98/526/EC: Commission Decision of 4 February 1998 declaring a concentration to be compatible with the common market and the functioning of the EEA Agreement (Case No IV/M.950 - Hoffmann La Roche/Boehringer Mannheim) (notified under document number C(1998) 70) (Only the English text is authentic) (Text with EEA relevance)
Date: 1998-02-04
Institutions: European Commission
Subjects: European Economic Area, common market, competition, economic concentration, merger control, pharmaceutical industry

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 4 February 1998

declaring a concentration to be compatible with the common market and the
functioning of the EEA Agreement

(Case No IV/M.950 (cid:190) Hoffmann La Roche/Boehringer Mannheim)

(notified under document number C(1998) 70)

(Only the English text is authentic)

(Text with EEA relevance)

(98/526/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Whereas:

Having regard to the Treaty establishing the European
Community,

(1)

Having regard to the Agreement on the European
Economic Area, and in particular Article 57(2)(a) thereof,

Having regard to Council Regulation (EEC) No 4064/89
of 21 December 1989 on the control of concentrations
between undertakings (1), as amended by the Act of
Accession of Austria, Finland and Sweden, and in partic-
ular Article 8(2) thereof,

Having regard to the Commission decision of 2 October
1997 to initiate proceedings in this case,

Having given the undertakings concerned the oppor-
tunity to make known their views on the objections raised
by the Commission,

Having regard to the opinion of the Advisory Committee
on Concentrations (2),

(1) OJ L 395, 30. 12. 1989, p. 1; corrigendum OJ L 257, 21. 9.

1990, p. 13.

(2) OJ C 264, 21. 8. 1998.

On 1 September 1997, the Hoffmann-La Roche
Group (Roche) notified an acquisition, through its
affiliate Roche Healthcare Ltd, of all of the shares
of Corange Ltd from four family groups, by which
Roche is acquiring sole control of Corange within
the meaning of Article 3(1)(b) of Regulation (EEC)
No 4064/89 (the Merger Regulation).

By decision of 22 September 1997 the Commission
ordered the continuation of the suspension of the
notified concentration, pursuant to Article 7(2) and
Article 18(2) of the Merger Regulation, until a final
decision is reached in this case. On 2 October
1997, the Commission decided to initiate proceed-
ings pursuant to Article 6(1)(c) of the Merger Regu-
lation.

During the investigation of the case, the Agree-
ment between the European Community and the
the United States of America
Government of
their competition
regarding the application of
law (3) has been activated.

(2)

(3)

(3) OJ L 95, 27. 4. 1995, p. 47.

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(4)

(5)

(6)

(7)

(8)

(9)

I. THE PARTIES

Roche is mainly active in the production and
distribution of pharmaceuticals, vitamins and fine
chemicals, diagnostics, flavours and fragrances.

Corange Ltd (Corange) is a holding company with
no operative business activities of its own which
controls the whole of the Boehringer Mannheim
Group (BM) and owns 84,2 % of the shares of
DePuy Inc. BM is a manufacturer and distributor of
diagnostics, pharmaceuticals
and biochemicals.
DePuy is a manufacturer and distributor of ortho-
paedic products and devices.

II. THE OPERATION

The proposed operation consists in the acquisition
of 100 % of
the equity of Corange by Roche.
Roche will assume sole control of Corange and
thus of BM and DePuy.

III. COMMUNITY DIMENSION

Roche and Corange have a combined aggregate
worldwide turnover in excess of ECU 5 000 million
(Roche: ECU 10 184 million, Corange: ECU 3 327
million). Both have a Community-wide turnover in
excess of ECU 250 million (Roche: ECU 4 923
million, Corange: ECU 1 668 million) but do not
achieve more than two thirds of their aggregate
turnover within one and the same Member State.
The notified operation therefore has a Community
dimension.

IV. COMPETITIVE ASSESSMENT

Roche and Corange (through BM) have partly over-
lapping business activities in in vitro diagnostics
and pharmaceutical products.

there are no overlaps

According to the information provided by the
in orthopaedics,
parties,
fragrances, flavours, fine chemicals, biochemicals,
and vitamins (in bulk quantity). Vitamins in bulk
quantity are sold in large quantities to the animal
feed industry, food industry, cosmetics industry and
pharmaceutical industry and are as such not substi-
tutable with medicines (vitamin compounds).

A. PHARMACEUTICAL PRODUCTS

1. Relevant product markets

(10)

The Commission has on many occasions dealt with
the definition of the relevant market in the case of
pharmaceutical products and has established a
number of principles in its previous decisions (see
decisions of 10 June 1991, Sanofi/Sterling Drug

(Case IV/M.072), 29 April 1993, Procordia/Erba-
mont
(Case IV/M.323), 18 April 1994, Rh(cid:147)ne-
Poulenc/Cooper (Case IV/M.426), 20 June 1994, La
Roche/Syntex (Case IV/M.457), 19 September 1994,
AHP/Cynamid (Case IV/M.500), 28 February 1995,
Glaxo/Wellcome (Case IV/M.555), 3 April 1995,
Behringwerke AG/Armour Pharmaceutical Co.
(Case IV/M.495), 22 June 1995, Hoechst/Marion
Merrell Dow (Case IV/M.587), 28 September 1995,
Upjohn/Pharmacia (Case IV/M.631)). In those deci-
sions, it noted that medicines may be subdivided
into therapeutic
to the
Anatomical therapeutic classification (ATC), which
is
recognised and used by the World Health
Organisation. This classification allows medicines
to be grouped together by reference to their
composition and their therapeutic properties. The
third level of the ATC classification allows medi-
cines to be grouped in terms of their therapeutic
indications, i.e. their intended use, and can there-
fore be used as an operational market definition.
However,
it may be appropriate to carry out
analyses at other levels of the ATC classification.

classes by reference

(11) Medicines may, moreover, be subdivided into
various segments on the basis of a variety of
criteria, and in particular demand-related criteria. A
possible distinction is
that between medicines
which can be issued only on prescription and those
which can be sold over the counter. A further
distinction is that between medicines which are
refunded in whole or in part by sickness insurance
reimbursed.
schemes and those which are not
These segments partly overlap. Most medicines
issued only on prescription are reimbursed, whereas
most of those which may be sold over the counter
are not reimbursed. Furthermore, the allocation of
a medicine to a particular segment is not per-
manent. It is based instead on decisions by the
authorities, which may lead to changes between
segments.

(12)

The parties agree with the Commission that in
most cases it is appropriate to base the market
definition on the third-level of the ATC classifi-
cation since the third level products generally serve
inter-
the same treatment purpose and are not
changeable with products from other classes. The
parties have
following product
markets as affected by the concentration: cephalo-
(J1D),
non-injectable
anti-coagulants,
sporins
antiacids,
laxatives
antiflatulents
(B1A),
non-steroids
(A6A),
(L3A),
immunostimulants
(M11A), vitamin B1 compounds
and
(A11D),
hepatic protectors, lipotropics (A5B).

identified the

(A2A),

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(13)

In the pharmaceuticals industry, a full assessment
of the competitive situation requires examination
of the products which are not yet on the market
but which are at an advanced stage of development
(normally after extremely large sums of money
have been invested). The potential for these prod-
ucts to enter into competition with other products
which either are at the development stage or are
already on the market can be assessed only by
reference to their characteristics and intended ther-
apeutic use. In so doing, it must be borne in mind
that research and development cannot as a rule be
traded between pharmaceutical companies, but are
rather intended primarily for the development of a
company’s own active substances and products. On
the other hand, cooperation takes place in the
research field between pharmaceutical companies
and public and private research institutes and small
biotechnology undertakings which, although they
have the relevant know-how, do not themselves
have the resources and facilities for the clinical
testing that must be carried out prior to market
authorisation and for the manufacture of the phar-
maceuticals. The Commission has to look at R&D
potential in terms of its importance for existing
markets, but also for future markets.

(14)

its importance for

In so far as research and development must be
assessed in terms of
future
markets, the relevant product market must, in the
things, be defined in a less clear-cut
nature of
manner
than in the case of existing markets.
Market definition can be based on the existing
ATC classes only if existing products are to be
replaced. Otherwise, it must be guided primarily by
the indications to which the fixture products are to
be applied.

tration of a new medicine to the European Agency
for the Evaluation of Medicinal Products, which
then issues a recommendation to the Commission,
whose decision is binding on all Member States. At
present, medicines can be registered in different
Member States for different indications.

(16)

(17)

(18)

is

influenced by the
The sale of medicines
administrative procedures or purchasing policies
which the national health authorities have intro-
duced in the Member States. Some countries exer-
cise a direct or indirect influence on prices, and
there are different levels of reimbursement by the
social-security system for different categories of
medicines. For this reason, the prices for medicinal
products may differ from one Member State to
another. In addition, there are far-reaching differ-
ences in terms of brand and pack-size strategies
and in distribution systems. These differences lead
to national market characteristics.

The markets for pharmaceutical products have
therefore been defined as national markets in the
decisions hitherto adopted by the Commission.
This view is accepted by the parties in their noti-
fication. The markets affected by the concentration
can thus be regarded as national.

To the extent that future product markets can be
considered on the basis of research and develop-
ment in particular areas, the said national restric-
tions do not have the same degree of effectiveness.
A characteristic of fixture markets is that no prod-
ucts have yet been registered. Because research and
development is normally global, the consideration
of future markets should therefore focus on the
territory of the Community at least, and possibly
on worldwide markets.

2. Relevant geographic markets

3. Assessment

(15)

There are efforts at European standardisation as
regards pharmaceutical products. The harmonisa-
tion of technical provisions within the Community
and the entry into force of new registration pro-
cedures for medicines represent the completion of
the programme for the single market in terms of
the scientific and technical requirements applying
to medicines. Since the beginning of 1995, phar-
maceutical companies have had the option (and
indeed, in the case of biotechnology products, the
obligation) of submitting an application for regis-

(19)

In most product markets affected by the concentra-
tion there will be no competitive problem, since
the parties combined market share is below 25 %
and since there are a number of strong inter-
national competitors.

(20) According to the parties, the only overlaps that will
lead to market shares above 25 % are in Italy in
antirheumatic non-steroids
(M1A), vitamin B1
compounds (A11D), and hepatic protectors, lipo-
tropics (A5B).

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(21)

(22)

In the Italian market for M1A (BM [: 30 %] (1),
Roche [: 5 %]) and A5B (BM [: 30 %], Roche
[: 5 %]), there are a number of other international
competitors like Novartis, Pfizer, and Pharmacia &
Upjohn.

is not

[:50 %],

In Italy in A11D, where BM has a share of
[: 20 %] and Roche of
the parties’
combined market share will be [: 70 %]. One of
Roche’s products (Benerva) with a market share of
[: 5 %]
fully substitutable to BM’s and
Roche’s other products as it is not a compound
composed of vitamins B1, B6, and B12, but of B1
only. The major competitor is Bioindustria (Pfizer-
Group)
(21,6 %) Other competitors are Lepetit
(Hoechst-Group), Angelini, Bracco, Guidotti, and
Menarini. The market has a volume of ECU 10
million. All major products in this market were
introduced several decades ago, with the exception
of the Pfizer product Neuraben. This product has
in the last six years almost doubled its market share
and competed vigorously with Roche’s and BM’s
products. This situation is unlikely to change after
the merger. In addition, it is important to note that
all products belonging to class A11D are patent-
free and not reimbursed by the Italian National
is therefore possible for the
Health Service. It
doctor and the patient
to freely choose other
brands.
If BM/Roche were to raise its price,
customers could easily switch to the competing
products. They would have an incentive to do so, as
A11D products are not reimbursed in Italy and
thus need to be fully paid by the consumer. As the
barriers to entry are low, other pharmaceutical
companies could easily start production of A11D
products or import products sold in other Member
States if consumer demand increased or if prices
were to rise. For these reasons, the concentration
does not threaten to create or strengthen a dom-
inant position in this product market.

