since earlier this year, Ireland and Portugal. Riemser is active in Germany. There are also suppliers of homeopathic OTC anti-smoking products in Germany, Latvia, Lithuania and Poland. GSK is generally the leading market player as regards nicotine patches (in particular due to the NiQuitin clear patch), and PCH is the leading market player as regards gums (due to its extensive range of flavour offerings).

Table – 2005 market shares for NRT products in EU Member States (by volume) [34]

| Company | All NRT | Patches | Gums | Lozenges | Other |

Austria | PCH | [80-90] | [30-40] | [90-100] | | [90-100] |

| Novartis | [10-20] | [60-70] | [5-10] | [90-100] | |

Belgium | GSK | [30-40] | [60-70] | | [90-100] | |

| PCH | [50-60] | [5-10] | [80-90] | | [90-100] |

| Novartis | [10-20] | [30-40] | [10-20] | | |

Cyprus | N/A | - | - | - | - | - |

Czech Republic | GSK | [30-40] | [70-80] | | | |

| PCH | [50-60] | [20-30] | [80-90] | | [90-100] |

| Novartis | [0-5] | | [10-20] | | |

Denmark | PCH | [50-60] | [50-60] | [40-50] | | [90-100] |

| Novartis | [40-50] | [40-50] | [50-60] | [90-100] | |

Estonia | PCH | [90-100] | [90-100] | | | [90-100] |

| Novartis | [0-5] | | [90-100] | | |

Finland | PCH | [50-60] | [40-50] | [50-60] | | [90-100] |

| Novartis | [40-50] | [50-60] | [40-50] | [90-100] | |

France | GSK | [10-20] | [30-40] | [0-5] | [30-40] | |

| PCH | [40-50] | [10-20] | [70-80] | | [90-100] |

| Novartis | [10-20] | [10-20] | [10-20] | [0-5] | |

| Pierre Fabre | [20-30] | [40-50] | 0 | [50-60] | |

Germany | GSK | [0-5] | [0-5] | | [20-30] | |

| PCH | [50-60] | [30-40] | [70-80] | | [80-90] |

| Novartis | [30-40] | [60-70] | [20-30] | [70-80] | |

| Riemser | 0 | [0-5] | | | |

| Inter-Breviph | 0 | | | | [10-20] |

| Pharmakon | 0 | | | | [0-5] |

Greece | PCH | [90-100] | [90-100] | [90-100] | | |

Hungary | GSK | [40-50] | [60-70] | | [70-80] | |

| PCH | [10-20] | [10-20] | [20-30] | | |

| Novartis | [30-40] | [10-20] | [70-80] | [20-30] | |

Ireland | GSK | [10-20] | [40-50] | | [70-80] | |

| PCH | [70-80] | [40-50] | [80-90] | | [90-100] |

| Novartis | [5-10] | [5-10] | [10-20] | [20-30] | |

Italy | GSK | [40-50] | [70-80] | | [60-70] | |

| PCH | [50-60] | [20-30] | [90-100] | | [90-100] |

| Novartis | [5-10] | [0-5] | | [30-40] | |

Latvia | PCH | [80-90] | [90-100] | [90-100] | | |

| Novartis | [0-5] | [0-5] | | | |

| Sopharma | [10-20] | | | | [90-100] |

Lithuania | PCH | [80-90] | [90-100] | [90-100] | | |

| Aconitum | [10-20] | | | | [90-100] |

Luxembourg | GSK | [10-20] | [80-90] | | | |

| PCH | [70-80] | [5-10] | [90-100] | | [90-100] |

| Novartis | [0-5] | [0-5] | [5-10] | | |

Malta | N/A | - | - | - | - | - |

Netherlands | GSK | [30-40] | [30-40] | | [40-50] | |

| PCH | [30-40] | [5-10] | [70-80] | | [90-100] |

| Novartis | [50-60] | [60-70] | [20-30]] | [50-60] | |

Poland | GSK | [40-50] | [60-70] | [5-10] | [90-100] | |

| PCH | [50-60] | [30-40] | [90-100] | | [40-50] |

| P.Z. Cormay | [0-5] | | | | [40-50] |

Portugal | GSK | [10-20] | [30-40] | | | |

| PCH | [50-60] | [20-30] | [70-80] | | |

| Novartis | [30-40] | [30-40] | [20-30] | [90-100] | |

Slovakia | GSK | [10-20] | [30-40] | | | |

| PCH | [80-90] | [60-70] | | | |

Slovenia | PCH | [90-100] | | | | [90-100] |

Spain | GSK | [0-5] | [10-20] | | | |

| PCH | [50-60] | [20-30] | [60-70] | | |

| Novartis | [40-50] | [60-70] | [30-40] | [90-100] | |

Sweden | GSK | [0-5] | [40-50] | | [5-10] | |

| PCH | [40-50] | [20-30] | [50-60] | | [90-100] |

| Novartis | [40-50] | [30-40] | [40-50] | [90-100] | |

UK | GSK | [30-40] | [40-50] | [5-10] | [80-90] | |

| PCH | [40-50] | [30-40] | [60-70] | | [80-90] |

| Novartis | [10-20] | [10-20] | [10-20] | [10-20] | |

| Boots | [0-5] | [0-5] | [5-10] | [0-5] | [5-10] |

120. Focusing on nicotine patches, this table shows that today PCH and GSK compete in the supply of nicotine patches in 15 out of 25 Member States. In most Member States where they are both active, GSK's NiQuitin has by far the highest market share (about [60-70]% in Belgium, Czech Republic, Hungary, Italy, and Poland; about [40-50]% in Ireland and the UK). In particular, GSK markets the only transparent patches on the market (although it still markets some pink/skin-colour patches under the NiQuitin brand). In seven Member States, NiQuitin and Nicorette account for over [70-80]% of the sales of nicotine patches, with each product accounting for over [10-20]% of the market.

2. Horizontal overlaps

