CELEX: 32020M9554
Language: en
Date: 2020-06-08 00:00:00
Title: Commission Decision of 08/06/2020 declaring a concentration to be compatible with the common market (Case No COMP/M.9554 - ELANCO ANIMAL HEALTH / BAYER ANIMAL HEALTH DIVISION) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                      Brussels, 8.6.2020
                                                                      C(2020) 3949 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                                                                        possible the information omitted has been
                                                                        replaced by ranges of figures or a general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.
                                                                     Elanco Animal Health Inc.
                                                                     2500 Innovation Way
                                                                     46140 Greenfield, Indiana
                                                                     United States of America
Subject:              Case M.9554 – Elanco Animal Health/Bayer Animal Health Division
                      Commission decision pursuant to Article 6(1)(b) in conjunction with
                      Article 6(2) of Council Regulation No 139/20041 and Article 57 of the
                      Agreement on the European Economic Area2
Dear Sir or Madam,
(1)        On 14 April 2020, the Commission received notification of a proposed concentration
           pursuant to Article 4 of Council Regulation (EC) No 139/2004 (the “Merger
           Regulation”) by which Elanco Animal Health Inc. (“Elanco”, USA) acquires sole
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.
      Although the United Kingdom (the “UK”) withdrew from the European Union as of 1 February 2020, under the
      Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union
      and the European Atomic Energy Community (the “Withdrawal Agreement”), Union law continues to apply to the
      UK during the transition period. Accordingly, any reference to Member States shall be understood as including the
      UK. Similarly any references made to the EEA in this Decision are meant to also include the UK.
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---         control of Bayer AG’s (“Bayer”, Germany) animal health business (“BAH”) (the
        “Transaction”).3 Elanco and BAH are designated hereinafter as the “Parties” and
        Elanco as the “Notifying Party” to the Transaction.
1.      THE PARTIES AND THE OPERATION
(2)     Elanco is a US-based animal health company that develops, manufactures and
        markets veterinary products for companion animals (“CA”) and production animals
        (“PA”) worldwide. Formerly part of the US pharmaceutical group Eli Lilly, Elanco
        became a fully independent company in March 2019.
(3)     BAH comprises Bayer’s animal health business, which is active in the development,
        production and marketing of veterinary products for CA and PA worldwide. BAH
        represented approximately 3.5% of Bayer’s turnover in 2019.
(4)     On 20 August 2019, the Parties entered into a share and asset purchase agreement
        pursuant to which Elanco will acquire sole control over BAH. The Transaction
        would therefore give rise to a concentration within the meaning of Article 3(1)(b) of
        the Merger Regulation.
2.      UNION DIMENSION
(5)     Based on 2019 data, the combined aggregate world-wide turnover of the Parties was
        more than EUR 2 500 million (Elanco: EUR 2 744 million; BAH: EUR 1 571
        million). Each of the Parties had an EU-wide turnover of more than EUR 100
        million (Elanco: […]; BAH: […]). In at least three Member States, the Parties had
        combined turnover of more than EUR 100 million and individual turnover of more
        than EUR 25 million ([…]). Neither of the Parties achieved more than two-thirds of
        its aggregate EU-wide turnover within one and the same Member State.
(6)     The concentration therefore has a Union dimension pursuant to Article 1(3) of the
        Merger Regulation.
3.      MARKET DEFINITION
3.1.    Product market definition
3.1.1. Introduction
(7)     The Transaction will combine the number four (Elanco) and five (BAH) players in
        the animal health industry, creating the number two supplier in the EEA and
        worldwide (in terms of sales) after Zoetis.
(8)     As regards product market definition, in previous cases in this sector,4 the
        Commission has divided animal health products into three main categories: (i)
        biologicals (such as vaccines);5 (ii) pharmaceuticals; and (iii) feed supplements.6
3   Publication in the Official Journal of the European Union No C 132, 23.4.2020, p. 12.
                                                               2
 ---pagebreak--- (9)       In the present case, the Parties’ activities mainly overlap in animal pharmaceuticals.7
          Animal pharmaceuticals encompass a wide group of products that contain a variety
          of active substances to prevent or treat a large range of animal diseases and
          disorders. Within pharmaceuticals, the Commission’s past decisional practice8
          distinguishes: (i) parasiticides,9 (ii) otitis products, (iii) antimicrobials, (iv) endocrine
          treatments, (v) anti-inflammatories, and (vi) analgesics.
(10)      Furthermore, when defining relevant product markets in the area of animal
          pharmaceuticals, the Commission considered the following factors as important:10 (i)
          species (e.g. cats and dogs within CA; poultry, swine and cattle within PA), (ii)
          active ingredient/chemical class, (iii) targeted pathology/indication, (iv) mode of
          administration (“MoA”) (e.g. oral, topical, injection), (v) duration of efficacy for PA;
          and (vi) duration of the withdrawal period for PA.11 Not each factor was considered
          for each type of pharmaceuticals.