(23) During the investigation it was suggested that the
overlap between Roche and BM in the market for
drugs used for the treatment, management and
prevention of acute myocardial infarctions (heart
attacks) could in the future be a cause for compet-
itive concern. The investigation has, however,
revealed that this problem is only related to the US
market. In Europe the Genentech (Roche) product
Activase is licensed to an independent third party
(Boehringer Ingelheim). This company has its own
production facility in Europe and is not dependent
on Genentech for the supply of either raw ma-
terials or finished products. The competitive situa-

(1) In the published version of this Decision, some information
has been omitted or replaced by approximate figures, pursuant
to Article 17(2) of the Merger Regulation (EEC) No 4064/89
concerning non-disclosure of business secrets.

tion therefore does not change as a result of this
concentration.

(24)

Finally, in the fields of active substances, as well as
research and development, the investigation has
not revealed any significant overlaps, outside the
field of tissue plasminogen activators, used for the
production of
the abovementioned heart attack
medicines.

B. IN VITRO DIAGNOSTICS

1. Relevant product markets

(a) Overview

(25)

The concentration concerns the area of diagnostic
analysis. A diagnostic analysis is a procedure for
monitoring the physiological
a
subject. The analytical procedures differ, depending
on whether they are designed for analysing the
general health condition of a subject, a specific
they
illness, a pre-birth pathology, or whether
concern the reaction of a subject
to certain
substances.

condition of

(26) Diagnostic tests can be performed either in vitro or
in vivo. In vitro (literally in glass) diagnostic (IVD)
tests are conducted outside the body and are used
to identify and measure substances in patients’
tissue, blood or urine samples which enable physi-
cians to diagnose, treat and monitor patients. The
in vivo method concerns the use of diagnostic
substances directly in or on the human body. The
two methods are complementary for some applica-
tions.

(27)

commercial

to hospitals,

Roche and BM are active only in the field of in
vitro diagnostics. A large part of the in vitro diag-
nostics is sold in the form of multi-use diagnostics
laboratories,
systems
university laboratories or other institutions. In addi-
tion, a significant quantity of in vitro diagnostics is
marketed as single-use products to general practi-
tioners, public authorities, employers or others, and
in some instances they are even sold as self-test kits
over the counter (rapid tests, for example for preg-
nancy, diabetes and cholesterol). Self-test kits prob-
ably are complementary to multi-use test kits for
some applications.

(28)

concentration between Roche

The
and BM
concerns primarily multi-use in vitro diagnostics
(including DNA probes, see below), which are used
on site. These diagnostics products generally form a
system, composed of a measuring instrument
which is designed for the automated operation of

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(29)

(30)

several kinds of tests and reagents for that instru-
ment. The reagents, i.e. the compounds and liquids
used to perform tests, are supplied as part of a
reagent kit which includes a control substance and
a test serum to verify the smooth functioning of the
measuring instrument. A calibrator
for
regular, often weekly, adjustments to the measuring
instruments.

serves

The main part of the multi-use products business is
test kits which are
characterised by a series of
adapted to a system. Most of the major suppliers
offer a package consisting of a measuring instru-
ment, a series of test kits and a comprehensive
after-sales service including quality control. The
development of a new system requires relatively
large sums. The companies in the diagnostics
industry spend about 10 % of their total turnover
on R&D. Only up to 20 % of
the turnover is
achieved through the sale of instruments, while
reagent kits account for most of the rest.

It

is also a common feature of

This explains why competition in the diagnostics
market
is mainly focused on securing sales of
reagents and why the suppliers have a strong
interest in obtaining long-term orders for a con-
tinuous supply of reagent kits. Diagnostics manu-
facturers follow different strategies in the pursuit of
this aim. There is a trend among diagnostic com-
panies to market their products as closed systems
which are designed for the exclusive use of their
reagents.
the
industry that delivery contracts with customers are
concluded for several years. Often, the instruments
are only leased or otherwise put at the customer’s
disposal at a very low cost, or even without charge,
on condition that the customer purchases a certain
number of reagent kits over a certain time period
(several years). These instruments are obviously not
free of charge for the customers, as the instrument
costs are included in the reagent price. In this
respect,
the Commission investigation indicates
that a bought instrument would normally have an
amortisation period of five years, but that the diag-
nostic industry in its internal calculations for a
reagent-leasing contract would calculate a shorter
amortisation. Within five years, the customer would

(31)

(32)

thus have paid more for the instrument than he
would have paid if he had purchased it directly.
The rationale behind accepting such offers as this
is that the customers, public and private labor-
atories, often prefer for budgetary or other reasons,
to have the total cost of the system charged to them
as running costs, rather than as long-term invest-
ments
suppliers,
including the parties, have therefore designed
the
several sales methods where the price for
instrument is not charged separately, but instead
included in the price of reagents.

in instruments. The

various

etc.).

container

shapes, bar-codes,

The investigation has largely confirmed the parties’
view that, from a technical viewpoint, the reagents
of a certain supplier can be used on the instrument
of another producer, provided that the technologies
correspond to each other, and that this may apply
even for closed systems, depending on the means
employed to achieve the closeness of the system
(specific
It
appears, however, that the switch from one reagent
supplier to the other requires a certain know-how
and investment in terms of time and effort on the
large
part of
customer. Whereas
to
customers have indicated an unwillingness
become dependent on one specific supplier or on
closed systems, the majority of customers contacted
by the Commission have indicated that they gener-
ally have not used third-party reagents to any
greater extent. This is also consistent with the fact
that the capture rates, i.e. the extent to which diag-
nostic suppliers continue to sell
to
customers that have purchased their instruments, of
the parties (as well as most of their competitors) are
generally high.

reagents

some

the

The field of in vitro diagnostics can be divided into
five main segments: clinical chemistry, immuno-
chemistry, haematology/histology, microbiology
(culture) and infectious immunology (1). This cor-
responds to the first level of the product classi-
fication produced by the European Diagnostics
Manufacturers Association,
the EDMA classifica-
tion, which seems to be generally accepted in the
industry and which is used to compile sales data for
individual reagents on a European scale. During
the Commission’s investigation, most customers,
on the other hand, stated that
they were not
familiar with this classification. For the segments
affected by that operation, however,
they did
confirm that it was a sensible way to classify dia-
gnostics also from a demand-side point of view. In
addition, DNA probes, which encompass tests in
several areas (infectious diseases, oncology, genetic
diseases and tissue typing) and are currently under-
going strong expansion, will be assessed below.

(1) See Cases

IV/M.457 (cid:190) Roche/Syntex,

IV/M.954 (cid:190) Bain/

Hoechst (cid:190) Dade Behring.

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(33)

The concentration between Roche and BM would
lead to major overlaps in the fields of classical
clinical chemistry and immunochemistry diagnos-
tics. It would also have significant effects in the
field of DNA probes.

(b) Classical clinical chemistry reagents

(34) Classical

clinical

chemistry

diagnostics

are
for glucose, cholesterol,
primarily used to test
sodium and other
found in large
concentrations in the body. These tests are typically
run for both routine and emergency patients to
help doctors understand the performance of basic
bodily functions.

substances

(35) On its

second level,

the EDMA classification
distinguishes seven different product groups in
classical clinical chemistry. The parties, however,
are of the opinion that the only relevant distinction
for market definition purposes is that between
rapid tests and clinical chemistry (CC) reagents.
Rapid tests are primarily manual tests for glucose-
monitoring, mostly carried out by patients them-
selves or by doctors. Reagents on the other hand
are used to perform diagnostic tests on instruments
in laboratories. The Commission’s investigation has
confirmed that rapid tests constitute a separate
product market, due to differences in customers,
distribution channels and competitive conditions.
The question whether all rapid tests constitute one
there are separate
product market or whether
product markets, e.g.
strips and
urine-test strips, may be left open because in all
alternative market definitions considered, effective
competition would not be significantly impeded in
the EEA or any substantial part of that area.

for blood-test

(36) As regards reagents, the parties stated in the noti-
fication that all CC reagents can be grouped
together since they have common characteristics, as
customers regularly buy almost all of their require-
ments for such tests from one source and, on the
supply side, all major suppliers offer the same
range of instruments and reagents. The Commis-
sion’s investigation has confirmed that the condi-
tions of competition are indeed identical for the
reasons invoked by the parties, and that it thus is
possible to group these reagents in one product
market, although they are strictly speaking not
substitutable from a demand-side point of view.

(38)

(37)

In later submissions,
the parties extended this
market definition by stating that some immuno-
chemistry reagents, the homogenous immunoassays
(HIA), should be included in the same product
market with clinical chemistry reagents,
since
customers would buy CC and HIA reagents from
the same source, since new clinical chemistry

the

technology.

They measure

instruments, such as the Roche Integra, could also
be used for HIA tests, and since all major suppliers
would offer the same product range. The Commis-
sion’s investigation has however found that
the
conditions of competition for HIAs are different
from those for CC reagents, and that they therefore
should not be included in the same product
market. First, HIA reagents have different product
characteristics
from clinical chemistry reagents.
Immunochemistry tests require a more complex
detection
other
substances and are capable of detecting much lower
concentrations. They are therefore more expensive
than CC reagents. Secondly,
competitive
constraints for suppliers of HIAs are different from
those for suppliers of CC reagents. Even customers
who can perform these tests partly on clinical
chemistry instruments often buy their
require-
ments for HIA reagents from sources other than
their CC reagents, i.e. the suppliers of their immu-
nochemistry instruments. Thus, they have different
alternatives in the face of a small, but significant
non-transitory price increase for HIA reagents,
compared to the situation relating to CC reagents.
Customers can switch to suppliers of HIA which
are not active in CC (e.g. Abbott) and run these
tests on their immunochemistry instruments. The
importance of
these different competitive alter-
natives can be seen in the different market share
distributions for HIA and CC reagents. According
to the parties, BM has a market share in the EEA of
around 40 % in CC reagents, and of around 15 %
for HIAs. Abbott on the other hand, has a market
share of less than 2 % for CC reagents, but of more
than 15 % for HIA reagents. Thirdly, on the
supply-side, the major clinical chemistry suppliers
offer different ranges of HIA tests to be run on
clinical chemistry machines. The Commission
therefore concludes that there is a separate product
market for clinical chemistry reagents which does
not include homogenous immunoassays.

(c) Immunochemistry reagents

Immunochemistry involves the use of
targeted
antibodies to identify and test enzymes, drugs,
hormones and other substances found in relatively
small concentrations in the body. Depending on
the condition monitored, a number of applications
can be distinguished. If these were to be regarded
as product markets, according to the parties, over-
tumour
laps would exist
anaemia-
thyroid-function hormones,
markers,
related/vitamin tests, therapeutic drug monitoring,
rheumatoid
and
standards and controls.

in specific proteins,

autoimmune

diseases,

and

(39)

(40)

(41)

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reagents

The reasons for grouping together the immuno-
chemistry
included in the different
second-level EDMA groups are less strong than in
the case of clinical chemistry. In immunochem-
there seem to be significant differences
istry,
relating to important technical differences for the
users (1); customers do not regularly buy most of
their requirements for such tests from one source,
and on the supply side the major suppliers do not
offer the same range of instruments and reagents. It
may therefore be appropriate to view each such
group as a relevant market. For the purpose of this
case,
this question may, however, be left open,
because in all alternative market definitions consid-
ered, effective competition would not be signi-
ficantly impeded in the EEA or any substantial part
of that area.

(d) Classical clinical chemistry and immunochem-

istry instruments

it will only be possible in part to substitute im-
munochemistry instruments for classical chemistry
instruments, and not vice versa. This one-way
substitution implies that
the clinical chemistry
reagent trail generated by clinical chemistry instru-
ments will not be reduced, and that any potential
market power that a supplier may have in clinical
chemistry instruments
constrained by
suppliers of immunochemistry instruments. It may,
however, be an indication that any potential market
power in immunochemistry instruments will be
constrained by the possibility for customers to
switch part of
their tests to clinical chemistry
instruments.

is not

(42) A new, more detailed instrument classification,
published in 1996 by EDMA, which will be used to
assemble sales data in the future, follows on its first
level the separation between the segments, clinical
chemistry, immunochemistry, haematology, micro-
biology, and adds the categories ‘other clinical
instruments' and ‘data management systems'.

to

high

instruments

instruments. All major

Instruments are measuring instruments used to
process the tests. There are different sizes ranging
end-high
from small
throughput
reagent
suppliers provide instruments. Most produce their
own (e.g. Roche), but some source instruments
from independent machine manufacturers. This is
the case for BM which only produces some instru-
ments and achieves the larger part of its instru-
ments sales as exclusive distributor for Hitachi
machines
are
marketed as BM/Hitachi instruments.

in Europe. These

instruments

the aforementioned segments (i.e.