121. There is a limited horizontal overlap between the parties in the upstream market for the manufacturing and supply to third parties of nicotine patches since PCH supplies nicotine patches to Boots. The other company active in this market is Lohmann Therapy Systems (“LTS”).

122. ALZA’s estimated share in the manufacturing of all nicotine patches sold worldwide is 45-50% according to the parties. In 2005, ALZA sold […] million nicotine patches ([…] million to GSK). PCH produced and sold […] million nicotine patches. The market investigation confirmed the parties' market share estimates.

123. The proposed transaction does not lead to any change on this upstream market as ALZA only supplies three companies under exclusive long-term agreements (Sanofi-Aventis for the U.S. and South Korea, Pfizer for Canada, and GSK for the rest of the world except the U.S., South Korea, and Canada). ALZA is therefore currently contractually prohibited from supplying other third parties with nicotine patches and was not competing with Pfizer for the supply of nicotine patches to private label suppliers such as Boots or to other OTC suppliers such as Pierre Fabre. PCH sales of nicotine patches to Boots are in any event minimal.

124. On the downstream markets for NRT products, there is no horizontal overlap between the parties since J&J is not active in this segment.

3. Vertical relationship

125. However, the merger raises a vertical issue: as a result of the transaction, J&J will own a leading NRT patch brand (PCH’s Nicorette) and it will be the sole supplier of nicotine patches to its principal downstream competitor, GSK.

126. The market investigation has confirmed that the vertical relationship created by the merger raises competition concerns at several levels. In particular, there is a risk that post-merger the merged entity will have the ability and incentive to foreclose its rival GSK from the market for nicotine patches/NRT products in the EEA by making it harder for it to obtain supplies of the NiQuitin patches under similar prices and conditions as absent the merger, to the advantage of the merged entity's Nicorette business, leading to harm to consumers (risk of input foreclosure). In addition, there is a risk that, through ALZA, J&J has access to confidential and sensitive information from a competition point of view relating to GSK's NiQuitin business which it could post-merger use to the benefit of the acquired PCH's Nicorette business.

a) Input foreclosure

127. J&J/ALZA would have the ability to reduce the competitiveness of NiQuitin through various means, such as limiting or reducing supply, degrading quality, increasing costs of goods, or disrupting R&D.

128. The market investigation has shown the importance of timely supply as the supply of nicotine patches can be characterised by seasonal peaks or other peaks following the introduction of a smoking ban in a country. GSK is also dependent on J&J's willingness to increase the volumes supplied in case of launch into a new country.

129. Any reduction in patch quality would also damage GSK's NiQuitin business. Although GSK has a contractual right to reject sub-standard patches, it would be inefficient for GSK to have to re-check the quality of the patches before delivery to the trade. GSK only rejects patches after retailers and consumers have identified a problem. J&J could also increase the price it charges for the nicotine patches supplied to GSK.

130. There are no alternative suppliers from which GSK can source its NiQuitin patches, as the contract is exclusive. The only other manufacturer of nicotine patches, LTS, has already structural links with Novartis. In addition, only J&J manufactures transparent nicotine patches and it has patent protection for this patch. Switching to only pink patches would severely damage the NiQuitin brand.

131. J&J/ALZA would also have the incentive to engage into input foreclosure. The market investigation has confirmed that PCH's Nicorette and GSK's NiQuitin are the two main nicotine patches marketed in the EEA, and that most consumers if they no longer had access to the NiQuitin patch would switch to Nicorette. J&J's input foreclosure strategy would therefore directly benefit its new Nicorette business, by increasing sales of Nicorette patches. Alternatively, by increasing its rival' costs, J&J could force GSK to either increase the prices it charges its customers or reduce its marketing and advertising expenses, thereby generally reducing the competitive constraints NiQuitin exerts on Nicorette. Respondents to the Commission's market investigation questioned the incentive for J&J to have two brands competing against each other.