(11)      In the present case, the Transaction gives rise to horizontally affected markets in the
          supply of pharmaceuticals for PA and CA. The Parties’ activities mainly overlap in
          relation to the following products: (i) CA parasiticides, antimicrobials, and otitis
          products and (ii) PA anticoccidials, parasiticides and antimicrobials.12
4   See notably cases M.7917 - Boehringer Ingelheim/Sanofi Animal Health Business, paragraph 10; M.7277 - Eli
    Lilly/Novartis Animal Health, paragraph 12; M.6205 - Eli Lilly/Janssen Pharmaceutical Animal Health Business
    Assets, paragraph 11; and M.2922, Pfizer / Pharmacia, paragraph 111.
5 Biologicals are products triggering an immune response against viral and bacterial diseases, as well as occasionally
    parasitic or fungal infections in animals. Biologicals include in particular animal vaccines. The Parties’ activities do
    not give raise to affected markets with regards to vaccines or biologicials more broadly.
6 Feed supplements are pharmaceutical or nutritional substances which are not natural feedstuffs and are added to
    made-up and stored feeds, chiefly to control infectious diseases or to promote growth. The Parties’ activities give rise
    to minor horizontal overlaps in relation to feed supplements, but without affected market.
7 Additionally, both Parties supply certain additional, miscellaneous products: (i) ketosis products for cattle, (ii)
    rehydration treatments, (iii) premise applications, (iv) anaesthetics, (v) dermatitis products, (vi) topical ear cleaners,
    (vii) hormones, (viii) probiotics, (ix) immuno-stimulants. No competition concern arises with respect to any of these
    additional products, regardless of the market definition (see Section 4 below).
8 See footnote 4 above.
9 As further explained in Section 3.1.2.1 below, within parasiticides, the Commission distinguished products targeting
    multi-celled parasites (e.g. fleas and worms) and products targeting single-celled parasites (“anticoccidials”) (see e.g.
    case M.7277, Eli Lilly/ Novartis Animal Health, paragraph 16). In this Decision, any references to “parasiticides” shall
    be understood as parasiticides targeting multi-celled parasites (i.e. excluding anticoccidials).
10 See cases M.7917 - Boehringer Ingelheim/Sanofi Animal Health Business, paragraph 142; M.7277 - Eli Lilly/Novartis
    Animal Health, paragraph 14; M.6205 - Eli Lilly/Janssen Pharmaceutica Animal Health Business Assets, paragraph
    14; and M.5476 - Pfizer/Wyeth, paragraph 120.
11 The withdrawal period corresponds to the period after treatment during which an animal’s meat or milk is considered
    unsuitable for human consumption.
12 Within pharmaceuticals, minor overlaps also arise for anti-inflammatories and analgesics. No competition concern
    arises with respect to these products, regardless of the market definition (see Section 4 below).
                                                                  3
 ---pagebreak--- 3.1.2. Companion animals
3.1.2.1. Parasiticides
         (a)       Commission’s precedents
(12)     In its previous decisional practice, the Commission considered that feline and canine
         parasiticides belong to a single market for CA parasiticides.13
(13)     Within parasiticides, the Commission found that products targeting multi-celled
         parasites (e.g. fleas and worms) and products targeting single-celled parasites
         (“anticoccidials”) constitute distinct product markets.14 As regards multi-celled
         parasiticides, the Commission distinguished three categories.15 (i) ectoparasiticides
         (or ecto products), used to control external parasites (e.g. fleas, ticks), (ii)
         endoparasiticides (or endo products), used to control internal parasites (e.g. flukes,
         tapeworms, roundworms), and (iii) endectocides (or endecto products), used to
         control both external and internal parasites. Given the existence of a certain degree
         of substitutability, the Commission also envisaged alternative market segments
         comprising (i) ecto/endecto products together and (ii) endo/endecto products
         together, but ultimately left the market definition open.16
(14)     The Commission also envisaged additional sub-segmentations of the CA
         parasiticides markets including (i) a segmentation by mode of administration (e.g.