The EDMA classification did not separate instru-
ments into further product groups until 1996.
According to the notification,
this approach is,
however, too broad for market definition purposes,
since the present generation of analytical instru-
ments generally covers only diagnostic tests in one
in clinical
of
chemistry or immunochemistry). An instrument
that
is used to perform clinical chemistry tests
would thus not be substitutable for an immuno-
chemistry
submissions,
however, the parties pointed to the ‘integration of
IVD-segments', and especially to the integration of
clinical chemistry tests and immunochemistry tests
in one instrument. This
integration currently
expresses itself through the integration of some
HIA tests in newly introduced clinical chemistry
instruments, such as the Roche Integra. Even if this
trend increases, and if it does become possible to
run more immunochemistry tests on clinical
chemistry instruments, it is important to note that

instrument.

later

In

(1) See, for example IV/M.954 (cid:190) Bain/Hoechst (cid:190) Dade Behring

at paragraph 24.

a

as

for

and

sizes,

example,

chemistry,

automated

extra-large

(43) Within the segments, a further distinction can be
drawn according to instrument
the
throughput of the instruments varies widely. In
common
clinical
segmentation in the industry which is reflected in
the EDMA classification distinguishes between
manual instruments (throughput less than 50 tests
per hour (tph)), small automated instruments (50 to
200 tph), medium automated instruments (200 to
450 tph), large automated instruments (450 to 1 000
tph),
instruments
(;1 000 tph). This segmentation is only relevant
to distinguish
for market definition purposes
instruments (photometers) and
between manual
automated instruments. Manual
instruments are
mostly sold to doctors, who use them for occasional
analyses in their office, and they thus serve a
different demand from automated instruments,
which are mostly sold to hospitals and private lab-
oratories. Such customers demand one or several
automated instruments depending on their size and
have a certain degree of flexibility in choosing, for
example, one extra-large instrument or two large
instruments. The exact preferences of individual
laboratories will
vary according to numerous
factors,
including their size, daily throughput of
tests, peak load, available space and personnel
resources. Any attempt to define separate markets
for certain sizes of automated clinical chemistry
instruments would therefore not be generally
applicable to the demand characteristics of indi-
vidual laboratories. During the investigation neither
the parties, nor any third party, have suggested such
segmentation. The Commission therefore considers
automated clinical chemistry instruments
that

21. 8. 98

EN

Official Journal of the European Communities

L 234/21

constitute a separate product market, which should
not be broken down into separate product markets
for
instruments
automated clinical
depending on their size.

chemistry

(44)

The overlap between the parties exists mainly in
automated clinical chemistry instruments. For
other instrument types, with the exception of DNA
probes (see below), the concentration will not create
any competitive problem. The definition of any
other markets for instruments, including immuno-
chemistry instruments, may be left open, because
in all alternative market definitions considered,
effective competition would not be significantly
impeded in the EEA or any substantial part of that
area.

(e) DNA probes

in vitro diagnostic methods,

(45) Diagnostic tests using DNA probes are employed
infectious diseases, genetic
for the detection of
disorders and cancer cells, by way of enzymatic
amplification of a specific nucleic acid contained
in a sample. Within its field of application this
technique offers important advantages compared to
older
involving
biologic amplification (growth in a culture). First,
DNA probes offer the ability to copy minute frag-
ments of genetic material millions of
times in
order to produce yields that are large enough for
rapid and reliable detection of, for example, infec-
tious diseases such as HIV. As such, DNA probes
offer a methodology that is faster, less costly and
potentially less hazardous than biologic amplifica-
tion. Secondly, DNA probes offer a unique poss-
ibility for quantification of
load in a
sample. The advantage of this is that it allows for
more effective monitoring and therapeutic treat-
ment of patients. Another advantage of DNA
probes is that they offer unique possibilities to
develop ‘disease management', where a supplier
(such as Roche) would offer a diagnostic test and a
therapeutic drug as a package. Reimbursement of
the drug may then be linked to having performed a
certain diagnostic test. In summary, DNA probes
offer significant possibilities for the end-user (a
laboratory) to perform tests which either cannot be
performed at all, or only at a lower degree of preci-
sion, using other diagnostic tests.

the viral

is

first

automated nucleic

acid
introduced the
processor, the Cobas Amplicor, the DNA probe
tests were only available as manual procedures. In
addition to this automatisation process, the DNA
currently undergoing strong
probe market
expansion, and numerous research projects, aiming
at employing DNA probes
to
enhance the diagnostic capabilities, are currently
being carried out. The practical and technical
limitation of the DNA probe technique is that it
requires
in the
the presence of nucleic acids
sample. This implies that the only area of in vitro
diagnostics which in the future,
technical
reasons, cannot be substituted by DNA probes is
clinical chemistry.

in other areas

for

(47)

in vitro diagnostic products

The abovementioned technological features, as well
as the unique ability of DNA probes to provide
certain diagnostic results, suggests an insignificant
degree of substitutability between DNA probes and
other diagnostic methods. This is confirmed by
price data submitted by the parties, which indicate
significant price differences between DNA probes
and other
(DNA
probes are 30 times more expensive). In addition,
data submitted by the parties indicate that
the
DNA probe market is in a very strong phase of
expansion (Roche’s
in the Community
sales
doubled from 1995 to 1996), whereas the markets
for other in vitro diagnostic products are growing
at a much slower rate. The Commission has there-
fore concluded that DNA probes constitutes a
separate market.

2. Relevant geographic markets

(48)

In their notification the parties indicated that the
markets for in vitro diagnostics are worldwide or at
least the EEA. This statement was supported by the
fact that reagents and instruments are generally
marketed all over Europe in identical form and
with identical design and labelling, that most of the
products are produced in only one manufacturing
site and that all major competitors are present on a
worldwide basis.

(46) DNA probes are presently mainly applied for the
detection of HIV, hepatitis C (HCV), mycobac-
terium tuberculosis (MTB) and sexually transmitted
diseases (STD), such as chlamydia. Until Roche

(49)

Even if, on the supply-side, production and
R&D are carried out on a European or even
worldwide scale, the Commission considers that
the relevant product market
the definition of

L 234/22

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Official Journal of the European Communities

21. 8. 98

should be primarily based on demand-side consid-
erations (1). In its previous decisions in the IVD
industry, the Commission has accordingly found
that the geographic reference markets for the in
vitro diagnostics concerned (TDM, DAT, haema-
tology) remain essentially national as customers
could not switch easily to suppliers located else-
where (2).

(50)

(51)

(52)

investigation in this

The Commission’s
case
confirmed these results. Almost all customers and
competitors contacted by the Commission have
indicated that they consider the markets as national
or provided information supporting such a conclu-
sion.

For reagents, the customers stated that they do not
buy these products outside their Member State and
do not consider it a viable alternative to do so. Most
customers also stressed the importance of rapid and
reliable service to ensure the continuous availability
of reagents and instruments. This service could
only be provided by suppliers with a local presence.

The Commission has also previously found that
there are significant price differences for reagents
between Member States. This has
also been
confirmed by most customers and competitors
during the investigation. The price differences are
further substantiated by the parties’ own price data
which show substantial price differences of up to
200 % for the same reagents between Member
States. These price differences reflect the diversity
among national medical cultures and in particular
the divergences in national health policies, social
security regulations and the technology used in
laboratories. Particularly important are the different
levels of reimbursement which exist for the same
diagnostic test
in different Member States. The
pricing strategies of the IVD suppliers seem to be
linked to these reimbursement levels, with higher
prices demanded in those Member States where the
customer (i.e. the laboratory) can also obtain higher
prices through higher reimbursements.

ences in the parties’ market shares between neigh-
bouring geographic areas (see below).

(54)

(55)

For instruments, the parties claim to be unable to
provide a meaningful price comparison. The other
reasons cited above do however indicate that the
markets for instruments are also national. As rapid
and reliable service is especially important
to
reduce machine downtime, customers buy instru-
ments
in national medical
systems lead to differences in the size of labora-
tories and thus to differences in the technology
used. All competitors have national distribution
systems and there are appreciable differences in the
parties’ market
shares between neighbouring
geographic areas.

locally. Differences

For both reagents and instruments, national regula-
tion plays a certain role, but it is less stringent than
in the case of pharmaceuticals. The Commission is
preparing a directive for
the harmonisation of
national regulations on in vitro diagnostics. The
directive, which may be adopted in 1998, will,
however, not be effective immediately because a
period of several years will be allowed for its imple-
mentation. It is also important to note that the
harmonisation efforts only address the questions of
product approval and not the question of reim-
bursement approval which will continue to be
determined by each Member State. An independent
market study, submitted by the parties, noted in
‘. . . consequently, a company
that respect
could be allowed to sell a product
in any EU
country but not secure significant business because
of limited reimbursement approval'.

that

(56)

Based on the above,
is considered that
product markets are still essentially national.

it

the

3. Assessment

(53) Other elements that point

to the existence of
national markets for reagents are the fact that all
major
competitors have national distribution
systems and the existence of appreciable differ-

(57)

(1) See Commission notice on the definition of a relevant market
for the purposes of Community competition law (OJ C 372,
9. 12. 1997, p. 5, paragraph 13).

(2) See Case IV/M.457 (cid:190) Roche/Syntex;

IV/M.954 (cid:190) Bain/

Hoechst (cid:190) Dade Behring.

It is the Commission’s conclusion that the opera-
tion,
in its notified form, would create or
strengthen dominant positions in a number of
national markets for clinical chemistry reagents
and instruments, as described below. Furthermore,
the operation would strengthen Roche’s dominant
position in DNA probes.

21. 8. 98

EN

Official Journal of the European Communities

L 234/23

(a) Classical clinical chemistry (reagents and instruments)

1. E f f e c t s o f

t h e m e r g e r

(i) Market share additions

(58)

(59)

The parties’ activities overlap in clinical chemistry reagents (CCR), as well as in the
instruments used to perform the tests. There is no overlap in rapid strip tests, as
Roche is not active in this market.

In CCR, the parties have a combined market share of [: 50 %] in the EEA (BM
[: 40 %], Roche [: 5 %]). On a national basis, all Member States constitute
affected markets. The following table, based on the parties’ submission, shows their
market shares in 1996:

Market shares in clinical chemistry reagents 1996

Market

Value
(ECU
million)

Market share
BM
(%)

Market share
Roche
(%)

Market share
Roche+BM
(%)

Important competitors (market share ;5 %) (1)
(%)

Austria

19,9

[:80]

[:10]

[:80]

J&J [:10]

Belgium/Luxembourg

23,0

[:40]

[:10]

[:40]

J&J [:20], Beckman, Merck [:10]

Denmark

Finland

France

7,2

5,2

[:30]

[:20]

[:50]

J&J, Bayer [both :20]

[:50]

[:10]

[:50]

Bayer, Merck [:20], Tamro, J&J [:10]

80,1

[:20]

[:10]

[:30]

Beckman, J&J [:20], Biomerieux, Bayer, Dade Behring [:10]

Germany

134,1

[:60]

[:10]

[:60]

J&J, Beckman, Merck, Dade Behring [:10]

Greece

Italy

9,8

[:20]

[:10]

[:20]

Bayer, Dade/Behring [:20]

94,3

[:50]

[:10]

[:50]

Beckman [:30], J&J [:20], Instrumentation Laboratory, Bayer
[:10]

Netherlands

13,2

[:40]

[:10]

[:40]

J&J [:30], Beckman [:20], Merck, Dade Behring [:10]

Norway

Portugal

Spain

Sweden

6,9

[:50]

[:10]

[:50]

J&J [:30], Bayer, Nycomed [:20]

13,9

[:40]

[:10]

[:50]

Beckman, J&J [:20], Dade Behring [:10]

98,4

[:50]

[:10]

[:50]

Beckman, Bayer, J&J, Instrumentation Laboratory [:10]

8,7

[:40]

[:10]

[:50]

J&J, Bayer [:20], Beckman, Merck [:10]

UK/Ireland (2)

39,3

[:20]

[:10]

[:20]

J&J, Beckman [:20], Bayer [:10]

Total EU

547,0

[:40]

[:10]

[:50]

J&J, Beckman [:20], Bayer [:10]

Total EEA

553,8

[:40]

[:10]

[:50]

J&J, Beckman [:20], Bayer [:10]

(1) The exact market shares, based on information submitted by third parties, have been withheld for confidentiality reasons.