132. Such input foreclosure strategy would have a direct impact on competition on the downstream markets for NRT products or nicotine patches, by reducing the competitive constraints NiQuitin exerts on Nicorette, leading to reduced choice and increase prices for consumers across the board.

b) Access to and use of confidential information

133. J&J will have access to commercially strategic information (e.g., costs, forecast volumes, sales data, marketing and sales strategy) relating to NiQuitin, which would allow it to adjust the pricing and marketing of its Nicorette products. As manufacturing costs represent a substantial share of the cost of the total cost of NiQuitin patch, information on the production costs of NiQuitin nicotine patches would provide a significant competitive advantage to J&J.

134. Under its agreement with ALZA, GSK has to disclose significant forecast information in relation to volumes per country, sales data and its marketing and sales strategy for the NiQuitin patches, up to […] in advance. GSK would need to disclose impending launches to J&J, with sufficient notice to allow packaging preparations and stock-building.

135. For these reasons, the proposed concentration notified raises serious doubts as to its compatibility with the common market as regards the markets for the supply of nicotine patches, and NRT products in general, in the EEA.

VI. REMEDIES

A. Procedure

136. As explained in the Commission notice on remedies [35], where a concentration raises serious doubts about its compatibility with the common market, the parties may seek to modify the concentration in order to resolve the competition concerns identified by the Commission. In assessing whether or not the remedy will restore effective competition, the Commission considers the type, scale and scope of the remedies by reference to the structure of and particular characteristics of the markets in which competition concerns arise. In so doing, the Commission has to assess both, (i) the independence, the viability and the competitiveness of the divested business on the long term and (ii) the effectiveness of the proposed remedy in removing the competition concerns. In order to carry out this assessment, the Commission may seek the views of competitors and customers on the relevant markets.

137. The parties submitted remedies on 20 November 2006 and a revised version on 6 December 2006, taking into account of concerns that the Commission raised as a result of the market test of the first set of remedies.

B. Description of the remedies

1. Topical dermatological antifungals in Italy

138. With the objective of resolving the serious doubts identified by the Commission in the market for the supply of topical antifungals in Italy, J&J proposed the commitments summarised below:

- J&J commits to divest the OTC topical dermatological antifungal formulations currently supplied by PCH in Italy under the trademark “Trosyd”. These formulations include: Trosyd Ungeal Solution, Trosyd Cream, Trosyd Emulsion, Trosyd Powder and Trosyd Sachets.

- The divestiture will consist of the sale or assignment of the relevant assets, such as goods and inventory, marketing authorisations, clinical data and studies, exclusive right to use the Trosyd and Trosid trademarks in Italy and intellectual property rights and know-how for the manufacture and sale of the Trosyd Formulations.

- J&J and Pfizer also commit to enter, at the option of the Purchaser, into supply or toll-manufacturing agreements for a given period of time for the supply or toll-manufacturing of the Trosyd formulations, and the partial assignment of the current Pfizer’s contract with a third party for the production of one of the Trosyd formulations.

139. J&J and Pfizer also commit, at the option of the Purchaser, to provide reasonable technical assistance to the Purchaser to take over the production, sale and marketing of the Trosyd formulations for a period of time and at a cost plus basis to be agreed with the Purchaser.

2. Daily-use mouthwash in Greece

140. With the objective of resolving the serious doubts identified by the Commission in the market for the supply of mouthwash products in Greece, J&J proposed the commitments summarised below:

- J&J commits to divest its ACT daily-use mouthwash business in Europe (including the EEA and Switzerland).

- The divestiture will consist of the sale of the assets associated with the ACT mouthwash business, such as goods and inventory, marketing authorisations, assignment of the ACT trademark in the EEA and Switzerland, intellectual property rights and know-how for the manufacture and sale of the product, bottle moulds (at the option of the Purchaser), batch control documents, domain name www.actfluoride.eu and other data, books and records.

- J&J also commits to:

– enter, at the option of the Purchaser, into supply or toll-manufacturing agreements for a given period of time for the supply or toll-manufacturing of the ACT mouthwash products,

– at the option of the Purchaser, to provide reasonable technical assistance to the Purchaser to take over the production, sale and marketing of the ACT mouthwash for a period of time and at a cost plus basis to be agreed with the Purchaser,

– at the option of the Purchaser, transfer the agitator and filling line currently used for the production of the ACT mouthwash, and

– at the option of the Purchaser, provide the necessary training for the production of the ACT mouthwash.