         oral, injectable, topical), which was ultimately left open;17 and (ii) a segmentation
         based on the indication/targeted parasites, considering that heartworm products
         constitute a separate market.18 In contrast, previous decisions did not envisage a
         segmentation of parasiticides by active ingredient/chemical class (such as
         isoxazolines (“isox”)) or by duration of efficacy.19
         (b)       The Parties’ views
(15)     The Parties do not contest the fact that products targeting multi-celled parasites and
         anticoccidials are part of distinct product markets. They also agree with the
         distinction between (i) ectoparasiticides, (ii) endoparasiticides, and (iii)
         endectocides. However, they consider that market segments comprising (i)
         ecto/endecto products and (ii) endo/endecto products are not plausible. The Parties
         also submit that CA parasiticides are usually authorised for use specifically in either
         cats or dogs, and cannot be used interchangeably. Conversely, they do not consider
         meaningful to further segment the markets for parasiticides by mode of
         administration, indication or chemical class. In particular, they contest the existence
         of a distinct market segment for isox products on the ground that (i) the chemical
13 See cases M.7277 - Eli Lilly/Novartis Animal Health, paragraph 14; M.5476 - Pfizer/Wyeth, paragraph 110; M.4691 -
    Schering-Plough/Organon Biosciences, paragraph 21; and M.885 - Merck/Rhone-Poulenc-Merial, paragraph 36.
14 See cases M.7277 - Eli Lilly/Novartis Animal Health, paragraph 16; M.5476 - Pfizer/Wyeth, paragraph 287; and
    M.4691 - Schering-Plough/Organon Biosciences, paragraph 422.
15 See cases M.5476 - Pfizer/Wyeth, paragraph 289; and M.4691 - Schering-Plough/Organon Biosciences, paragraph
    422.
16 See case M.7277 - Eli Lilly/Novartis Animal Health, paragraph 24.
17 See cases M.7277 - Eli Lilly/Novartis Animal Health, paragraph 19; and M.4691 - Schering-Plough/Organon
    Biosciences, paragraph 438.
18 See case M.7277 - Eli Lilly/Novartis Animal Health, paragraph 26.
19 See case M.6205 - Eli Lilly/Janssen Pharmaceutica Animal Health Business Assets, paragraph 57.
                                                              4
 ---pagebreak---        class of parasiticides does not drive customer choices and that (ii) products may
       combine various compounds in order to extract the benefit of multiple different
       chemical classes. The Parties claim that the differences in terms of mode of
       administration, indication and chemical class are relevant when assessing closeness
       of competition rather than identifying separate product markets. The Parties also
       argue that, within these hypothetical sub-segments, the overlaps between their
       activities are limited.20
       (c)       The Commission's assessment
Segmentation between ecto, endo and endecto products
(16)   Nothing in the market investigation suggested that the Commission should depart in
       the present case from its previous practice concerning the distinction between endo,
       ecto and endecto products.
(17)   As regards the alternative market segments, which were envisaged in previous
       decisions, comprising (i) CA ecto/endecto products and (ii) CA endo/endecto
       products, the market investigation yielded mixed results.
(18)   On the one hand, several market participants consider that endo and ecto products
       are not interchangeable with endecto products as they are generally used for different
       indications or situations. For instance, a competitor indicated that, in situations
       where veterinarians have to “address a specific issue related either to
       gastroinstestinal worms (EndoP) or fleas and flies (EctoP) […], EndectoP are not
       relevant from both a medical and customer point of view.” Another player stated that
       “endecto products are typically used for prevention (e.g., for prevention of
       heartworm, lungworm, or flea and tick)”, while “Endo products […] are typically
       used for the treatment of [gastrointestinal] parasites”. Similarly, a customer
       submitted that “for serious infections, exclusively endo should be used”.21
(19)   On the other hand, a number of respondents confirmed the existence of a certain
       degree of substitutability indicating that endecto products may be used
       interchangeably with ecto or endo products in some situations. For example, a
       customer stressed that endo and endecto products are interchangeable “for minor
       infections” and a competitor submitted that “ENDECTOS products can replace
       ENDOS products as they cover the endoparasiticide spectrum”. Market participants
       also explained that “in practice, this depends very much on the customer and
       prescribing vet’s preferences, as well as the individual products at issue”. Some
       competitors also emphasised the fact that endecto sales have a “direct impact” on the
       revenues and trends of endo and ecto products.22
(20)   In view of the above, for the purpose of this Decision, the Commission concludes
       that (i) endo, ecto and endecto products constitute distinct product markets and that
       (ii) the question of whether there exist alternative product markets comprising endo /
       endecto products and ecto / endecto products can be left open as it does not affect the
       Commission’s conclusions regarding the compatibility of the Transaction with the
       internal market.
