CELEX: 32021M10238
Language: en
Date: 2021-06-23 00:00:00
Title: Commission Decision of 23/06/2021 declaring a concentration to be compatible with the common market (Case No COMP/M.10238 - NORDIC CAPITAL / LEO FOUNDATION / LEO PHARMA) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                Brussels, 23.06.2021
                                                                C(2021) 4678 final
                                                                                  PUBLIC VERSION
                                                                  In the published version of this decision,
                                                                  some information has been omitted
                                                                  pursuant to Article 17(2) of Council
                                                                  Regulation (EC) No 139/2004 concerning
                                                                  non-disclosure of business secrets and other
                                                                  confidential information. The omissions are
                                                                  shown thus […]. Where possible the
                                                                  information omitted has been replaced by
                                                                  ranges of figures or a general description.
                                                               Nordic Capital X Limited
                                                               26 Esplanade
                                                               JE2 3QA St. Helier
                                                               Jersey
                                                               LEO Foundation
                                                               Lautrupsgade 7, 5.
                                                               2100 Copenhagen
                                                               Denmark
Subject:             Case M.10238 – NORDIC CAPITAL / LEO FOUNDATION / LEO
                     PHARMA
                     Commission decision pursuant to Article 6(1)(b) of Council Regulation
                     No 139/20041 and Article 57 of the Agreement on the European Economic
                     Area2
Dear Sir or Madam,
(1)       On 21 May 2021, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Nordic
1     OJ L 24, 29.1.2004, p. 1 (the ’Merger Regulation’). With effect from 1 December 2009, the Treaty on the
      Functioning of the European Union (‘TFEU’) has introduced certain changes, such as the replacement of
      ‘Community’ by ‘Union’ and ‘common market’ by ‘internal market’. The terminology of the TFEU will
      be used throughout this decision.
2     OJ L 1, 3.1.1994, p. 3 (the ‘EEA Agreement’).
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak---         Capital Fund X (“Nordic Capital”, Jersey) and Leo Foundation (“Leo Foundation”,
        Denmark) acquire within the meaning of Articles 3(1)(b) and 3(4), joint control of
        the whole of Leo Pharma A/S (“Leo Pharma”, Denmark) by way of purchase of
        shares (“the Transaction”)3 . Nordic Capital and Leo Foundation are referred to
        hereinafter as the “Notifying Parties” or the “Parties”.
1.      THE PARTIES
(2)     Nordic Capital is a group of private equity funds focusing on investments primarily
        in the Nordic region of Europe and selected Northern European sectors. Nordic
        Capital invests across a wide range of industries but has a particular focus on
        healthcare, technology and payments, financial services, industrial and business
        services and consumer products.
(3)     LEO Foundation is a private foundation established under Danish law, which, apart
        from LEO Pharma, does not control any other operating undertakings and which is
        itself not controlled by any other entities. LEO Foundation’s financial assets are held
        in LEO Holding, where the investments activities of the LEO Foundation are carried
        out.
(4)     LEO Pharma is headquartered in Denmark and develops, manufactures and markets
        pharmaceutical products to be used predominantly for treatment of dermatological
        and thrombotic diseases.
2.      THE TRANSACTION
(5)     Pursuant to an Investment Agreement dated 16 March 2021, Nordic Capital will
        acquire […]% of the shares and LEO Foundation will retain […]% of the shares of
        LEO Pharma.
(6)     In addition, the Parties will enter into a Shareholder Agreement according to which a
        number of “reserved matters” will require the prior consent of both Parties. The
        reserved matters include (i) material amendments to the business plan, (ii) material
        amendments to and adoption of the annual budget, and (iii) the appointment and
        removal of each member of the executive management. 4 Post-Transaction, LEO
        Foundation and Nordic Capital will therefore jointly control LEO Pharma.
(7)     LEO Pharma is an existing company, with management and staff dedicated to its
        day-to-day operations and access to sufficient resources (including finance and
        assets) to conduct its business on a lasting basis. Moreover, LEO Pharma has its own
        market presence. This will not change post-Transaction. It can therefore be
        concluded that LEO Pharma will be a full- functional JV.
(8)     The Transaction is therefore a concentration within the meaning of Article 3(1)(b)
        and 3(4) of the Merger Regulation.
3   Publication in the Official Journal of the European Union No C 207, 1.6.2021, p. 6.
4   […].