3. Nicotine patches

141. With the objective of resolving the serious doubts identified by the Commission in the market for the supply of nicotine patches in the EEA, J&J proposed the commitments summarised below:

Divestiture of ALZA’s international nicotine patch manufacturing business (“International Nicotine Patch Business”) (Paragraph 5 of J&J's Commitments)

- The Parties have offered to divest the International Nicotine Patch Business of ALZA, i.e. ALZA’s supply business of transdermal nicotine patches outside the U.S., Canada and South Korea. This business consists in the manufacture of nicotine patches for exclusive supply to GlaxoSmithKline (“GSK”).

Divestiture of ALZA’s global nicotine patch manufacturing business (“Global Nicotine Patch Business”)

- If within a first divestiture period, the parties do not conclude a final binding agreement for the sale of the International Nicotine Patch Business with a suitable Purchaser, the Global Nicotine Patch Business, i.e. including the U.S., Canada and South Korea, will be divested by the parties. The Global Nicotine Patch Business consists in the manufacture of nicotine patches for supply to GSK as well as to other companies active in the U.S. and South Korea (Sanofi-Aventis), and Canada (Pfizer).

142. J&J has offered to transfer the entire International or Global Nicotine Patch Business including all tangible and intangible assets and personnel to a suitable purchaser. The following main assets would be transferred:

- upon the request of the Purchaser, all production equipment necessary for the manufacture of nicotine patch products for the requirements of the International/Global Nicotine Patch Business;

- ALZA’s transdermal patch production facility at Cashel by way of lease (or at the option of the Purchaser of a temporary sale) for a period of (at least) 3 years; the duration of the temporary transfer shall be at least until such time as the Purchaser has established the International/Global Nicotine Patch Business as a viable and independent business at its own premises as certified by the Monitoring Trustee;

- all relevant trademarks relating to the International/Global Nicotine Patch Business;

- an exclusive perpetual and irrevocable licence to use any of ALZA’s intellectual property rights in relation to nicotine patches (using nicotine or nicotine in combination with another compound) in the relevant territory (i.e., worldwide except U.S., Canada and South Korea in the case of the International Nicotine Patch Business and worldwide in the case of the Global Nicotine Patch Business), subject to pre-existing third party rights;

- a non-exclusive, perpetual and irrevocable licence to use any of ALZA’s intellectual property rights in relation to transdermal patches for other purposes than nicotine replacement therapy products, subject to any pre-existing third party rights and use for products that ALZA has already commercialised itself or that it is actively developing; and

- the perpetual, irrevocable and non-exclusive right to use any improvements to the underlying D-Trans technology, which arise up until the time of Closing (subject to pre-existing third party rights).

- Moreover, the parties commit to ensuring that the supply to ALZA’s current customers (GSK, Sanofi-Aventis and Pfizer) will be maintained during a transitional period of […] (“Transitional Period”), which can be extended with the mutual consent of the parties and of the Monitoring Trustee (see section 4 of the International/Global Patch Business Schedules). The transitional supply will be ensured by way of ALZA providing contract manufacturing services for the Purchaser’s requirements of nicotine patches (for onward supply to the customers of the Global/International Nicotine Patch Business). ALZA will also provide technical assistance to the Purchaser during the Transitional Period.

- Firewalls are proposed to prevent that any confidential information is exchanged between J&J/ALZA and PCH’s Nicorette business.

- Last, the Parties propose to keep in place the hold-separate obligations ensuring that the International/Global Nicotine Patch Business is kept separate from the new entity until the end of the Transitional Period.

C. Assessment of the remedies

1. Topical dermatological antifungals in Italy

143. The Commission market tested the proposed remedies in the field of topical dermatological antifungals in Italy. The vast majority of respondents to the market test considered that the proposed remedies solve the competition concerns identified by the Commission. The proposed remedies would indeed entirely remove the overlap between the parties’ activities.

144. As regards the transfer of the divested business, most respondents took the view that the transfer of J&J Trosyd business is not likely to raise particular difficulties. In particular, all respondents to the markets considered the duration of the supply or toll-manufacturing agreements for the supply of Trosyd formulations ([…]) was appropriate. Respondents have also considered that the provisions regarding technical assistance during the transition period as well as the supply of tioconazole for the production of Trosyd formulations (maximum […]) are sufficient and adequate to guarantee a smooth and efficient transfer of the divested business.

145. The divested business is also considered as a viable business by the majority of respondents and it is expected that the purchaser of the divested business will become an independent competitive force on the market after the end of the transitional period.

146. On the basis of the foregoing, the Commission has concluded that the proposed remedies are sufficient to remove the competition concerns identified as regards topical dermatological antifungals in Italy.