20 Form CO, paras. 6.93 and ff.
21 Questionnaires Q1 to competitors (question 11) and Q2 to CA customers (questions 10 and 11).
22 Questionnaires Q1 to competitors (question 11) and Q2 to CA customers (questions 10 and 11).
                                                             5
 ---pagebreak--- Segmentation by species
(21)    The results of the market investigation largely confirmed the Parties’ claim that CA
        parasiticides are usually authorised for use specifically in either cats or dogs, and
        cannot be used interchangeably. In particular, market participants stressed the facts
        that (i) CA parasiticides indicated for both cats and dogs are “very rare”, that (ii)
        drugs are “developed, tested and approved for [a particular pet] and should not be
        used on a different animal (and vets would not do so)” and that (iii) “giving a dog
        product to a cat is dangerous and can kill the cat”. Some competitors also explained
        that, albeit parasiticides for cats and dogs can be marketed under the same brand and
        based on the same active ingredient, the dosage and the mode of administration is
        likely to vary from one species to another. For instance, “dogs get a much higher
        dose of active depending on their weight” and oral parasiticides are more commonly
        used on dogs than on cats (as it is difficult to administer pills to cats).23
(22)    In view of the above, for the purpose of this Decision, the Commission concludes
        that parasiticides for cats and dogs are likely to constitute distinct product markets.
Segmentation by mode of administration
(23)    The market investigation was inconclusive on the question of whether the CA
        parasiticides markets should be further segmented by mode of administration.
        Although a majority of market participants indicate that CA parasiticides with
        different modes of administration can be used interchangeably, a significant number
        of customers disagree.24 Moreover, both customers and competitors consider that the
        mode of administration is an important parameter of competition in the markets for
        CA parasiticides.25 This is notably illustrated by the fact that, in some CA
        parasiticides markets (in particular canine parasiticides), the demand tends to switch
        to oral products due to their ease of administration.
(24)    In any event, for the purpose of this Decision, the segmentation of the markets for
        CA parasiticides by mode of administration can be left open as it does not affect the
        Commission’s conclusions regarding the compatibility of the Transaction with the
        internal market.
Segmentation by indication (heartworm)
(25)    The results of the market investigation revealed that market participants have a clear
        preference for products with a broad spectrum of claims as it is more convenient (i.e.
        customers favour products that can be used to treat or prevent several parasites rather
        than using several different products).26 […].27 That being said, the market
        investigation also confirmed that products for the treatment and prevention of
        heartworms are likely to constitute a distinct product market. Heartworm is an
        endoparasitic worm residing in the heart of the host animal, which can be fatal and
23 Questionnaires Q1 to competitors (question 15) and Q2 to CA customers (question 9).
24 Questionnaires Q1 to competitors (question 14) and Q2 to CA customers (question 14).
25 Questionnaires Q1 to competitors (question 17) and Q2 to CA customers (question 15).
26 Questionnaires Q1 to competitors (question 12) and Q2 to CA customers (question 12). For instance, a competitor
   expressly stated that: “customers ─ prescribers, veterinarians and end customers ─ increasingly favor broad
   spectrum products”. See also non-confidential minutes of a conference call with a competitor dated 6 February 2020,
   p. 2: “veterinaries generally prescribe two different products to treat ectoparasites like fleas and ticks, and
   endoparasites like heartworm and lungworm but, since there are products which can treat both at the same time,
   these would be more appealing to vets and pet owners.”
27 […].
                                                             6
 ---pagebreak---         difficult to treat once contracted. In the EEA, heartworm is endemic only in southern
        Europe. Given these specific features, market participants consider that heartworm
        “is a very specific claim and also a unique product”.28 The results of the market
        investigation did not suggest the existence of distinct market segments for other
        indications.29
(26)    In view of the above, and in line with its previous practice, the Commission
        concludes that, for the purpose of this Decision, products for the treatment and
        prevention of heartworm constitute a distinct product market.
Segmentation by chemical class
(27)    Subject to isox (see below), the results of the market investigation generally suggest
        that a segmentation of the markets for CA parasiticides by chemical class is not
        relevant. All competitors and half of the customers consider that parasiticides for CA
        with different chemical classes can be used interchangeably.
(28)    More specifically, a large number of respondents indicated that products based on
        isox,30 i.e. the newest chemical class of ectoparasiticides (which is also used as
        endecto products in combination with endo chemical classes), are interchangeable
        with other parasiticides.31
(29)    However, the Commission also found that isox products are subject to different
        competitive dynamics, with different pricing (isox products are significantly more
        expensive) and competitive landscape (only a limited number of players have isox-
        based products). In recent years, isox products have rapidly increased sales at the
        expense of older ecto/endecto products and market participants expect the demand
        for isox products to increase further in the coming years. Some respondents consider
        that isox products are “changing the dynamic” in CA parasiticides.32 The success of
        isox products is linked to the facts that (i) they are effective against a wide range of
        ectoparasites (including fleas and ticks), (ii) they can be administered orally, (iii)
        they have a long duration of efficacy (between one and three months) and (iv) they
        act systematically, protecting all parts of the animals’ body. By comparison, older
        ecto chemical classes are either topical or injectable products, only effective against
        a sub-set of ectoparasites (or have encountered resistance issues with fleas or ticks)
        or do not produce systemic effects for one month or longer. For these reasons and
        also given that isox products are prescription-only (whereas older ecto chemical
        classes are often also available in the other-than-vet (“OTV”) distribution channel
        (including over-the-counter (“OTC”) and online distribution channels), isox
        products are increasingly endorsed by vets.33
(30)    In any event, for the purpose of this Decision, the exact delineation of the product
        market can be left open since the Transaction gives rise to serious doubts as to its
        compatibility with the internal market regardless of whether isox-based parasiticides
        for CA constitute a distinct market segment or are part of broader markets for CA
        ecto and endecto.