                                                          2
 ---pagebreak--- 3.       UNION DIMENSION
(9)      The undertakings concerned have a combined aggregate worldwide turnover of more
         than EUR 5 000 million.5 Each of them has a Union-wide turnover in excess of EUR
         250 million, but they do not achieve more than two-thirds of their aggregate Union-
         wide turnover within one and the same Member State. The notified Transaction
         therefore has a Union dimension by virtue of Article 1(2) of the Merger Regulation.
4.       RELEVANT MARKETS
(10)     The Transaction concerns the pharmaceutical sector, where both Leo Pharma and
         some of Nordic Capital’s portfolio companies are active.
(11)     Leo Pharma is active in the provision of pharmaceutical contract manufacturing
         organisation (“CMO”) services, as well as in the distribution of finished dose
         pharmaceuticals (“FDPs”) globally.
(12)     Two of Nordic Capital’s portfolio companies are involved in these markets, namely
         Advanz Pharma Corp. Limited, (“Advanz”, Jersey) in FDPs and Acino International
         AG (“Acino”, Switzerland) in FDPs and CMO services.
(13)     Limited horizontal overlaps arise in the market for the distribution of FDPs between
         Leo Pharma and Advanz in two ATC3 categories (see paragraph (15)). These are
         D6A (topical antibacterials) in Italy where the Parties have a combined market share
         of [10-20]%, and J1X (other antibacterials) in France where the Parties have a
         combined market share of [0-5]% and in Italy with a combined market share of [0-
         5]%. Moreover, limited horizontal overlaps also arise between Leo Pharma and
         Acino in the market for CMO services. The Notifying Parties confirm that the
         combined market shares of LEO Pharma and Acino are well below 5% under any
         plausible product and geographic market definition. As these do not result in affected
         markets, they will not be discussed in the present decision.
(14)     Moreover, the Transaction results in a vertical relationship between the activities of
         Leo Pharma in the upstream market CMO services in the EEA and Advanz in the
         downstream market for the distribution of FDPs for ophthalmological anti-infectives
         (ATC3 class S1A) in Sweden. This vertical relationship is further discussed in the
         present decision.
4.1.     Finished Dose Pharmaceuticals - Ophthalmological anti-infectives (ATC3 class
         S1A)
4.1.1. Product market definition
(15)     In previous decisions concerning finished dose pharmaceutical products, the
         Commission has followed the approach of dividing the products into therapeutic
         classes by reference to the ATC (Anatomical Therapeutic Chemical) classification
         devised by EphMRA (European Pharmaceutical Market Research Association).6
5    Turnover calculated in accordance with Article 5 of the Merger Regulation .
6   See e.g. Cases M.8889 – Teva/Pgt Otc Assets, Decision of 29 June 2018, paragraphs 16 – 18; M.7919 -
    Sanofi/Boehringer Ingelheim Consumer healthcare Business, Decision of 4 August 2016, paragraphs 9 –
                                                           3
 ---pagebreak---          More specifically, the Commission referred to the ATC3 level, where
         pharmaceuticals are grouped in terms of their therapeutic indications, as the starting
         point for defining the relevant product market, but it also recognized that it may be
         appropriate to depart from it if the circumstances of the case show that competitive
         constraints are situated at another level (i.e. by using the more detailed ATC4 level
         or based on active ingredients or other therapeutic criteria). 7
(16)     The ATC3 class relevant for this Transaction is S1A (Ophthalmological anti-
         infectives).
(17)     In previous decisions, the Commission considered that the appropriate level for
         market definition of ophthalmological anti-infectives (S1A) is ATC3, but ultimately
         left the product market definition open.8
(18)     According to the EphMRA classification, class S1A is not further subdivided at
         ATC4. Nevertheless, the Commission has also considered in the past an alternative
         market definition, namely the combination of ATC3 class S1A and ATC4 class
         S1C1       (ophthalmological anti-inflammatory           and      anti-infective combinations
         containing corticosteroids), but ultimately left the market definition open.9 The
         combination of classes S1A and S1C1 is not relevant for this Transaction as the
         Parties are not active in the S1C1 class.
(19)     In the present case, the exact market definition can be left open since the transaction
         does not give rise to serious doubts as to its compatibility with the internal market or
         the functioning of the EEA agreement under any plausible product market definition.