(2) The parties as well as most competitors stated that it is not possible to provide separate figures for Ireland. They believe, however, that the market shares in

Ireland and the United Kingdom should be very similar.

L 234/24

EN

Official Journal of the European Communities

21. 8. 98

(60)

(61)

statistical

instruments,

information is only
For
available for all IVD instruments combined. On
this basis all Member States would be affected
markets. According to the parties, the overlaps for
all instruments would be as follows: Austria (Roche
[: 20 %], BM [: 50 %]), Belgium (Roche
(Roche
[: 10 %], BM [: 30 %]), Denmark
(Roche
Finland
[: 20 %], BM [: 20 %]),
(Roche
[: 10 %],
France
BM [: 20 %]),
(Roche
[: 10 %], BM [: 10 %]), Germany
[: 10 %],
(Roche
BM [: 20 %]), Greece
[: 10 %], BM [: 20 %]), Italy (Roche [: 10 %],
(Roche n.a., BM
BM [: 20 %]), Netherlands
[: 60 %]), Norway
[: 10 %], BM
(Roche
(Roche n.a., BM [: 30 %]),
[: 40 %]), Portugal
Spain (Roche [: 10 %], BM [: 20 %]), Sweden
(Roche [: 20 %], BM [: 30 %]), United Kingdom
and Ireland (Roche [: 10 %], BM [: 20 %]).

Since the parties have only limited positions in
immunochemistry, haematology and microbiology,
those overall market shares understate the parties’
share in the market for clinical chemistry instru-
ments. Given the close link between the sale of
instruments and the sale of reagents, the Commis-
sion considers that the parties’ shares in instru-
ments
should be closely related to those in
reagents. If there are any discrepancies, logically
the parties should have higher market shares for
instruments, given that
there are small reagent
suppliers who do not sell instruments but whose
products are used on the instruments of the major
competitors. These competitors would thus reduce
the parties’ market share in reagents, but not in
instruments. The parties have also stated in the
notification that the market shares in instruments
and reagents should correspond very closely to
each other. The same view was taken by Dade and
Behring in their notification in Case IV/M.954.
The Commission therefore considers the market
shares for clinical chemistry reagents set out above
to be representative of the parties’ market shares for
clinical chemistry instruments. The parties have
not contested this assumption during the proceed-
ings.

(62) As can be seen from the above table, BM has high
leader in all
market shares and is the market
Member States. There are a number of competitors
ranging from international firms, with a presence
in most Member States, to small reagent producers
with less than 10 employees, which are only active
in their country of origin. The market share of such
competitors varies from Member State to Member
State. The most important competitors overall are
(in order of market share): Johnson & Johnson

(J&J), Beckman, Bayer, Dade Behring, Merck
KGaA (Merck), and Olympus.

(63)

In the EEA as a whole, BM’s market share is signi-
ficantly higher than that of those competitors. It is
as high as the market share of the five next largest
competitors combined. Individually, it is more than
three times as large as that of J&J and Beckman,
and more than five times as large as that of Bayer,
Dade Behring, or Merck. Olympus’s market share
is only half the size of these competitors. Roche’s
market share is smaller than that of J&J, Beckman,
and Bayer, but about the same size as that of Merck
and Dade Behring.

(64) An analysis of the above table reveals the position
the competitors in the different geographic
of
markets and the importance of the market share
additions created by the merger.

(65)

(66)

(67)

(68)

already indicates

In Austria and Germany, BM has a market share
exceeding 50 %. The market share gap between it
and the next largest competitor (Austria: ; 60 %,
Germany: ; 40 %)
that no
competitor is able to challenge BM’s position in
these markets. For Germany, this is acknowledged
by Roche, which in its ‘Roche diagnostics chem-
istry laboratory systems international marketing
plan 1997 to 1999' states that BM is dominant. The
concentration would further strengthen this dom-
inant position in Austria as it would remove the
second biggest competitor from the market. In
Germany,
the addition of market share would
widen the gap between BM and its competitors
even further.

the next

In Spain, BM’s market share is already four times as
large as that of
largest competitor. A
special feature of this market is that the owner of
Instrumentation Laboratory is also the distributor
of J&J in Spain. But even the combined market
share of
these two companies combined would
only be one third of BM’s share. BM’s position in
this market thus can not be challenged by any
competitor. The addition of Roche’s share would
widen this gap even further.

In Portugal too, BM’s market share is almost four
times as large as that of the next largest competitor.
The addition of Roche’s market share of [: 10 %]
would increase this lead further and would remove
the competitive impact of one of the five biggest
competitors from this market.

In Finland, BM’s market share is more than twice
largest competitor.
the next
as large as that of
Together with Roche, the combined market share
would be close to 50 % and larger than that of the
next three competitors combined.

21. 8. 98

EN

Official Journal of the European Communities

L 234/25

In Sweden, BM’s market share is more than twice
as large as that of J&J, the next largest competitor.
Roche
lead.
Combined, Roche/BM would be as large as the
next five competitors combined.

[: 10 %]

to this

another

adds

In Italy, BM’s market share is almost twice as large
as that of the next largest competitor. Together
with Roche, the combined market share would be
close to 50 % and larger than that of the next two
competitors combined.

(75)

In Denmark, the situation is particular in so far as
BM’s market share is lower than its average Euro-
pean share, but Roche has an especially high
market share. The combination Roche/BM would
become the undisputed leader in this market with a
share which is more than double that of the next
largest competitor.

In Norway, BM’s market share is higher but there
are two competitors which together are larger than
Roche/BM combined.

In Belgium, the Netherlands, France, Greece, the
United Kingdom and Ireland the investigation
does not indicate a competitive concern, since the
parties’ combined market shares are comparatively
lower and there are competitors in these markets
with comparable market positions.

(ii) Addition of installed bases

(69)

(70)

(71)

(72)

(73)

(74)

In addition to high market shares, the investigation
indicates that following the merger Roche and BM
would have a strong advantage in terms of having
the greatest installed bases of instruments, i.e. the
number of instruments that have been sold over
the years and are still in use. The installed base is
of particular importance (and more important than
the number of instruments that are placed in a
given year) for two main reasons: first, it determines
to a large extent the sales volume of reagents (the
‘reagent trail') during the lifetime of the instrument
(normally five
the
installed base strongly influences the future place-
for a
ments of
supplier to place an instrument with a current CC
customer, where he knows all decision-makers as
well as the replacement needs, than with a CC
customer with whom the supplier has previously
had no relationship. Since those decision-makers
for CC instruments are often not the same as those
who decide on purchases of other IVD instruments,
even a supplier with a large installed base in other

to eight years). Secondly,

instruments, since it

is easier

instruments, such as Abbott, will not have similar
access to CC customers.

from the supplier

to have a lock-in effect,
they have bought
they received it

The customers’ choice of a certain instrument
irrespective of
tends
the instrument or
whether
whether
in
exchange for the conclusion of a reagent delivery
contract. This lock-in effect arises both out of
contractual commitments and from the economic
rationale of operating a laboratory business. If a
customer has bought an instrument,
it would
normally not be replaced before the end of its
depreciation period (normally five years). If
the
customer has received the instrument, the reagent
delivery contracts used by Roche and BM will typ-
ically be concluded for a period of
five years.
is
During the contractual period the customer
committed to purchase reagents (expressed either
in terms of a certain yearly value or as a certain
minimum number of test-kits) from the instrument
supplier for several years. The standard contracts
submitted by Roche do not foresee any possibility
of early termination of the contract. This yearly
purchase obligation is calculated individually for
each customer, on the basis of its projected annual
consumption. Customers also have an economic
incentive to concentrate as large a proportion of
certain tests as possible on a specific instrument, as
this is the most immediate way to reduce its per-
test cost
invested capital, min-
imising cost for training of personnel, etc.). The
total price to be paid by the customer will also
include a rental fee for the instrument. The calcula-
tion of the latter takes account of the initial price
of the instrument, the contractual period, its value
after that period and capital costs. Typically, the
agreement will also include the provision of addi-
tional services, such as training of the customer’s
staff, maintenance and supplies of disposables.

(optimal use of

(76) With an installed base of about [: 9 000] clinical
chemistry instruments (BM [: 6 200] and Roche
[: 2 400]), the total installed base of the parties in
the EEA would be at least three times as large as
that of the next largest competitors (J&J and Bayer,
both less
than 2 300 instruments) and would
exceed that of the next largest competitor in all
Member States. The following table shows the total
installed base of the parties and of major compet-
itors in those Member States where the addition of
market shares indicates competitive concerns:

L 234/26

EN

Official Journal of the European Communities

21. 8. 98

Total installed base of clinical chemistry instruments 1996

Market

Total
installed base
(estimate) (1)

BM

Roche

Roche+BM

Sum of
two largest
competitors

Sum of
six largest
competitors

Austria

Denmark

Finland

Germany

Italy

Norway

Portugal

Spain

Sweden

800

300

150

4 600

4 200

200

400

2 300

300

[:400]

[:200]

[:100]

[:100]

[:100]

[:100]

[:500]

[:200]

[:100]

[:2 000]

[:500]

[:2 400]

134

110

36

733

[:1 200]

[:500]

[:1 700]

1 048

[:100]

[:100]

[:200]

[:100]

[:700]

[:300]

[:100]

[:100]

[:100]

[:300]

[:900]

[:200]

84

74

652

66

166

110

36

1 261

1 752

84

112

913

99

(1) An exact figure for the total installed base of all competitors combined is not available. Based on information in a study of an independent consultant
specialised in monitoring the IVD industry, the Commission estimates that the combined installed base of the eight largest competitors in the EEA
represents 80 % of the total installed base in the EEA.

(77)

(78)

The large installed base, with the corresponding
number of customers, would reinforce the market
position of the parties. In this respect, one of the
supporting documents submitted by Roche with
the notification contains the following assessment:
‘. . . given [BM’s] extensive installed base and high
volume for reagent production BM is able to obtain
significant economies of scale and very high opera-
tion margins for clinical chemistry ([ . . . ]), the mix
of business between instrument and reagent sales is
very good (75/25) [75 % reagents] and though an
open system, the quality of BM reagents permits a
high capture rate on instruments placed,
thus
allowing BM to maintain these margins'.

in general, or by focusing on certain

either
segments of the market.

shares

combined market

(79) A comparison of BM’s and Roche’s installed base
with that of the six biggest competitors in Europe
(J&J, Beckman, Bayer, Dade Behring, Merck,
Olympus) shows the advantages that the merged
entity would enjoy in those Member States where
the
that
Roche/BM would have a dominant position. The
comparison focuses on two aspects: it first looks at
installed
the
instruments
base
total
combined,
instrument size. This
irrespective of
number gives an indication of the customer base
and contacts of a supplier. Secondly, it looks at the
installed base by instrument size. This gives an
indication of the reagent ‘trail' generated by the
different instrument sizes and ensures the compar-
ability of the different instruments.

suggest

all

of

is important

the concentration
to note that
It
would not only combine the two largest installed
bases in Europe in numerical
terms. The two
respective activities are also largely
companies’
they together
complementary in the sense that
would create a unique coverage across all sizes of
instrument. Whereas BM’s traditional focus is in
the medium-
the
market, Roche has traditionally been strongest in
the segment for small instruments with its ‘Cobas
Mira'
existing
competitors would face increasing difficulties in
challenging Roche/BM’s strong combined position

to high-throughput end of

instrument. This

suggests

that

(80)

In Austria, BM has the largest total installed base,
and Roche the second largest. Their combined total
installed base would be almost three times as large
as that of the six largest competitors combined. BM
also has the largest installed base in each of the
instrument segments with the exception of small
instruments, where Roche is the leader. In each
segment, their combined installed base would be
significantly larger than that of the six competitors
combined.