28 Questionnaires Q1 to competitors (questions 12 and 13) and Q2 to CA customers (question 12).
29 Questionnaires Q1 to competitors (question 12) and Q2 to CA customers (question 12).
30 Isox products are GABA (gamma-aminobuyric acid) receptor antagonists, causing the uncontrolled activity of the
   nervous system of the ectoparasites, which leads to its paralysis and death.
31 Questionnaires Q1 to competitors (question 16) and Q2 to CA customers (question 13).
32 Questionnaire Q1 to competitors (question 18). See Section 4.2.1.3 below.
33 See Annex 78 to the Form CO.
                                                                7
 ---pagebreak--- Segmentation by duration of efficacy
(31)    As previously indicated, the past decisional practice did not consider a segmentation
        of the CA parasiticides markets by duration of efficacy. Nothing in the market
        investigation suggested that the Commission should depart in the present case from
        its previous practice.
        (d)       Conclusion
(32)    Based on the results of the market investigation, for the purposes of this Decision,
        the Commission concludes that (i) endo, ecto and endecto products for CA; (ii)
        parasiticides for cats and for dogs; and (iii) products for the treatment and prevention
        of heartworm constitute distinct product markets/market segments.
(33)    For the purposes of this Decision, the Commission also considers that it can be left
        open (i) whether there exist alternative product markets comprising endo / endecto
        products and ecto / endecto products for CA; (ii) whether the markets for CA
        parasiticides should be further segmented by mode of administration; and (iii)
        whether isox-based parasiticides for CA constitute a distinct market segment or are
        part of broader markets for CA ecto and endecto, as these alternative market
        delineations do not affect the Commission’s conclusions regarding the compatibility
        of the Transaction with the internal market.
3.1.2.2. Antimicrobials
(34)    Antimicrobials (also known as antibiotics) are pharmaceutical products that destroy
        or prevent the growth of microbes such as bacteria, mycoplasma or fungi and treat
        diseases associated with them. Antimicrobials can be administered in various ways,
        notably by injection and orally (including as a tablet; a soluble powder, concentrate
        or solution that is added to drinking water; and as a pre-mix). Antimicrobial products
        can be used to treat multiple species. There are a number of chemical classes used in
        antimicrobials.
        (a)       Commission’s precedents
(35)    In previous decisions, the Commission considered possible segmentations based on
        the following factors: (i) the species, (ii) the active ingredient/chemical class
        (including sulphonamides, penicillins, cephalosporins, phenicols, fluoroquinolones
        and tetracyclines), and (iii) the mode of administration (oral vs. injectable).34 The
        exact delineation of the market was ultimately left open.35
        (b)       The Parties’ views
(36)    The Parties agree with the Commission’s previous position that there is a limited
        demand-side substitutability between antimicrobials based on different chemical
        classes. For instance, different chemical classes have received different
        categorisations from the European Medicines Agency (“EMA”) regarding their
        impact on disease resistance in humans,36 and those defined as higher risk are not
34 See cases M.7277 - Eli Lilly/Novartis Animal Health, paragraphs 36 and 39; M.5476 - Pfizer/Wyeth, paragraph 324;
    and M.4691 - Schering-Plough/Organon Biosciences, paragraph 329.
35 See case M.7277 - Eli Lilly/Novartis Animal Health, paragraph 43.
36 Growing awareness of antimicrobial resistance in bacteria has led to regulation surrounding the use of antibiotics in
    animals. Prudent and responsible use of antibiotics in both animals and humans can lower the risk of bacteria
                                                              8
 ---pagebreak---         recommended for use except as a last resort. Lower risk classes include macrolides
        (which form the base of the majority of Elanco’s antimicrobials), alongside
        pleuromutilins, various types of penicillins, cephalosporins, aminoglycosides,
        lincosamides and tetracyclines. Higher risk classes include, in particular,
        fluoroquinolones (which is the basis of BAH’s core Baytril product, which makes up
        the […] majority of BAH’s sales in Group 1 affected markets37). Moreover, different
        chemical classes have different properties, meaning that they may typically be used
        at different stages of a given treatment.
(37)    As regards methods of administration, the Parties agree with the Commission’s past
        assessment that there is limited demand-side substitutability between different
        methods of administration.
(38)    As regards a potential segmentation by species, the Parties argue that many
        antimicrobials can be administered to a range of species and that distinguishing
        between different species for the purposes of market definition is not appropriate
        from both a supply- and demand-side perspective.