4.1.2. Geographic market definition
(20)     According to previous Commission decisions, the relevant geographic market for
         FDPs is national in scope.10 The Commission does not find any reason to depart
         from this approach in the present case.
4.2.     Contract manufacturing organisation services
4.2.1. Product market definition
(21)     CMO services is an arrangement under which a manufacturer provides upstream
         manufacturing services of FDPs under contract on behalf of a third party.
(22)     In previous decisions, the Commission has left open the market definition for
         contract manufacturing. Specifically, the Commission has left open whether the
         CMO services market should be defined as an overall market, or whether it could be
   12; M.6969 - Valeant Pharmaceuticals International/Bausch & Lomb Holdings, Decision of 5 August
   2013, paragraph 10.
7    See Case M.9995 Permira Holdings Limited/ Neuraxpharm Midco S.C.A, Decision of 4 December 2020
     paragraphs 7 – 8.
8    See e.g. Cases M.6969 – Valeant Pharmaceuticals International/Bausch & Lomb Holdings, Decision of 5
     August 2013, paragraph 28; M.5778 – Novartis/Alcon, Decision of 9 August 2010, paragraph 35.
9    See e.g. Cases M.6969 – Valeant Pharmaceuticals International/Bausch & Lomb Holdings, Decision of 5
     August 2013, paragraphs 22 - 28; M.5778 – Novartis/Alcon, Decision of 9 August 2010, paragraph 34.
10 See e.g. Cases M.8889 – Teva/Pgt Otc Assets, Decis ion of 29 June 2018, paragraph 29; M.8675,
     CVC/Teva's Women's Health Business, Decision of 20 December 2017, paragraph 20.
                                                        4
 ---pagebreak---           further segmented into four product markets, namely contract manufacturing of: (i)
          solid dose and powder pharmaceuticals, (ii) liquids and semi-solid pharmaceuticals,
          (iii)    sterile   liquid  pharmaceuticals,       and     (iv)    medicated       confectionary
          pharmaceuticals.11
(23)      For the purpose of the assessment of the transaction, the relevant segment of the
          upstream CMO services product market is the one of sterile liquid pharmaceuticals,
          as Leo Pharma produces anti-infective eye drops.
(24)      In any event, for the purposes of this Decision, it is not necessary to conclude on the
          exact product market definition for CMO services as, regardless of the market
          definition considered, the transaction does not give rise to serious doubts as to its
          compatibility with the internal market and the functioning of the EEA Agreement.
4.2.2. Geographic market definition
(25)      In previous decisions, the Commission found that the relevant geographic market for
          CMO services is worldwide or at least EEA-wide, as CMO services are generally
          procured anywhere in the world, regardless of the country where the pharmaceutical
          products are subsequently marketed.12 Neither of the plausible alternative geographic
          market definitions (worldwide or EEA-wide) affects the outcome of the competitive
          assessment of the Transaction as to its compatibility with the internal market or the
          functioning of the EEA Agreement.
5.        COMPETITIVE ASSESSMENT
5.1.      Analytical framework
(26)      Under Articles 2(2) and 2(3) of the Merger Regulation, the Commission must assess
          whether a proposed concentration would significantly impede effective competition
          in the internal market or in a substantial part of it, in particular through the creation
          or strengthening of a dominant position.
(27)      A concentration can entail horizontal effects. When the Commission analyses such
          cases it does so in line with the Commission Guidelines on the assessment of
          horizontal mergers under the Merger Regulation.13
(28)      Furthermore, a concentration can entail vertical and/or conglomerate effects. The
          Commission Guidelines on the assessment of non-horizontal mergers under the
          Merger Regulation14 (the “Non-Horizontal Merger Guidelines”) distinguish between
          two main ways in which non-horizontal mergers may significantly impede effective
          competition: (a) when they give rise to input and/or customer foreclosure (non-
11   See e.g. Cases M.9962 – Mylan/Aspen’s EU Thrombosis Business, Decision of 15 October 2020,
     paragraphs 14-15; M.5953- Reckitt Benckister/SSL, Decision of 25 October 2010, paragraphs 58 – 59 and
     63.
12 See e.g. Cases M.5953- Reckitt Benckiser/SSL, Decision of 25 October 2010, paragraph 64; M.6613-
     Watson/Actavis, Decision of 5 October 2012, paragraph 34.