(81)

(82)

(83)

(84)

(85)

21. 8. 98

EN

Official Journal of the European Communities

L 234/27

In Germany, BM has the largest total installed base,
and Roche the second largest. Their combined total
installed base would be almost twice as large as that
of the six competitors combined. BM also has the
largest installed base in each of the instrument
segments. Together with Roche, it would have an
installed base in each segment which is larger than
the combined installed base of the six competitors
combined, with the exception of the medium-size
segment where the competitors’ combined base
exceeds Roche/BM.

In Spain, BM has the largest installed base overall,
and in every segment except small
instruments.
Roche is strong in small instruments and fourth in
large instruments. Combined they would be as
large as the six competitors combined overall and
in all segments, except medium-sized instruments.

In Portugal and in Finland, BM has the largest
installed base overall and in every segment. Roche
has the second largest installed base (almost ex-
clusively small instruments). Together, they would
be larger
in every
than the six competitors
segment.

Roche/BM’s installed base would not be larger than
that of J&J and Bayer combined.

(88)

The comparison shows that
in those countries,
where BM had a dominant position prior to the
merger (i.e. Austria, Germany, Spain),
it clearly
controls the majority of the installed base. This
position would be further strengthened through the
addition of Roche’s base with its focus on small
instruments. In Portugal, Finland, Sweden, and
Denmark, the combined installed bases of BM and
Roche would be as large or larger than that of the
six competitors combined. In Italy, it would be as
large as the combined total of
the four largest
competitors. In the case of Norway, the comparison
of the installed bases suggest that Roche/BM will
not have a dominant position, since J&J and Bayer
will be in a position to challenge the market leader
effectively.

(89)

It can thus be concluded that for reagents as well as
instruments, the combination of Roche’s and BM’s
installed bases would strengthen BM’s dominant
position in Austria, Germany, and Spain, and
would facilitate the creation of a dominant position
in Portugal, Finland, Sweden, Denmark, and Italy.

In Sweden, Roche is the leader in small instru-
ments and BM the leader in medium-sized and
large instruments. Bayer is the only supplier in this
market that has placed an extra-large instrument.
Roche/BM combined would be as large as or larger
than the competitors combined overall and in
every segment, except extra-large.

In Denmark, Roche has the largest total installed
base and BM the third largest (after Bayer). Their
combined installed base would be the largest
overall and in every segment, exceeding that of the
six competitors combined in every segment, except
medium-sized instruments where J&J has placed
the largest number of instruments.

(90)

(91)

(86)

In Italy, BM has the largest total installed base and
Roche the third largest. BM leads in every segment,
except medium-sized instruments (where Beckman
is
the leader). Roche/BM would exceed each
competitor, but not the six competitors combined.

(87)

In Norway, Roche is the leader in small instru-
ments. J&J is as large as Roche/BM in medium-
sized and large instruments and Bayer is larger than
Roche/BM in extra-large instruments. Overall,

(iii) Removal of Roche as a competitor

The concentration will remove Roche as a compet-
itor from the market. In Austria and Denmark, this
is in itself a substantial reduction of competition, as
Roche was among the leading challengers of BM in
these markets
third in
Denmark).

(second in Austria,

In those markets, where Roche is not among the
three biggest competitors, account has to be taken
of the fact that in recent years Roche has been one
the most dynamic competitors in the IVD
of
industry. An independent market study submitted
by the parties notes that Roche has been among
the companies with the highest growth in IVD,
with a growth in revenue of 7 % for CC in Europe
from 1995 to 1996. The competitive importance of
Roche in clinical chemistry has been increased by
the successful launch of its new instrument family,
the Roche Integra. While historically concentrating
on small instruments, it launched this new large
instrument in 1995. With this instrument, it had
just begun to challenge BM in an area where the
latter has traditionally had its main focus.

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21. 8. 98

(92)

(93)

(94)

(iv) Increased bundling possibilities

The competitive importance of a broad product
range and the resulting possibility to bundle prod-
ucts from several fields of the IVD industry has
clearly been recognised by Roche. The head of the
Roche diagnostic division noted in that respect:
‘We believe there are advantages to establishing a
leadership position in a broad range of diagnostic
disciplines: firstly, from the ability to bundle prod-
ucts and services to the same customer base, and
secondly, in order to offer a consolidated solution
to the laboratories needs. . .'.

The unique potential of Roche/BM to do that, has
also been recognised by the head of Roche’s diag-
nostic division. When assessing the merits of
acquiring
than BM, he
concluded that, in combination with this compet-
itor, Roche would be ‘. . .the only company, with
the exception of BMD [BM], which could success-
fully bundle chemistry and immunochemistry'.

competitor other

a

The above assessment that BM currently is the only
supplier successfully able to bundle CC and im-
munochemistry is confirmed by the weak position
of all existing competitors in the field of CC, and
by the fact that Abbott, the market leader in immu-
nochemistry, is presently not active in CC. Further-
more, Roche/BM would also be uniquely placed in
that it is the only competitor that could success-
fully bundle classical chemistry and/or immuno-
chemistry with DNA probes (see below.)

2. C o n t e s t a b i l i t y

(95)

The Commission’s investigation has shown that
neither actual nor potential competitors nor coun-
tervailing power on the demand side can be
regarded as able to contest Roche/BM’s dominant
position for the following reasons.

(i) Existing competitors

(96)

The market shares of the most important compet-
itors have already been analysed above in relation
to Roche/BM’s shares. As noted there, the main
competitors
are J&J, Beckman, Bayer, Dade
Behring, Merek and Olympus. When analysing the
competitive impact of the competitors, it is also
important to note, in addition to the weak position
of these companies (in terms of market share and

installed base), that two of the five biggest compet-
itors in Europe, Bayer and Merck, are in a steadily
declining market position. Even the commitment
of J&J to the IVD industry has been questioned by
industry observers.

(97) As has been stated above,

the parties have
submitted that all
leading diagnostic companies
have developed or are developing new generation
modular instrument systems, which will cover clin-
ical chemistry,
immunochemistry and infectious
immunology (1). The parties are of the opinion that
this would provide a strong challenge to BM’s
existing market leadership in clinical chemistry.

(98)

The parties have submitted that,
in addition to
themselves, Abbott, Beckman, Dade Behring and
Bayer are also developing such ‘integrated instru-
ment systems'. Whereas it is true that some such
development projects are in progress, the Commis-
sion does not
arguments
convincing. As the term ‘modular' implies, these
new generation instruments will consist of several
modules that are adapted to work together as a
system. Thus,
there would be one module that
would carry out clinical chemistry testing, another
one that would carry out immunochemistry testing
and so on.

find the parties’

(99) None of these modular instrument systems have
yet been marketed in the EEA, or indeed elsewhere
in the world. It appears that the first system that
could be described as a modular one, the Dade
Behring RXL, does not yet incorporate the module
for heterogeneous immunochemistry testing. The
other module, which covers clinical chemistry and
HIA, has been marketed in the USA. The parties
have not advanced any argument why the eventual
launch of the RXL instrument in Europe would
significantly improve Dade Behring’s market posi-
tion in the clinical chemistry market. They also
have not shown why any other future modular
instrument system introduced by Beckmann, Bayer
or any other company already active in the market
for clinical chemistry would improve the market
position of such suppliers. Therefore, while in no
way ruling out the introduction of modular instru-
ment systems in the European markets in the
future, the Commission finds that the parties have
not demonstrated that this development is likely to
significantly alter the market characteristics of the
clinical chemistry market, i.e. the importance of
having a large installed base to secure future
reagent sales and replacement of instruments (see
above). Moreover,
statements
the
concerning the modular instrument systems fail to
take account of the fact that it cannot be presumed
that all customers would be interested in these new

parties’

(1) The first step in this integration development can be observed
in the introduction of homogeneous immunoassays on clinical
chemistry instruments. The limited impact of
this on the
conditions of competition in CC has been discussed above,
under market definition, and will not be repeated here.

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Official Journal of the European Communities

L 234/29

that

submission concerning the

systems, even if they were to become widely acces-
sible in the foreseeable future. This is evidenced by
the customers’ answers in the Commission invest-
igation as well as by the fact
the current
installed base in clinical chemistry clearly indicates
that customers have significantly varying needs in
terms of size, test menu and throughput of the
instrument. Finally, and not least importantly, the
parties’
imminent
impact of modular instrument systems would seem
to contradict
the rationale of Roche’s proposed
acquisition of BM. If these new instruments were to
constitute such a threat
to BM’s position as is
submitted by the parties, it would arguably make
little sense for Roche to pay USD 11 billion for
BM, as its major strength lies in the field of clinical
chemistry. The above indicates that the possible
introduction of modular instrument systems will
not fundamentally change the main characteristics
of the markets for clinical chemistry diagnostics
(reagents and instruments) in the foreseeable future.

of national specificities, the demand side is much
more dispersed than the supply side.

(102) According to the notification, that dispersal on the
demand side is
reflected in Roche and BM’s
customer base. In no case does the largest customer
of the parties account for a substantial amount of
either party’s sales of CC reagents in any of the
countries where the investigation indicates compet-
itive concerns. The highest proportion (13 %) is
found for Roche sales in Finland and Portugal.
for
Otherwise BM’s
between 1 % and 8 % in those Member States. The
corresponding figure for Roche is between 1 % and
10 %.

largest customer accounts

(100) On the basis of the above, it can be concluded that
in those countries where the concentration would
threaten to create or strengthen a dominant posi-
tion, existing competitors are already not in a posi-
tion in terms of market share and installed base to
effectively challenge the leadership of Roche/BM.
Nor can it be expected that the possible develop-
ment
instrument
systems by any of these companies would signi-
ficantly improve their ability to challenge the posi-
tion of Roche/BM.

and marketing of modular

(ii) Buying power

(small

requirement

(101) The demand side can be segmented along several
dimensions, the most important being ownership
(public laboratories/private laboratories), volume/
throughput
laboratories/large
laboratories), and status (hospital laboratories/ded-
icated reference laboratories/doctors’ practices). The
number and size of these customers differs from
Member State to Member State and depends on the
organisation of the national healthcare system. In
some Member States there is a certain concentra-
tion of demand through joint purchasing by public
is
laboratories. Such joint purchasing, however,
never done at a national level. Instead, it merely
combines the demand of local or regional author-
ities. As a result, in every Member State, irrespective

(103) Thus,

an

concentrate

the parties are not

faced with powerful
important
customers which
percentage of the total demand in any country. It
can not therefore be expected that even the biggest
customers have countervailing power. This assess-
ment is confirmed by the fact that not even the
owner of the largest group of private laboratories in
the EEA (based in Germany) considers itself to be
in a position to negate the market power of Roche/
BM.

(104) The use of calls for tender does not increase the
countervailing power of the customers to a large
extent. According to a submission by the parties,
calls for tender play a significant role (i.e. account
for more than 20 % of the total volume demanded)
only in Italy, Spain, Portugal, Greece and the
United Kingdom.
In Greece and the United
Kingdom,
the concentration will not create a
dominant position. In the other countries, calls for
tender cannot be expected to counterbalance
Roche/BM’s position. This would only be the case
if there was a limited number of large calls for
issued by centralised purchasing organ-
tender
isations. However,
in Italy the large diagnostic
companies participated in around 2 000 tenders
which were issued in 1996 by several regional
authorities. In Portugal and Spain, for the same
period, Roche participated in 150 to 200 tenders in
each country, BM in 300 to 600. Less than 3 % of
these were issued by a centralised authority.