        (c)      The Commission’s assessment
(39)    As regards a segmentation by mode of administration (i.e. oral and injectable), the
        results of the market investigation were mixed. From the demand side, a large
        majority of customers do not consider antimicrobials with different modes of
        administration to be interchangeable and some respondents specified that the choice
        may depend on the circumstances of the individual animal.38 On the other side, the
        majority of suppliers consider them to be interchangeable, specifying that often a vet
        will administer the same antimicrobial by injection and the pet owner will follow the
        treatment at home with an oral version.39
(40)    As regards a segmentation by species (i.e. cats and dogs), the results of the market
        investigation were mixed. From the demand side, the large majority of customers do
        not consider antimicrobials for different species to be interchangeable, but some
        respondents specified that most products are indicated for use in both cats and
        dogs.40 Most suppliers consider that customers use antimicrobials for different
        species interchangeably to treat the same disease, confirming that many
        antimicrobials are authorised for use in both cats and dogs.41
(41)    Also as regards segmentation by chemical class (the relevant classes for the Parties’
        CA antimicrobials being fluoroquinolones, penicillin and sulphonamides), the results
        of the market investigation were mixed. From the demand side, a large majority of
        customers do not consider antimicrobials with different chemical classes to be
        interchangeable, and some respondents further specified that it is linked to the target
   becoming resistant. This is particularly important for antibiotics that are used to treat both people and animals and for
   antibiotics that are the last line of treatment for critical infections in people. See
   https://www.ema.europa.eu/en/documents/report/categorisation-antibiotics-use-animals-prudent-responsible-
   use en.pdf
37 See paragraph 89 below.
38 Questionnaire Q2 to to CA customers, question 26.
39 Questionnaire Q1 to competitors, question 31.
40 Questionnaire Q2 to CA customers, question 27.
41 Questionnaire Q1 to competitors, question 32.
                                                                9
 ---pagebreak---         bacteria.42 However, most suppliers consider that antimicrobials with different
        chemical classes are interchangeable, while vets tend to have first and second line
        preferences to treat certain infections.43 One supplier mentioned that “The choice of
        active ingredient will usually vary depending on the pathogen/bacteria causing the
        disease. A disease can be caused by a pathogen and several antibiotics can be
        acceptable for use.”
        (d)        Conclusion
(42)    In the present case, the question of the segmentation of the market by mode of
        administration, species or chemical class can be left open as the Transaction does not
        raise serious doubts as to its compatibility with the internal market under any
        plausible market definition.
3.1.2.3. Otitis products
        (a)        Commission’s precedents
(43)    Otitis externa is an inflammation of the external ear canal. Sometimes, otitis may
        progress further into the ear (otitis media). Otitis is not a disease in itself but rather a
        symptom of other diseases, such as an infection. It is common in dogs but less
        frequent in cats.
(44)    According to the Commission’s past decisional practice, otitis pharmaceuticals are
        considered as a separate market. Previously, the Commission has left open the exact
        delineation of the relevant market for otitis products as to whether further
        segmentation based on the mode of administration was warranted, indicating
        however that the otitis externa market is mainly a topical market and that oral and
        injectable products are rarely used.44
        (b)        The Parties’ views
(45)    The Parties agree with the Commission’s precedents in that otitis products constitute
        a separate market and submits that there exist significant differences between (i) a
        new generation of long-acting otitis products that are applied only once or twice by
        the veterinarians (“long-acting otitis products”) and (ii) older daily-use otitis
        products that need to be applied daily for one to three weeks by pet owners (“daily-
        use otitis products”). The Parties point to the important difference in price between
        both products. RBB Economics’ analysis of third party data sources indicates that,
        for example, in the UK, Osurnia (long-acting product) was approximately […] more
        expensive than Canaural (daily-use product) in 2019.
42 Questionnaire Q2 to CA customers, question 28.
43 Questionnaire Q1 to competitors, question 33.
44 See cases M.7277 - Eli Lilly/Novartis Animal Health, paragraph 33; and M.4691 - Schering-Plough/Organon
    Biosciences, paragraph 327.
                                                        10
 ---pagebreak---         (c)       The Commission’s assessment
(46)    The market investigation confirmed that in line with precedents and the Parties’
        views, otitis products constitute a separate product market.45 The market
        investigation also confirmed the views of the Parties that very significant differences
        exist based on the duration of efficacy of the products, between long-acting and
        daily-use otitis products.
(47)    Long-acting otitis products currently include in the EEA only the Parties’ products:
        Elanco’s Osurnia and BAH’s recently launched Neptra. These products are
        administered by a veterinarian and only require a single (in the case of Neptra) or a
        dual (in the case of Osurnia) application. Both products are effective against Gram-
        positive bacteria and fungal infections. Long-acting products are significantly more
        expensive than daily dose products.