2. Daily-use mouthwash in Greece

147. The Commission is of the view that the proposed remedy removes the competition concerns and restores effective competition, as it removes the entire overlap in Greece and even beyond. In particular, the divested business will have a sufficient size to constitute a viable competitor for daily-use mouthwash. The fact that the divestment concerns the European-wide business, rather than being limited to Greece, ensures that the purchaser will acquire a sizeable business with a well-known brand and a complete portfolio of product formulations that it can expand throughout Europe. The ACT brand is a recognised brand that can easily be promoted by additional advertising and marketing efforts.

148. As confirmed by the market test, the divested business contains all tangible and intangible assets that the purchaser will need to conduct the business as a viable and independent business, i.e. the relevant trademarks, product formulations, know-how and customer details.

149. The activities relating to the manufacture and distribution of ACT mouthwash do not require specialised knowledge and could easily be outsourced to third parties. Should the purchaser, however, wish to take over the entire work-stream, the proposed remedy will provide for this as well. First, J&J offers to divest the two main pieces of equipment that are used for manufacturing ACT daily-use mouthwash, i.e. an agitator and a filling-line, if the purchaser so requests. Secondly, the additional commitments concerning technical assistance and the training of personnel will help to ensure that the purchaser will have the necessary expertise and abilities to establish the business as a viable and independent competitor as a going concern. The manufacture of daily-use mouthwash does not require any specialised personnel, as the process is standardised and can be performed by any appropriately trained personnel of a cosmetic's producer. The Commission is, therefore, satisfied that the training of the purchaser's personnel will be sufficient to ensure that the divested business can operate efficiently. The same is true for the distribution of ACT mouthwash, which can be done by any company with the relevant experience in the cosmetics retail sector.

150. The market test has also confirmed that the proposed remedy will remove the competition concerns. The Commission, therefore, concludes that the divestiture of the European-wide ACT business will restore effective competition and that the proposed transaction does not raise competition concerns on condition of the implementation of this remedy.

3. Nicotine patches

151. The Commission takes the view that the remedies proposed by the parties solve the competition concerns brought about by the vertical relationship between J&J’s activities in the supply of nicotine patches, through its subsidiary ALZA, and GSK NiQuitin NRT business. The proposed remedies will structurally eliminate this vertical relationship as J&J will divest part or all of ALZA’s nicotine patch manufacturing business and will not supply any more GSK in the EEA.

152. The market test of the remedies has confirmed that the divested business is attractive and viable and that the commitments will enable the Purchaser to set up its own nicotine patch business. The commitments also foresee specific measures to prevent any competition problem during a transitional period (e.g. Hold Separate manager, lease of Cashel plant, firewalls) and to support the establishment of the Purchaser’s nicotine patch manufacturing business (e.g. technical assistance, transfer of certain raw material supply contracts).

153. The divested business covers a broad range of material and immaterial assets to be transferred to the Purchaser. As regards manufacturing facilities, the Purchaser will have the option to purchase two out of three (International business) or all (Global business) of ALZA’s nicotine patch production lines and related equipment. Combined with J&J’s technical assistance and the optional transfer of key production personnel, this will allow the Purchaser to take over ALZA’s position and manufacture nicotine patches independently.

154. As regards immaterial assets, ALZA’s supply contract with GSK will be assigned to the Purchaser (subject to GSK’s consent for the International business) which will supply GSK in the EEA, as of the closing of ALZA’s nicotine patch business divestiture. On the raw material side, the relevant existing supply contracts of ALZA that can be assigned will be transferred to the Purchaser and J&J commits to assist the Purchaser in sourcing the other raw materials required for the production of nicotine patches. If the Purchaser is not able to source such raw materials, J&J commits to enter into back-to-back supply agreements with certain raw material suppliers and the Purchaser to make such raw materials available to the Purchaser.

155. The Purchaser will also acquire the entire ALZA nicotine patch technology (existing and on-going developments) and will have the exclusive right to further develop such technology for nicotine patches in the relevant territory. In addition, the Purchaser will be granted a non-exclusive right to further develop such technology for other end applications. The Purchaser will also be granted the option to hire part of ALZA’ research and development personnel to set up its own capabilities in this domain. The ability to receive the licensed technology and to further develop, or have developed, such technology is also part of the criteria set out in the Commitments for the suitability of the Purchaser.

156. These provisions ensure that the Purchaser will not only have the capability to manufacture nicotine patches but also to continue to improve such products and bring innovations on the market. In particular, the Commission considers that Purchaser's right to develop the transferred technology in other fields of use increases the attractiveness of the divested business and may significantly increase the Purchaser's incentives to invest in research and development on transdermal patches.

157. The market investigation has clearly confirmed that both the International and the Global business are sizeable and viable businesses. In terms of size, it should be recalled that ALZA’s nicotine patch production accounts for roughly half of the global production and that the capacity of […] production lines of ALZA (International business) is sufficient to meet GSK’s global nicotine patch need.