(105) On the basis of the above, it can be concluded that
structural factors indicate that the parties’ market
position would not be constrained by counter-
vailing purchasing power on the demand side.

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21. 8. 98

(iii) Potential competition

of the clinical chemistry module is, however, not
foreseen until the year 2000, at the earliest.

(106) The barriers to entry into the market for clinical
chemistry diagnostics are high. Entry on a signi-
ficant scale would require large investments. The
development costs for a new system (instrument
and corresponding reagents) are estimated by the
German Diagnostic Manufacturers Association (of
which both Roche and BM are members), to be
between ECU 25 million and ECU 150 million. An
independent market study submitted by the parties
estimates those costs to be in excess of ECU 250
million. In addition, a new entrant would have to
bear the cost of setting up the necessary sales and
service organisations. Documents submitted by the
parties also indicate the existence of significant
economies of scale. Moreover, any new entrant
would be faced with a situation where its potential
customers are largely locked in by their existing
instrument base, and,
to replace
these instruments before they have been written
off.

thus, reluctant

(107) The height of the barriers to entry is demonstrated
by the fact that the only entrant of some signi-
ficance over the last five years in Europe would
seem to be Olympus. It should, however, be noted
that, prior to entering the market as a full-line
supplier, Olympus had for 20 years
already
produced instruments which were sold by Merck
and Eppendorf.

(108) The parties have submitted that Abbott, the world-
wide leader in immunochemistry, is about to enter
the clinical chemistry market. Abbott currently has
only a very limited presence in classical chemistry,
based on instrument placements done in the 1970s
and early 1980s. It has been confirmed that Abbott
is indeed planning to re-enter the market. This will
be done through an alliance with the Japanese
instrument manufacturer Toshiba (for large and
extra-large instruments) and through the acquisi-
the French instrument manufacturer
tion of
Alcyon (small instruments). The parties have also
put forward the argument analysed above relating
to the introduction of a new generation modular
instrument systems relating to Abbott.

(109)

In the first stage, Abbott’s entry into this field will,
however, not be achieved through the introduction
of a modular system but by offering Alcyon clinical
chemistry instruments. Alcyon currently has a very
limited position on any of the markets for clinical
chemistry in Europe. The alliance with Toshiba is
aiming at producing the clinical chemistry module
of Abbott’s planned Architect system, which will
combine such instruments with immunochemistry
instruments produced by Abbott. The introduction

(110) While Abbott has the access to customers and the
financial means to attempt to overcome the high
barriers to entry, it cannot be expected to challenge
Roche/BM’s dominant position in the short
to
medium term. Abbott will take over the sales of the
small Alcyon instruments immediately. While the
financial strength of Abbott may to some degree
increase the sales of such instruments from its
current level, the effect of this may be expected to
be relatively limited. The large and potentially
modular Toshiba instrument will be launched later.
Abbott accordingly does not expect to reach signi-
ficant market shares (; 5 %) within the foresee-
able future.

(111)

It can thus be concluded that potential competition
would not effectively constrain the market behav-
iour of Roche/BM after the merger.

3. C o n c l u s i o n

(112) The concentration of the classical clinical chem-
istry businesses of Roche and BM would result in
the creation of dominant positions in Portugal,
Finland, Sweden, Denmark, and Italy, and the
strengthening of BM’s pre-existing dominant posi-
tions in Austria, Germany, and Spain. This conclu-
sion is based not only on the high combined
market shares attained by Roche/BM, but also on
their advantages in terms of installed base, their
unmatched product portfolio, the relative weakness
of existing competitors, the insufficient counter-
vailing power of the demand side and the high
barriers to entry.

(b) Immunochemistry (reagents and instruments)

(113)

in

the

following

[: 20 %]

In a market for all immunochemistry diagnostics,
the parties would have a combined market share in
the EEA of
(BM [: 20 %], Roche
[: 10 %]). On that basis affected markets would be
countries: Austria
found
(combined market share [:40 %]
(BM [:30 %],
Roche [: 10 %])), Norway (combined market
share [: 30 %] (BM [: 30 %], Roche [: 10 %])),
Germany (combined market share : 20 % (BM
: 20 %, Roche : 10 %)) and Spain (combined
market
share : 20 % (BM : 20 %, Roche
: 10 %)). In all of these markets there are im-
portant competitors, notably Abbott,
the world
leader in immunochemistry, which has comparable
market shares to BM in these countries, Dade
Behring, which has considerably larger shares than
Roche, but lower shares than BM, and Beckman.

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Official Journal of the European Communities

L 234/31

(114) On the second level of the EDMA classification, the notified operation leads to
significant overlaps in certain specific product groups within the overall immuno-
chemistry field. The following table shows those product groups in which, based
only on the parties’ combined shares, an indication of competitive concerns exists:

Product

Country

Market
value
(ECU
million)

Market share
BM
(%)

Market share
Roche
(%)

Market share
Roche+BM
(%)

Important competitors (; 5 %) (1)
(%)

Tumour markers

Italy

35,7

[:30]

[:20]

[:40]

Abbott [:30]

Anaemia rel./vit. tests

Austria

2,2

[:40]

[:10]

[:50]

Abbott [:30]

Rheumatoid and Autoim-
mune Disease (2)

Austria

5,4

[:60]

[:10]

[:70]

Dade Behring [:20], Beckman [:10]

Belgium

4,6

[:10]

[:40]

[:40]

Dade Behring [:30], Beckman [:10]

Portugal

0,9

[:50]

[:10]

[:50]

Dade Behring [:40]

Standards and controls

Austria

1,8

[:50]

[:10]

[:60]

Dade Behring [:30], Beckman [:10]

Germany

14,1

[:40]

[:10]

[:40]

Dade Behring [:30], Beckman [:20]

Portugal

0,7

[:30]

[:20]

[:40]

Dade Behring [:20]

(1) The exact market shares, based on information submitted by third parties, have been withheld for confidentiality reasons.

(2) The above market shares of Roche/BM include a combination of two specific EDMA level 2 groups of reagents (rheumatoid diseases, EDMA 12.10 and
autoimmune diseases EDMA 12.11). These groups have only recently been separated in the EDMA classification and statistical information is only available
for Germany. As neither party is active in 12.10 to any significant extent, but both are strong in 12.11, their market share in autoimmune disease in the
countries mentioned above is higher than indicated in the table. This is however also true for the major competitors Dade Behring and Beckman. The
competitive relation between these competitors would thus remain unchanged, if this segment was analysed separately.

(115) The table shows that Roche/BM would attain market shares of a similar size to those
discussed in relation to clinical chemistry also in some segments of the immuno-
chemistry field. This position is, however, not as consolidated as their position in the
market for clinical chemistry. As indicated above, in most markets there are substan-
tial competitors that will constrain the parties’ market behaviour. Even in the two
markets where the parties’ share is particularly high (rheumatoid and autoimmune
diseases, and standards and controls in Austria), the investigation has confirmed that
the operation will not create competitive concerns. Neither of those two products is
used on instruments dedicated for such purposes. The ability of the parties to exploit
their strength in these segments will therefore be constrained by their much weaker
position in other immunochemistry reagents used on the same instrument. In
addition, although the markets for immunochemistry diagnostics remain essentially
national, Dade Behring, which has comparable market shares to the parties in
rheumatoid and autoimmune diseases in the EEA and in Germany and which is
already present to a significant degree in Austria, would be able to react to any
attempt by Roche/BM to exploit their position in Austria. Dade Behring has a
sufficient production capacity and sales force to counter the behaviour of Roche/BM.

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Official Journal of the European Communities

21. 8. 98

(116)

face
It can be concluded that Roche/BM will
powerful competitors in the overall immunochem-
istry field. These competitors (primarily Abbott,
Dade/Behring and Beckman) are also significantly
products
active
mentioned in the above table. For this reason the
investigation has confirmed that the concentration
would not create or strengthen a dominant position
in any market for immunochemistry diagnostics.

immunochemistry

the

in

(c) DNA probes

1. M a r k e t

s t r u c t u r e

(117) For DNA probes,

information from
statistical
EDMA is still only partly available, as the classifi-
cation does not yet contain a specific chapter
containing all such tests. Therefore the parties have
not been able to provide market share data broken
down to the Member State level. The aggregated
data provided for the Community as a whole shows
that the total value of the market in 1996 was ECU
76 million, an increase of 42 % since 1995 (in the
same period Roche’s sales almost doubled). The
data also shows that Roche has a very strong posi-
tion, with a market share of [: 70 %] for the four
main fields of application (HIV, hepatitis C (HCV),
mycobacterium tuberculosis (MTB) and sexually
these four
transmitted diseases (STD)). In 1996,
the total
represented [: 80 %] of
applications
DNA probe market ([: 60 %] in 1995). In partic-
ular the areas of HIV and HCV tests increased
significantly between those years ([: 400 %] for
HIV and [: 50 %] for HCV).

(118) Roche is the only company which is able to supply
reagents for all of those four main applications, and
thus offers the broadest range of tests available.
Moreover it was the first company to launch a test
for the quantitative measurement of the viral load
(amount of virus) in a patient’s blood. Roche was
also the first company to introduce an automated
instrument
the Cobas
for DNA probe testing,
Amplicor. This instrument allows 20 DNA probe
tests to be performed in one hour. Thus, from a
customer point of view, instruments are advanta-
geous as they significantly lower the processing
time compared to manual
tests. An additional
advantage of automated instruments is that they
reduce the risk of contamination of the sample.
Other instruments have subsequently been devel-
oped by other companies (Abbot LCx and Organon
Nasba QR). None of these, however, provide a test
menu as wide as the Amplicor.

(119) The extent

systems

installed, whereas

to which DNA probe tests

are
employed, and the level of automation of such
tests, would seem to vary significantly between
Member States, with Germany, Austria, Italy, Spain
and France having a relatively high number of
automated
other
Member States (the United Kingdom, Ireland and
Greece) do not yet have any such systems installed.
One explanation for this is that, as has been stated
above, the national reimbursement systems have a
strong impact on the development of the in vitro
diagnostics industry as a whole. However, even for
the Member States where DNA probes have not yet
reached a high degree of automatisation, the parties
have not indicated that their market share would
differ significantly from the reported figure for the
Community as a whole. For the purposes of the
present
the Commission therefore
considers that Roche’s existing market share in all
Member States is of the same order as that for the
Community as a whole.

assessment

2. P o s i t i o n o f

t h e p a r t i e s

(i) Roche

(120) As has been stated above, Roche has a very strong
position on the market for DNA probes. This posi-
tion is based on Roche’s extensive patent portfolio
relating to the main DNA probe technology, the
polymerase chain reaction (PCR) technique, which
has developed into the industry standard in both
scientific and commercial applications. The PCR
technology was acquired by Roche from the US
company Cetus in 1991, and has over the last six
years been employed in a steadily increasing
number of commercial applications. In addition to
three fundamental enabling patents issued in the
United States between 1987 and 1990, Roche has
large number of patents (at
least 81) covering
improvements to the technology, the key enzymes
used in the process, specific pathogens, detection
methods, target information on cancer cells, etc.
Many of these additional patents have beer issued
in the latter half of this decade. For example, in
November 1996 the European Patent Office (EPO)
granted Roche a patent for key enzymes used in
the PCR technology (taq polymerase). According to
Roche this enzyme plays an ‘. . . extremely impor-
tant
role in the PCR technique . . .' and the
decision by the EPO ‘. . . significantly enhances the
division’s strong patent portfolio in the field of
It can therefore be
DNA amplification . . .'.
retain a significant
concluded that Roche will

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L 234/33

patent protection on the PCR technology well into
the 21st century.