(48)    Daily-use otitis products cover most of the topical otitis products in the market,
        including Elanco’s Surolan, Dechra’s Canaural, Vetoquinol’s Aurizon and
        Oridermyl, Ecuphar’s Conofite Forte, Virbac’s Easotic and Merck’s Posatex. These
        products normally require daily ear drop administration by pet owners for one to
        three weeks. Most of these products are effective against both Gram-positive and
        Gram-negative bacteria, as well as fungal infections.
(49)    As long-acting products, Osurnia and Neptra only need to be applied once or twice
        and are administered by a vet. They eliminate or greatly reduce the risk of non-
        compliance (i.e. non-adherence to the treatment regimen due to difficulties to apply
        the products to the animal by pet owners without any training). A significant share of
        customers are ready to pay a significant premium for a convenient solution which
        eliminates the need for them to apply the product and the risk of ineffective
        treatment. In contrast, daily dose products are seen as a cheap option, and will be
        used in cases where compliance is not a primary concern or for pet owners which
        prefer a more economical alternative.
(50)    In this respect, half of the suppliers consider that long-acting and daily-use otitis
        product are not interchangeable, while the other half indicate they are
        interchangeable for customers.46 However, it seems that suppliers that answered that
        long-acting and daily-use product are interchangeable refer only to substitutability
        from a medical point of view. For example, one of the suppliers who deemed these
        products substitutable explains that “from a medical point of view they are
        interchangeable. The main benefit of long duration products is perceived by pet
        owners who no longer apply any product at home as it has been administered at the
        veterinary clinic”.47 Other suppliers considering the products interchangeable,
        explain that ease of administration and price are key factors for customers and vets
        to decide on a specific product, as well as the ability of the owner to administer the
        product.48 Some suppliers consider that even if they believe long-acting and daily-
45 Considering that otitis is an inflammation of the external ear canal which sometimes may progress further into the ear,
   a further sub-segmentation by indication is not meaningful. Moreover, the market investigation did not provide any
   element suggesting that a further segmentation by chemical class would be adequate.
46 Questionnaire Q1 to competitors, non-confidential replies to question 47.
47 Questionnaire Q1 to competitors, non-confidential replies to question 47.
48 Questionnaire Q1 to competitors, non-confidential replies to question 47.
                                                                11
 ---pagebreak---        use products are interchangeable, “long acting treatments are more and more used
       as first line otitis treatment in dogs.”49
(51)   Another supplier explains that “compliance with the treatment regime is critical to
       success. In cases where the vet is concerned about an owners ability to administer
       the treatment on a daily basis they will opt for a long term treatment option […] The
       choice would therefore be predominantly based upon […] the ability of the owner to
       apply the ear suspension for several consecutive days. Both Neptra (Bayer) and
       Osurnia (Elanco) are applied by the veterinary surgeon in the clinic rather than by
       the pet owner at home which is ensuring full compliance of treatment and therefore
       peace of mind for the vets as when a treatment does not work we can never be sure if
       the diagnostic was not good, if the treatment protocol was not respected by the pet-
       owner at home (not easy to put a liquid in the ear of a dog) or if the product failed.
       For this reason, vets tend to prescribe these long acting products at the place of the
       short acting ones”.50
(52)   Moreover, the vast majority of customers considers that long-acting and daily-use
       otitis products cannot be used interchangeably.51 For example, one customer
       explains that “the advantage of long duration products is highly appreciated by
       customers and veterinarians”.52
(53)   In fact, competitors indicated clearly that the most important parameters to choose an
       otitis product are duration of efficacy and frequency of administration while price,
       chemical class or reputation of suppliers would be less relevant.53 Customers also
       identify duration of efficacy and frequency of administration as the most important
       parameters to select an otitis product, followed by price, while chemical class or
       reputation of the supplier would be less relevant.54 Long-acting and daily-use
       products’ main differences are precisely duration of effect and frequency of
       administration.
(54)   Based on the significant differences in terms of price, duration of effect, frequency
       of administration and customers’ preferences and taking into consideration the
       results of the market investigation, the Commission considers that long-acting and
       daily-use products belong to separate product markets.
(55)   With regards to mode of administration, the Commission notes that most otitis
       products are topical and the market investigation did not provide any element
       suggesting that a segmentation by mode of administration would be meaningful.
       Moreover, this differentiation would be only relevant for daily-use products. Should
       the market be segmented by mode of administration, there would be no overlap
       between the daily-use products of the Parties. Therefore, this distinction will not be
       further considered in this Decision.