158. Moreover, the commitments provide sufficient guarantees for the period before the closing of the divestiture and the transitional period (during which the Purchaser will transfer, install and validate the production lines).

159. As regards the period before the closing of the divestiture, J&J will voluntarily renounce to certain of its right under the GSK supply agreement, in particular the right to increase prices retroactively and certain information right concerning GSK's downstream marketing and sales.

160. As regards the transitional period, first, the Purchaser will lease or acquire the Cashel plant immediately after the divestiture of ALZA's nicotine patch business and will thus immediately be able to supply GSK with nicotine patches in the EEA, independently from GSK. The Purchaser will lease or own the Cashel plant as long at it has not become fully operational, as verified by a Monitoring Trustee.

161. Secondly, J&J commits to provide technical assistance during the transitional period to facilitate the transfer and the validation of the production lines. In addition, the commitments foresee that J&J is to provide such technical assistance in accordance with good industry practice and expeditiously.

162. Thirdly, during this transitional period, the risks of input foreclosure and access to confidential information will be eliminated by various measures. ALZA's nicotine patch business will be operated by a Hold Separate Manager, which will enforce strict firewalls and separating measures between this business and PCH’s Nicorette business under the supervision of the Monitoring Trustee.

163. The vast majority of respondents to the market considered that the lease of the Cashel plant during the transitional period (or its temporary purchase) is necessary to fully remove competition concerns over this period and would facilitate the start-up of the Purchaser's nicotine patch business. Most of the respondents considered that the temporary transfer of the plant was operable and was not expected to raise insurmountable industrial issues.

164. One respondent, however, expressed concerns as regards the security of supply during the transfer of ALZA's production lines to the Purchaser, in particular in case of disruption of the production in the Cashel plant. This respondent submitted that the temporary transfer of the Cashel plant could raise serious operational issues depending on the identity of the Purchaser and that it was essential that the personnel running the production facility would remain in place during the transitional period

165. Although these issues have not been raised by other market respondents, the parties have included additional safeguards in the final version of the commitments to address these concerns. First, the commitments foresee very strict criteria for the suitability of the Purchaser to ensure it is able to run such production facility. Secondly, the commitments state that J&J will incentivise the Key Personnel at Cashel to continue employment with the Purchaser and include a non-solicitation clause for the personnel of Cashel during the transition period. Finally, J&J commits to keep an adequate safety stock of products during the duration of the transitional supply agreement and the Monitoring Trustee may recommend additional supply-related measures to ensure availability of the product.

166. In view of the above, the Commission, therefore, concludes that the divestiture of ALZA International or Global nicotine patch business will restore effective competition and that the proposed transaction does not raise competition concerns on condition of the implementation of this remedy.

D. Conditions and obligations

167. The commitments under Section B, points 1 to 3 of the Commitments attached herewith constitute conditions of this decision, as the structural change on the relevant markets can only be achieved through full compliance therewith.

168. The remaining commitments constitute obligations, as they concern the implementing steps, which are necessary to achieve the sought structural change.

VII. CONCLUSION

169. In view of the above, the Commission has decided not to oppose the notified operation and to declare it compatible with the common market and with the EEA Agreement. This decision is adopted in application of Article 6(2) of Council Regulation (EC) No 139/2004.

For the Commission

signed

Benita FERRERO-EALDNER

Member of the Commission

Johnson & Johnson/Pfizer Consumer Healthcare

Case No. COMP/M.4314

Commitments to the European Commission

(J&J Commitments)

Pursuant to Article 6(2) of Council Regulation (EC) No. 139/2004 (the “Merger Regulation”), Johnson & Johnson (“J&J”) hereby provides the following commitments (the “Commitments”) in order to enable the European Commission (the “Commission”) to declare the acquisition of Pfizer Consumer Healthcare (“PCH”) by J&J compatible with the Common Market and the EEA Agreement.

Pfizer will provide separate commitments limited to specific obligations pertaining to the Trosyd divestiture and the preservation of the viability, marketability and competitiveness of the Divestiture Businesses held by Pfizer prior to the closing of the J&J/PCH transaction. Pfizer will sign a separate undertaking to this effect. All other Commitments are given by J&J.

The Commitments shall take effect upon the date of adoption of the Commission Decision pursuant to Article 6(1)(b) of the Merger Regulation in this case (the “Decision”) but the divestiture commitments in Section B shall be subject to the closing of J&J’s acquisition of PCH.

This text shall be interpreted in the light of the Decision to the extent that the Commitments are attached as conditions and obligations, within the general framework of Community law, in particular the Merger Regulation and by reference to the Commission Notice on remedies acceptable under the Merger Regulation.