13    Commission Guidelines on the assessment of horizontal mergers under the Merger Regulation (OJ C 31,
      5.2.2004, p. 5).
14    Commission Guidelines on the assessment of non-horizontal mergers under the Merger Regulation (OJ
      C 265, 18.10.2008, p. 6).
                                                        5
 ---pagebreak---          coordinated effects); and (b) when the merger changes the nature of competition in
         such a way that firms that previously were not coordinating their behaviour, are now
         more likely to coordinate to raise prices or otherwise harm effective competition
         (coordinated effects).15 The Non-Horizontal Merger Guidelines distinguish two
         types of foreclosure: (a) where the merger is likely to raise the costs of downstream
         rivals by restricting their access to an important input (input foreclosure) and (b)
         where the merger is likely to foreclose upstream rivals by restricting their access to a
         sufficient customer base (customer foreclosure)16 .
(29)     In assessing the likelihood of an anticompetitive input foreclosure strategy, the
         Commission has to examine whether (i) the merged entity would have the ability to
         substantially foreclose access to inputs; (ii) whether it would have the incentive to do
         so; and (iii) whether a foreclosure strategy would have a significant detrimental
         effect on competition downstream.17 In assessing the likelihood of an
         anticompetitive customer foreclosure strategy, the Commission has to examine
         whether (i) the merged entity would have the ability to foreclose access to
         downstream markets by reducing its purchases from upstream rivals; (ii) whether it
         would have the incentive to do so; and (iii) whether a foreclosure strategy would
         have a significant detrimental effect on consumers in the downstream market. 18
         According to the Non-Horizontal Merger Guidelines, the Commission is unlikely to
         find concern in non-horizontal mergers, where the market share post-merger of the
         new entity in each of the markets concerned is below 30%. 19
(30)     The Non-Horizontal Merger Guidelines define conglomerate mergers as mergers
         between firms that are in a relationship which is neither horizontal (as competitors in
         the same relevant market) nor vertical (as suppliers or customers). 20
(31)     As the Transaction only gives rise to vertically affected markets, this Section
         addresses only input and customer foreclosure concerns.
5.2.     Vertically affected market: CMO services in the EEA (for sterile liquid
         pharmaceuticals) (upstream) – ATC3 class S1A in Sweden (downstream)
(32)     Both Parties are active upstream in the provision of CMO services in the EEA, with
         a combined market share well below [5-10]%.21 Moreover, the Notifying Parties
         submit that Leo Pharma provides CMO services to Advanz for one product […] in
         the ATC3 class S1A. Leo Pharma’s market share in the EEA market for CMO
         services is [0-5]%.22 World-wide market shares are not higher under any plausible
         market definition.
15   Non-horizontal Merger Guidelines , paragraphs 17-19.
16   Non-horizontal Merger Guidelines , paragraph 30.
17   Non-horizontal Merger Guidelines, paragraph 32.
18   Non-horizontal Merger Guidelines, paragraph 59.
19   Non-horizontal Merger Guidelines, paragraph 25.
20   Non-horizontal Merger Guidelines , paragraph 5.
21   See Form CO, paragraph 143. The market share is a combined market share of Leo Pharma and Acino in
     the overall CMO market in the EEA. […].
22   See Reply to RFI 6, of 1 June 2021.
                                                          6
 ---pagebreak--- (33)    With regards to the downstream market for ophthalmological anti-infectives, Advanz
        only distributes […] in ATC3 class S1A. The only Member State where its market
        share exceeds 30% is Sweden, where Advanz holds a market share [of 30-40]%.23
(34)    Therefore, on the basis of the Parties’ activities and the market definitions discussed
        in Section 4, the following two vertical relationships result in affected markets:
        (a)      The provision of CMO services in the EEA (upstream) and the distribution of
                 ophthalmological anti-infectives (ATC3 class S1A) in Sweden (downstream).
        (b)      The provision of CMO services for sterile liquid pharmaceuticals in the EEA
                 (upstream) and the distribution of ophthalmological anti-infectives (ATC3
                 class S1A) in Sweden (downstream).
(35)    The following sections address input foreclosure and customer foreclosure concerns
        in all of the vertically affected markets.