(121) Since its acquisition of the PCR technology Roche
has, in addition to the successful commercialisation
of a number of PCR tests, been very successful in
spreading the technology within the research
community, through the granting of more than 450
research licences worldwide (150 in Europe). Such
licences have been granted both to research institu-
tions (universities etc.) and to competing diagnostic
manufacturers (such as BM) (1). The fact that PCR
was the first DNA probe technology to be success-
fully commercialised, in combination with Roche’s
policy of extensively granting research licences, has
led to the situation where the majority of all
published material on DNA probes deals primarily
with PCR. All such published material submitted
by the parties during the investigation confirms the
opinion that the PCR technology will continue to
be by far the most commercially important DNA
probe technology for the foreseeable future. This
assessment has also been confirmed by other IVD
companies during the Commission’s investigation.

(122) The abovementioned research licences do not give
the licensees any right to commercialise products
or equipment using the patented PCR technology.
Roche has actively and successfully pursued this
limitation in its research licences by taking legal
action against
It can
therefore be concluded that none of the companies
holding a research licence for PCR will be in a
position, on the basis of that licence, to market its
own DNA probe products and thus to counter the
strong position held by Roche.

licensees when required.

(ii) BM

(123) BM has since 1993 had a licence from Roche for
PCR in the research field, and has produced and
sold the abovementioned key enzymes used in the
PCR technology (taq polymerase) to research lab-
oratories. Apart from this, the parties stated in the
notification that BM is not active on the DNA
probe market and has no pipeline products.

(124) The investigation has, however, revealed that BM,
prior to the proposed transaction, has invested
substantial efforts in positioning itself on this
market. BM has made such efforts both inde-
pendently and in collaboration with Roche.

(125) BM’s independent activities include a programme
under which it has developed and acquired a
substantial portfolio of patents (at least 126) relating
to the DNA probe market. In a list submitted to

(1) In addition, Roche has licensed BM and 22 other companies
to produce and sell taq polymerase and other reagents for the
PCR process in the research field.

the Commission these patents have been divided
into three groups (46 patents developed to circum-
vent
the PCR technology, 60 general patents
relating to analyte-specific formats and improve-
ments to the amplification process and sample
preparation, and 20 patents relating to an alter-
native technology,
‘PNA', acquired from a Danish
company in 1994).

(126) Further,

the investigation has also revealed a
number of other examples of BM’s interest in posi-
tioning itself
for an independent entry on the
DNA probe market, relating to both reagents and
In relation to reagents, BM has
instruments.
collaboration agreements with 10
concluded
different
independent parties, all of whom are
developing DNA probe products for BM. All of
these collaboration agreements
relate to both
research and commercial applications, and five of
the collaboration agreements give BM exclusive
rights to the product concerned. Finally, BM is also
currently conducting in-house work on the devel-
opment of DNA probe tests for, inter alia, HIV. In
instruments, BM has entered into an
terms of
agreement with an American company,
Idaho
Technologies, by which BM would distribute a
DNA probe instrument
to research laboratories.
BM has also developed in-house a programme for
the production of a DNA probe instrument. The
parties have stated that BM’s development projects
would be terminated if the proposed transaction
was to be consummated.

(127)

to those independent preparations

It can be concluded from the above that BM, prior
to the proposed transaction, had initiated several
projects with a view to positioning itself for an
entry into the DNA probe market independently
of Roche. It is, however, also significant that BM, in
for
parallel
market entry, has also invested four years of R&D
and so forth on the DNA probe market on the
PCR technology. This not only confirms
the
strength of the PCR technology compared with
alternative technologies (see below), but also in-
dicates that BM, in the absence of the proposed
transaction, would have had a strong incentive
either to reach an agreement with Roche to grant it
a licence to commercialise the PCR products, or to
expand further its efforts to develop and/or acquire
a competing technology.
the head of
Roche’s Diagnostic Division has confirmed that,
prior to the proposed transaction, an agreement in
principle had been reached to license BM to
commercialise products using the PCR technology
and that it had only not been concluded because of
the merger.

Indeed,

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21. 8. 98

(128) Thus, in contrast to what was implied by the parties
in the notification, it must be concluded that BM,
prior to the proposed transaction, had significant
pipeline projects
relating to the DNA probe
market, and would have entered this market in the
absence of Roche’s proposed acquisition.

3. T h e w e a k p o s i t i o n o f

a l t e r n a t i v e

t e c h n o l o g i e s

(129) The parties have submitted that Abbott, Chiron,
Organon, Genprobe and a group referred to as
‘Others' operate in the DNA probe market,
supplying products which ‘. . . while differing in
some features and ease of use, are essentially equi-
valent'. However, the investigation has shown that
none of
these companies are currently able to
produce DNA probe products equivalent to those
produced by Roche (as confirmed by the above-
mentioned market share).

(130) Abbott, Organon, and Genprobe each have an
overall market share of less than 5 % in the overall
DNA probe market in the EEA. They offer only a
limited number of tests and the alternative technol-
ogies used by them are regarded by most industry
observers as inferior to the PCR technology. It
must therefore be concluded that these companies
are currently not in a position to challenge ser-
iously. Roche’s position in the DNA probe market.
Nor is there any evidence suggesting that they
would be able to do so in the foreseeable future.

technology is

(131) Chiron is a US company which has its traditional
focus on infectious-disease diagnostics. Its DNA
probe
called ‘Branched DNA'.
According to the notification, Chiron’s activities on
the DNA probe market relate exclusively to HIV
and hepatitis C (HCV), where Chiron holds signi-
ficant patent rights. In these two fields, Chiron
holds a relatively strong position in the EEA (23 %
and 25 % of these two segments respectively). On
the overall DNA probe market
these activities
translate into a total market share for Chiron of
14 % (20 % if non-automated tests in the group of
‘other tests' are excluded, see below). Although
Chiron is not an insignificant player on the DNA
probe market, it has a serious disadvantage in that
it does not have an instrument for the automated
operation of its tests. In addition, the fact that it has
no activities in two of the four main areas of the
DNA probe market (mycobacterium tuberculosis
(MTB) and sexually transmitted diseases (STD))
further decreases its ability to act as a significant
constraint on Roche’s market position. This is
confirmed by a consultant report submitted by
Roche which provides the following assessment of
Chiron’s Branched DNA technology ‘[it]
is well
suited for certain application signal thresholds, but

will not expand much further into IVD application
suited for nucleic acid amplification'.

tests,

(132) Finally, the group of ‘other tests', which according
to the data provided by the parties constitute about
30 % of the overall DNA probe market, consists
mainly of diagnostic parameters with a distinctly
lower turnover than the four main tests included
on the Roche Amplicor instrument. It includes
such as THLV I/II or enterovirus,
viral
genetic tests and cancer
tests. In addition the
category includes sales of instruments and dispos-
ables. With the exception of Roche, none of the
four abovementioned companies achieve any sales
in this category. According to the parties, more
than 80 % of the products in this category are
based on Roche’s PCR technology. Instruments
and disposals are likely to make up the major part
of the remaining 20 %.

(133) Therefore, as these ‘other tests' are mainly still at
the research stage and are supplied by a large
number of smaller companies or research institu-
tions which have concluded a research licence with
Roche, it must be concluded that none of these
tests could be commercialised without Roche’s
participation.

(134) As has been stated above, the fact that most of the
research on DNA probes is done on Roche’s PCR
technology underlines the fact that this technology
has become the industry standard. The fact that all
this research is done using the PCR technology is
of great value to Roche, in that it alone will be able
to participate in any commercialisation of products
flowing from these activities. To the extent that
products within this category, due to their research-
related nature, should be included when calculating
market shares on the DNA probe market, it would
therefore be logical to include these activities in
Roche’s market share, since Roche,
through its
patent rights, is able to control any commercialisa-
tion of these products. If these ‘other tests' were to
be included in the market and in Roche’s share of
that market, Roche’s share would be even higher
than estimated above (66 %).

4. M a r k e t d y n a m i c s

(135) Since DNA probes constitute a relatively young
market with high growth rates, it is necessary to
determine whether Roche’s dominant position is
sustainable. The parties have argued in this respect
that the DNA probes market is in the infant stage
of a developing market and that, therefore, market
share figures have only a low probative value in
assessing a competitive situation. The Commission
agrees that in technology-driven markets a careful

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In contrast

future. On the

analysis must be made of the likely development of
market dynamics. Such an assessment, however,
clearly indicates that Roche’s market position will
continue to be secure for the reasons outlined
to other cases, where the
above.
Commission found that high market shares would
be eroded in the future through competition (1),
the DNA probe markets have not experienced
volatile market share movements, and there has not
been a change in market leadership since Roche’s
acquisition of the PCR technology in 1991. Nor
has the investigation revealed any indication that
the market structure will change fundamentally in
the
all documents
submitted by the parties as well as by all third
parties show that all industry players consider that
the PCR technology will continue to be the dom-
inant technology in the future. For example, one of
the market studies submitted by the parties es-
timates that the market share of PCR technology
will increase to 75 % by the year 2002 and to 80 %
by the year 2005. Thus, it must be concluded that
the market, although growing at a fast rate, has left
stage, where significant uncertainty
the infant
remains as to which technology will become the
industry
standard. The Commission therefore
concludes that the market position of Roche in
DNA probes will not be eroded by market
dynamics in the foreseeable future.

contrary,

(136)

In the light of the above, it has to be concluded
that Roche has a dominant position on the DNA
probe market in all Member States. Furthermore, it
must be concluded that none of
the available
alternative technologies has any prospect of seri-
ously challenging the PCR technology in the fore-
seeable future.

5. E f f e c t s
t i o n

o f

t h e p r o p o s e d t r a n s a c -

(137) Prior to this concentration, Roche had, during the
last three years studied a number of other possible
candidates for acquisition (virtually all major in
vitro diagnostic companies except Abbott). It is
clear from the documents submitted by Roche that
its strategic plans for such a transaction focused on
getting access to a larger sales force to maximise
the marketing of PCR products, and to create
possibilities of successfully bundling sales of clin-
ical chemistry, immunochemistry and DNA probe
products.

(1) See,

for example, Cases IV/M.057 (cid:190) Digital/Kienzle, para-
graph 20, or IV/M.354 (cid:190) American Cyanamid/Shell, para-
graph 33.

(138) BM’s position as Europe’s leading supplier of clin-
the major
ical chemistry products and one of
immunochemistry products, with a
suppliers of
presence in most
laboratories and a sales and
marketing organisation to match these activities,
will fit these objectives. It can therefore be assumed
that Roche’s direct access
sales and
marketing network will allow Roche further to
consolidate and strengthen its dominant position
on the DNA probe market.

to BM’s

(139) Although from a technical point of view, it will not
be possible for the foreseeable future to combine
DNA probes with clinical chemistry tests on a
combined instrument, it is clear from Roche’s own
submission that it considers commercial bundling
of clinical chemistry, immunochemistry and DNA
probe products feasible and advantageous. It must
therefore be presumed that, following the acquisi-
tion of BM, Roche would adopt such a marketing
strategy. Although Roche, as explained above,
already has a presence in clinical chemistry and
immunochemistry, the very strong position of BM,
in particular in clinical chemistry, would lead to
significantly increased possibilities of successful
bundling with DNA probe products. This effect of
significantly
the proposed
consolidate and strengthen its dominant position
on the DNA probe market.

transaction would

independently and/or

(140) Finally, it is clear that BM, in the absence of the
proposed transaction, would have entered the DNA
probe market
through a
licence from Roche. BM’s interest in doing so is
evidenced by the fact that the DNA probe market
is the only market in the field of in vitro diagnos-
tics that is rapidly expanding. BM, as one of the
world top players in the diagnostic field, would
have had a very strong incentive to enter the
market, since a strategy of staying outside the DNA
probe market could, in the long term, have eroded
its existing positions in other markets. Had BM
followed such a strategy of independent entry into
the DNA probe market, it can be presumed that,
for the reasons stated above (existing sales force and
customer base, and ability to bundle its product
offering), it would have been the best placed poten-
tial competitor of Roche on the European markets.
It must therefore be concluded that the acquisition
of BM would further consolidate and strengthen
Roche’s dominant position on the DNA probe
market by eliminating the best placed potential
entrant to the European markets.