Section A. Definitions

For the purpose of the Commitments, the following terms shall have the following meaning:

Affiliated Undertakings: undertakings controlled by J&J, whereby the notion of control shall be interpreted pursuant to Article 3 of the Merger Regulation and in the light of the Commission Notice on the concept of concentration under the Merger Regulation.

ALZA: ALZA Corporation, an Affiliated Undertaking of J&J, incorporated under the laws of Delaware, with its registered office at 1900 Charleston Road, Mountain View, California 94943, U.S.A.

Closing: the transfer of the legal title of each Divestiture Business to the Purchaser.

Divestiture Businesses: the assets comprising the businesses that J&J commits to divest, as further defined in Section B and the attached Schedules (each respective business defined in the Schedules herein referred to as a “Divestiture Business”).

Divestiture Trustee: one or more natural or legal person(s), independent from J&J or Pfizer, who is approved by the Commission and appointed by J&J and who has received from J&J the exclusive mandate to sell one or more of the Divestiture Businesses to a Purchaser at no minimum price.

Effective Date: the date of the Decision.

Extended Divestiture Period: the period of […] from the date of expiry of the First Divestiture Period within which the Divestiture Trustee shall have the irrevocable and exclusive mandate from J&J to sell those Divestiture Businesses for which a binding agreement is not yet concluded at the end of the First Divestiture Period.

First Divestiture Period: the period of […] from the Effective Date within which J&J may conclude one or more binding agreements to sell the Divestiture Businesses before providing a mandate to the Divestiture Trustee.

Hold Separate Manager: the person appointed by J&J to manage the day-to-day business of a Divestiture Business that is held separate pursuant to paragraph (...)10, under the supervision of the Monitoring Trustee.

J&J: Johnson & Johnson, incorporated under the laws of New Jersey, with its registered office at One Johnson & Johnson Plaza, New Brunswick, New Jersey 08933, U.S.A.

Key Personnel: all personnel necessary to maintain the viability and competitiveness of a Divestiture Business, as listed in the applicable Schedule.

Monitoring Trustee: one or more natural or legal person(s), independent from the Parties, who is approved by the Commission and appointed by J&J, and who has the duty to monitor J&J’s compliance with the conditions and obligations attached to the Decision.

PCH: Pfizer Consumer Healthcare, a division of Pfizer Inc., with its registered office at 201 Tabor Road, Morris Plains, New Jersey, NJ 07950, U.S.A.

Personnel: the personnel currently employed by the Divestiture Business, if applicable, as listed in the applicable Schedule.

Pfizer: Pfizer Inc., incorporated under the laws of Delaware, with its registered office at 235 East 42nd Street, New York, NY 10017, U.S.A.

Purchaser: with regard to each Divestiture Business, the undertaking approved by the Commission as acquirer of the Divestiture Business in accordance with the criteria set out in Section D.

Transitional Period: The transitional period defined in Section 4 of the Global Nicotine Patch Business Schedule and Section 4 of the International Nicotine Patch Business Schedule.

Trustee(s): the Monitoring Trustee and/or the Divestiture Trustee.

Section B. The divestiture commitment

Commitment to divest

1. In order to maintain or restore effective competition, J&J commits to divest, or procure the divestiture of, the Divestiture Businesses as going concerns to one or more Purchasers on terms of sale approved by the Commission in accordance with the procedure described in paragraph (...)19 (the “Divestiture Commitment”). J&J commits to do so by the end of the Extended Divestiture Period. To carry out each divestiture, J&J shall seek to find, for each Divestiture Business, a Purchaser and to enter into a final binding agreement for the sale of such Divestiture Business within the First Divestiture Period. If J&J has not entered into such an agreement at the end of the First Divestiture Period, J&J shall grant the Divestiture Trustee an exclusive mandate to sell the Divestiture Business within the Extended Divestiture Period in accordance with the procedure described in paragraph (...)29.

2. J&J shall be deemed to have complied with the Divestiture Commitment if, (i) by the end of the Extended Divestiture Period, J&J or an Affiliated Undertaking has entered into a final binding sale and purchase agreement for each of the Divestiture Businesses; (ii) the Commission approves the Purchasers and the terms in accordance with the procedure described in paragraphs (...)18 and (...)19; and (iii) Closings take place in each case within a period not exceeding […] after the approval of the respective Purchaser and the terms of sale by the Commission.

3. In order to maintain the structural effect of the Divestiture Commitment, J&J shall, for a period of ten (10) years after the Effective Date, not acquire direct or indirect influence over the whole or part of any of the Divestiture Businesses, unless the Commission has previously found that the market structure has changed to such an extent that the absence of influence over the Divestiture Business in question is no longer necessary to render the proposed concentration compatible with the Merger Regulation.