5.2.1. Input foreclosure
(36)    The Transaction is unlikely to give rise to input foreclosure concerns. The combined
        entity would not have the ability to foreclose its downstream competitors in the
        distribution of ophthalmological anti-infectives (ATC3 class S1A) in Sweden for the
        following reasons:
        (a)      For input foreclosure to be a concern, the combined entity must have a
                 significant degree of power in the upstream market. 24 However, the Parties
                 have a very limited position in the CMO services market. Both in the overall
                 CMO services market and in the CMO services market for sterile liquid
                 pharmaceuticals in the EEA and worldwide ([…]) the Parties’ combined
                 market share is [5-10]%. Furthermore, many alternative CMO services’
                 suppliers would remain available to the downstream competitors, if Leo
                 Pharma were to stop providing CMO services to Advanz’s competitors in the
                 downstream market for ATC3 class S1A.
        (b)      The combined entity would not have the ability to restrict access to CMO
                 services by downstream competitors, as it cannot negatively affect the overall
                 availability of inputs for the downstream market. 25 […].
(37)    As the Commission found that the combined entity would have no ability to restrict
        access to CMO services by its downstream competitors in the distribution of
        ophthalmological anti-infectives (ATC3 class S1A) in Sweden, it is not necessary to
        assess in detail the incentives of the combined entity to do so or the overall impact of
        such an input foreclosure strategy.
23  See Annex 1, Reply to RFI 4, of 26 May 2021.
24  Non-horizontal Merger Guidelines, paragraph 35.
25 Non-horizontal Merger Guidelines, paragraph 36.
                                                    7
 ---pagebreak--- 5.2.2. Customer foreclosure
(38)     The Transaction is unlikely to lead to customer foreclosure concerns due to the
         combined entity’s lack of ability to foreclose its upstream competitors for the
         following reasons:
         (a)     For customer foreclosure to be a concern, the combined entity must be an
                 important customer with a significant degree of market power in the
                 downstream market.26 However, Advanz only has a modest position in ATC3
                 class S1A in Sweden, with a market share [of 30-40]%.27 Therefore,
                 downstream customers will remain available to Leo Pharma’s competitors
                 providing CMO services within the ATC3 class S1A in Sweden.
         (b)     Moreover, when assessing customer foreclosure, the Commission takes into
                 account the existence of different uses for the upstream product. These can
                 ensure that a sufficiently large customer base remains for that product post-
                 Transaction.28 In the present case, distributors of all liquid pharmaceuticals in
                 the EEA (of which ATC3 class S1A distributors in Sweden present only a
                 small proportion) purchase CMO services for sterile liquid pharmaceuticals.
                 The Parties estimate that turnover related to ATC3 category S1A represents
                 [less than 10]% of the total turnover related to CMO services for sterile liquid
                 pharmaceuticals in the EEA.29
         (c)     Customer foreclosure is less likely when the combined entity is not an
                 important customer for the upstream product.30 This is the case here, as
                 […].31
(39)     As the Commission found that the combined entity would have no ability to restrict
         access to customers by its upstream competitors in the CMO services’ market in the
         EEA, it is not necessary to assess in detail the incentives of the combined entity to
         do so or the overall impact of such a customer foreclosure strategy.
5.3.     Conclusion
(40)     In light of the above considerations, the Commission concludes that the transaction
         does not raise serious doubts as to its compatibility with the internal market and the
         functioning of the EEA agreement as a result of either input or customer foreclosure
         on the markets for CMO services in the EEA (for sterile liquid pharmaceuticals)
         (upstream) and the distribution of ophthalmological anti-infective (ATC3 class S1A)
         in Sweden (downstream).
26   Non-horizontal Merger Guidelines, paragraph 61.
27   See Reply to RFI 6, of 1 June 2021.
28   Non-Horizontal Merger Guidelines, paragraphs 61 and 66.
29   See Reply to RFI 6, of 1 June 2021.
30   Non-horizontal Merger Guidelines, paragraph 61.
31   See Reply to RFI 6, of 1 June 2021.
                                                       8
 ---pagebreak--- 6.   CONCLUSION
(41) For the above reasons, the European Commission has decided not to oppose the
     notified concentration and to declare it compatible with the internal market and with
     the EEA Agreement. This decision is adopted in application of Article 6(1)(b) of the
     Merger Regulation and Article 57 of the EEA Agreement.
                                                  For the Commission
                                                  (Signed)
                                                  Margrethe VESTAGER
                                                  Executive Vice-President
                                               9