(141) Customers and competitors of Roche and BM have
largely confirmed that
the proposed transaction
would be likely to bring about the results indicated
above. In particular, a number of customers and

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21. 8. 98

(142)

competitors have expressed fears that the transac-
tion would increase the already dominant position
of Roche on the DNA probe market. As an
example of possible exploitation of Roche’s strong
several
position in the DNA probe market,
customers have referred to Roche’s unique system
of charging its customers (the laboratories) a fixed
percentage of their turnover on PCR tests as a
‘royalty', and stated that Roche’s access to the BM
sales network and the increased bundling possibil-
ities would facilitate the use of similar tactics.

In conclusion, Roche has already, prior to the
proposed transaction, a market share of [: 70 %]
on the DNA probe markets in the EEA, which, in
particular in combination with the weakness of all
alternative DNA probe technologies, gives Roche a
dominant position on these markets. The acquisi-
tion of BM would strengthen this position by
giving Roche increased access to market its DNA
probe products through BM’s existing organisation,
as well as the possibility of successfully bundling
the products of the two companies. Also the loss of
likely potential competitor of
BM as the most
in the
Roche on the DNA probe market
Community would serve
and
strengthen Roche’s dominant position.

to consolidate

Mira business in Norway and an option to extend
the transaction to all
the geographic scope of
Member States of
the Community. The assets
included in the transaction will comprise title and
ownership to Cobas Mira instruments, as far as not
yet assigned to the customers, the customer list, all
respective supply agreements
reagents and
for
disposables, all
respective service agreements, a
stock of spare parts, all necessary service software
and tools. The purchaser, will, on request, also be
granted a non-exclusive licence covering Roche’s
patent rights, and all its documented know-how
(including design know-how such as blueprints)
used by Roche for the manufacture of Cobas Mira
instruments. In addition, Roche would be ready to
sell to the buyer new Cobas Mira instruments, the
necessary spare parts, and, if needed, reagents, all at
a favourable transfer price.

(146) Roche undertakes to use its best efforts to sell this
business in its entirety to one single purchaser, who
will be a viable competitor in the clinical chemistry
business and independent from Roche, the satisfac-
tion of such conditions being subject to approval
by the Commission. Roche will seek the Commis-
sion’s consent to sell the business on a national
basis to different purchasers, if a single purchaser
for the entire business cannot be found.

V. CONCLUSION

(143) On the basis of the above, the Commission has
reached the conclusion that the proposed concen-
tration would lead to the creation or strengthening
of a dominant position as a result of which effective
competition would be
impeded,
within the meaning of Article 2(3) of the Merger
Regulation, on the following markets: clinical
chemistry reagents and clinical chemistry instru-
ments
in Austria, Germany, Finland, Portugal,
Spain, Sweden, Denmark, and Italy; and DNA
probes in all Member States of the EEA.

significantly

VI. UNDERTAKINGS

SUBMITTED BY THE

PARTIES

(144) With a view to removing the competition concerns,
Roche has offered to enter into the following
commitments:

A. CLINICAL

CHEMISTRY

REAGENTS

AND

INSTRUMENTS

(145) For clinical chemistry reagents and instruments,
Roche undertakes to divest its Cobas Mira business
in Austria, Germany, Denmark, Finland, Sweden,
Italy, Portugal and Spain. The purchaser will also
be given the opportunity to purchase the Cobas

(147) Roche undertakes

to use its best efforts

for
completing such a divestiture within a period of
[ . . . ] following the Commission’s decision. After
such [ . . . ] period a trustee, approved by the
Commission, will be entitled to sell the business at
best price within a period of another [ . . . ]. The
trustee will already within the first [ . . . ] review that
the business will be continued by Roche as an
ongoing viable business and that no measures are
taken which would have a substantial adverse
impact on the business.

B. DNA PROBES

(148) As regards DNA probes, Roche undertakes to give
access to PCR technology, for all in vitro diag-
nostic applications, to all interested market parti-
cipants. Given the different needs and resources of
potential licensees, Roche will offer both broad and
targeted licences. It will offer three categories of
(Option A) covers the
broad licences. The first
fundamental PCR patents. The second (Option B1)
covers, in addition, the full Roche present patent
portfolio in PCR. Finally, under Option B2 the
licensee will, in addition to the fundamental PCR
patents, have the choice, of additional patents from
Roche’s present patent portfolio, depending on the
needs of the licensee. Roche is also prepared to
grant every licensee a licence on the future PCR

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L 234/37

patents of Roche. In addition, Roche will offer
targeted licences for single parameters to those
competitors that only have an interest in a specific
disease, with as yet unmet medical needs,
for
example, HLA or cystic fibrosis.

(149) Roche will offer these licences on non-discrimin-
atory terms to all interested third parties. For the
purpose of ensuring the non-discriminatory treat-
ment of all
licensees Roche will grant to each
licensee a ‘most-favoured-customer' clause. In addi-
tion, Roche agrees to the appointment of a trustee,
who will be approved by the Commission, and who
will be informed of every executed licence agree-
ment and can be contacted by every licensee for
reviewing compliance with the principle of non-
discrimination. Such trustee will report his conclu-
sions to the Commission.

(150) To ensure the timely implementation of

undertakes

this
conclude
undertaking, Roche
to
least one
binding licence agreements with at
(Option B1)
licensee
within [ . . . ] from the Commission’s Decision in
the present case. Furthermore, Roche undertakes to
conclude a binding agreement
for a targeted
licence within [ . . . ] of the same date.

licence

broad

for

a

(151)

In order to ensure that Roche does not obtain
sensitive business information on the activities of
its licensees, Roche agrees to ensure that sales
licensees will not be
volumes and values of
reported to Roche before the expiration of [ . . . ]
from the end of the period, covered by such sales
figures. For the purpose of the calculation of the
payment and the review of the royalties during the
[ . . . ] period, the licensees shall report to an inde-
pendent auditor, who will be approved by the
Commission, and obliged not
to disclose such
figures to Roche before the end of the [ . . . ] period.

VII. ASSESSMENT OF THE UNDERTAKINGS

A. CLINICAL

CHEMISTRY

REAGENTS

AND

INSTRUMENTS

(152) The commitment offered by Roche with regard to
the Cobas Mira range of instruments will have an
important effect on the addition of installed bases
after the merger and will significantly reduce the
increase in BM’s market
share related to the
concentration.

(153) The Cobas Mira line of instruments represents the
most important part of Roche’s total installed base.
In those Member States where the merger would
have created a competitive problem, the merger
will thus only add a limited number of instruments
to BM’s installed base. In Germany, Spain, and

instruments, and,

Italy [: 100] instruments will be added, in Austria,
Sweden, Denmark [: 50]
in
Finland and Portugal [: 20]. These numbers have
to be compared to the large installed base that BM
already controls in these countries (see above).
Roche/BM will thus not increase its advantages in
terms of access to customers, since most Roche
customers have been using the Cobas Mira. In
addition, the undertaking ensures that the merger
will not combine Roche’s strength in small instru-
ments with BM’s strength in the other instrument
segments, since Roche’s strength in this segment
was entirely based on the Cobas Mira range of
instruments. It will thus be as easy for competitors
to challenge Roche/BM in certain segments of the
market as it was prior to the concentration.

(154)

In the market for reagents, the purchaser would,
with the access to this installed base, be put into a
position to effectively compete in the market by
offering its own reagents for the whole installed
base of such instruments. Since the Cobas Mira is
an open instrument, the purchaser can provide its
own reagents for this instrument without any costs
or adaptations. It can therefore immediately serve
all customers using the Cobas Mira.

in the small

(155) Further, Roche’s undertaking to sell new Cobas
Mira instruments to the purchaser will enable it to
act immediately as a full-range supplier (instru-
instruments
ments and reagents)
segment. The purchaser will also therefore be able
to offer its customers new or replacement instru-
ments in the period before it could provide an
instrument of its own (through own production or
it a
sub-contracting). The undertaking to grant
non-exclusive licence covering all patent rights and
know-how necessary to manufacture Cobas Mira
instruments even enables the purchaser to start
producing this specific instrument type.

(156) For these reasons, the Commission considers, that
the parties’ undertaking resolves the competition
concerns outlined above in the markets for clinical
chemistry reagents and instruments.

B. DNA PROBES

(157) The undertaking to license the PCR technology to
all interested competitors should ensure that there
will be several entries from large IVD producers
into this market. These companies, which have
already, during the Commission proceedings,
expressed their interest in obtaining a commercial
PCR licence, have the same incentives to enter this
high-growth market within the IVD industry as
BM had prior to the merger.

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21. 8. 98

(158) The scope of the licensing programme as well as
the differentiation between broad licences and
targeted licences for specific parameters should also
ensure that not only large competitors will enter
this market, but also small companies that have an
interest in a specific disease with as yet unmet
medical needs, but who do not have an interest in
the full breadth of PCR applications. Until now,
the small companies that were active in the R&D
of new tests using a research licence from Roche
could not market these tests themselves but had to
sell their development results to Roche or another
company with a commercial PCR licence.

(159) The commitment to conclude at least one broad
licence and one targeted licence within the periods
specified above ensures that market entry will be
timely.

(160) Since the broad licences will be given to suppliers
which are already active in the IVD-industry, any
concern about Roche’s unique potential ability to
bundle DNA probes with other IVD products will
also be removed by the undertaking. The under-
taking will place the licensees in a similar compet-
itive position as regards the ability to offer DNA
probes combined with other IVD products.

(161) As a result of these commitments, the Commission
considers that the abovementioned reinforcement
of a dominant position in DNA probes arising
from the notified merger will effectively be
removed.

(162)

In order for the Commission to deal with requests
from Roche relating to the divestiture of the Cobas
Mira business, as indicated in paragraph 146, as
well as with requests relating to the appointment of
a trustee and an auditor, as indicated in paragraphs
147, 149 and 151 in a timely fashion, and in order
to reduce any hardship to Roche, a non-opposition
procedure should apply to the Commission’s treat-
ment of such requests. Roche should provide the
Commission with all relevant data demonstrating
the independence of the proposed trustee, auditor
or purchaser, as the case may be. In relation to a
proposed purchaser, Roche should also provide
sufficient information to show that the proposed
party will be a viable competitor in the clinical
chemistry business. If the Commission does not,
within two weeks of Roche’s submission, object to
the request or require that further information be
submitted, it shall be deemed to have approved the
request.

VIII. FINAL CONCLUSION

(163) Consequently,

the Commission concludes

that,
subject to full compliance with the commitments
made by Roche, as set out in its letter to the
Commission of 19 January 1998, and in recitals
145 to 151, the proposed concentration will not
create or strengthen a dominant position, as a result
of which effective competition would be signi-
ficantly impeded in the common market or a
substantial part of it,

HAS ADOPTED THIS DECISION:

Article 1

Subject to full compliance with the commitments made
by F. Hoffmann-La Roche Ltd, as set out in recitals 145
to 151 of this Decision, the concentration by which the
Hoffmann-La Roche group acquires control of the whole
of Corange Ltd. is declared compatible with the common
market and the functioning of the EEA Agreement.

Article 2

Whenever F. Hoffmann-La Roche Ltd,
in accordance
with its commitments, submits to the Commission for
approval a proposal for a trustee, an auditor or a purchaser
of the Cobas Mira business, it shall provide the Commis-
sion with all relevant data demonstrating the indepen-
dence of the proposed trustee, auditor or purchaser, as the
case may be. In relation to a proposed purchaser, F.
Hoffmann-La Roche Ltd should also provide sufficient
information to show that the proposed party will be a
viable competitor in the clinical chemistry business. If the
Commission does not, within two weeks of submission of
the request, object to it or require that further information
be submitted, it shall be deemed to have approved the
request.

Article 3

This Decision is addressed to:

F. Hoffmann-La Roche Ltd
Grenzacherstrabe 124
CH-4070 Basel.

Done at Brussels, 4 February 1998.

For the Commission

Karel VAN MIERT

Member of the Commission