4. In any event, the sale of any Divestiture Business must only occur if the J&J acquisition of PCH has closed.

The Divestiture Businesses

5. The Divestiture Businesses consist of the following:

(i) the Trosyd business in Italy (the ”Trosyd Divestiture”);

(ii) the ACT business in the EEA and Swizerland (the “ACT Divestiture”);

(iii) either of two alternatives for the ALZA supply business of transdermal nicotine patches: J&J has the option to seek the Divestiture of ALZA’s supply business of transdermal nicotine patches outside the U.S.A. Canada and Korea (the “International Nicotine Patch Business Divestiture Alternative”) but commits that if a final binding agreement for the sale of this business is not concluded, in accordance with paragraph (...)1, by the end of the […], it shall pursue the Divestiture of ALZA’s worldwide nicotine patch supply business (the “Global Nicotine Patch Business Divestiture Alternative”) within […];

each time as further defined in the relevant Schedule.

These businesses will be divested to one or more Purchaser(s).

6. The divestiture of the Divestiture Businesses will proceed by way of asset transactions (including transfer, sale, assignment, license, as the case may be and in sofar as legally permissible). As a general rule, each divestiture transaction shall include the following elements, as more specifically defined in the relevant Schedule:

(i) all tangible and intangible assets (including the relevant intellectual property rights), by way of transfer, sale, assignment or license, which are necessary to ensure the viability and competitiveness of the Divestiture Business;

(ii) all licences, permits and authorisations issued by any governmental organisation for the benefit of the Divestiture Business;

(iii) all contracts, leases, commitments and customer orders of the Divestiture Business;

(iv) all customer, credit and other records of the Divestiture Business;

hereinafter collectively referred to as “Assets”)

(v) the Personnel, as further specified in the applicable Schedule;

(vi) at the option of the Purchaser, transitional agreements with J&J or Affiliated Undertakings for the supply of products and/or technical assistance, as specified in the applicable Schedule.

7. For the avoidance of doubt, the Divestiture Businesses shall not include:

(i) intellectual property rights which do not contribute to the current operation of the Divestiture Business;

(ii) the Johnson & Johnson, Pfizer, ALZA, McNeil names and logos in any form;

(iii) books and records required to be retained pursuant to any statute, rule, regulation or ordinance, provided that copies of such documents necessary for the Divestiture Business shall be provided to the Purchaser, upon request; and

(iv) general books of account and books of original entry that comprise J&J’s or PCH’s or an Affiliated Undertaking’s permanent accounting or tax records provided that copies of such documents necessary for the Divestiture Business shall be provided to the Purchaser, upon request.

Section C. Related commitments

Preservation of viability, marketability and competitiveness

8. From the Effective Date (and if the Divestiture Business is a former PCH business from the date of closing of the J&J/PCH transaction) until Closing, J&J shall preserve the economic viability, marketability and competitiveness of each Divestiture Business, in accordance with good business practice, and shall minimise as far as possible any risk of loss of competitive potential. In particular J&J commits:

(i) not to carry out any act upon its own authority that might have a significant adverse impact on the value, management or competitiveness of the Divestiture Business or that might alter the nature and scope of activity, or the industrial or commercial strategy or the investment policy of the Divestiture Business;

(ii) to make available sufficient resources for the development of the Divestiture Business, on the basis and continuation of the existing business plans;

(iii) to take all reasonable steps, including appropriate incentive schemes (based on industry practice), to encourage Key Personnel to remain with the Divestiture Business, if applicable.

Hold separate obligations

9. J&J commits, from the Effective Date (and if the Divestiture Business is a former PCH business from the date of closing of the J&J/PCH transaction) until Closing and subject to paragraph (...)8, to (i) keep the Divestiture Business separate from the businesses it is retaining; (ii) ensure that Key Personnel (if applicable) of the Divestiture Business - including the Hold Separate Manager - have no involvement in any retained business and vice versa; and (iii) ensure that the Personnel do not report to any individual outside the Divestiture Business (if applicable).

10. Prior to Closing, J&J shall assist the Monitoring Trustee in ensuring that the Divestiture Business is managed as a distinct and saleable entity or group of assets separate from the businesses it is retaining. J&J shall also appoint (a) Hold Separate Manager(s) who shall be responsible for the management of the Divestiture Businesses, under the supervision of the Monitoring Trustee. The Hold Separate Manager shall manage the Divestiture Business in the best interest of the business with a view to ensuring its continued economic viability, marketability and competitiveness and its independence from the businesses retained by J&J.

11. With regard to the Global or International Nicotine Patch Business Divestiture Alternatives only, the hold separate obligations referred to in paragraphs (...)9 and (...)10 shall continue until the end of the Transitional Period.

Ring-fencing

12. J&J shall implement all necessary measures to ensure that it does not after the Effective Date obtain any business secrets, know-how, commercial information, or any other information of a confidential or proprietary nature relating to the Div