(56)   With regards to a distinction by species, it would not be relevant for long-acting
       products, as long-acting products are only indicated for dogs. With regards to daily-
49 Questionnaire Q1 to competitors, non-confidential replies to question 47.
50 Questionnaire Q1 to competitors, non-confidential replies to question 47.
51 Questionnaire Q2 to customers, non-confidential replies to question 40.
52 Questionnaire Q2 to customers, non-confidential replies to question 40.
53 Questionnaire Q1 to competitors, non-confidential replies to question 48.
54 Questionnaire Q2 to customers, non-confidential replies to question 41.
                                                              12
 ---pagebreak---         use otitis products, the question as to whether a segmentation by species is needed
        can be left open as the Transaction does not raise concerns with regards to daily-use
        otitis products irrespective of the exact product market definition retained.
        (d)      Conclusion
(57)    The Commission concludes, in light of the above, that, for the purposes of this case,
        long-acting and daily-use otitis products constitute distinct product markets. The
        precise market definition can be left open as to whether daily-use products for
        different species (cats and dogs) or via different modes of administration constitute a
        separate market or form part of a wider daily-use otitis products market, as the
        Transaction does not raise serious doubts as to its compatibility with the internal
        market for daily-use otitis products irrespective of whether the relevant product
        market is defined as comprising all species and all modes of administration or not.
3.1.3. Production animals
3.1.3.1. Parasiticides
        (a)      Commission’s precedents
(58)    The Commission’s decisional practice referred to in Section 3.1.2.1(a) above
        concerning parasiticides for CA is to a large extent also relevant for PA. In
        particular, in Eli Lilly/Novartis Animal Health, the Commission adopted for PA the
        same approach as for CA, (i) distinguishing ecto, endo and endecto products and (ii)
        envisaging alternative market segments comprising ecto/endecto products and
        endo/endecto products. In that decision, the Commission also envisaged to sub-
        segment the PA parasiticides markets (i) by species, (ii) by mode of administration,
        and (iii) by indication, but ultimately left open the exact delineation of the market.55
        In contrast, previous decisions did not envisage a segmentation of PA parasiticides
        by chemical class, period of efficacy or period of withdrawal.
        (b)      The Parties’ views
(59)    The Parties did not provide any specific views regarding the product market
        definition for PA parasiticides and referred to the approach taken for CA.56
        (c)      The Commission’s assessment
Segmentation between ecto, endo and endecto products
(60)    Nothing in the market investigation suggested that the Commission should depart in
        the present case from its previous practice concerning the split between endo, ecto
        and endecto products. As regards the alternative market segments comprising (i) PA
        ecto/endecto products and (ii) PA endo/endecto products, the market investigation
        was inconclusive, with respondents providing mixed responses. For instance, a
        competitor submitted that these products cannot be used interchangeably as “it
        depends on the type of prevention program and breeding conditions of the target
        animal group”, while another player indicated that “most customers use endecto for
        comfort and consider specific products when necessary”, suggesting the existence of
55 See case M.7277 - Eli Lilly/ Novartis Animal Health, paragraphs 44 to 51.
56 Form CO, para. 6.146. See also Section 3.1.2.1(b) above.
                                                             13
 ---pagebreak---        a certain degree of demand-side substitutability.57 In any event, for the purpose of
       this Decision, the Commission considers that the exact scope of the product market
       can be left open since the Transaction does not give rise to serious doubts as to its
       compatibility with the internal market under any plausible product market definition.
Segmentation by species
(61)   The results of the market investigation largely confirmed that PA parasiticides for
       different species (e.g. swine, cattle, etc.) cannot be used interchangeably. For
       example, a competitor explained that “many products are only indicated for a
       particular species or group of species. This limitation of use is largely driven by: (i)
       the size of the animal which may justify a different strength/dosage; and (ii) the
       animal’s intended use (e.g. human consumption).”58 In view of the above, and
       similarly to CA, the Commission consider that, for the purpose of this Decision, the
       markets for PA parasiticides should be segmented by species.
Segmentation by mode of administration
(62)   The results of the market investigation suggest some demand-side substitutability
       between PA parasiticides with different modes of administration. However, some
       customers also stressed the fact that depending on the situations products with
       different modes of administration may not be used interchangeably (e.g. “it depends
       whether I have to do mass treatments, if I have to treat only a few animals, it
       depends on age and how the animals are housed”).59 In any event, for the purpose of
       this Decision, the segmentation of the markets for PA parasiticides by mode of
       administration can be left open since the Transaction does not give rise to serious
       doubts as to its compatibility with the internal market under any plausible product
       market definition.
Segmentation by indication
(63)   The results of the market investigation were inconclusive as to whether the markets
       for PA parasiticides should be further segmented by indication. In any event, for the
       purpose of this Decision, the exact relevant product market definition can be left
       open since the Transaction does not give rise to serious doubts as to its compatibility
       with the internal market under any plausible product market definition.
Segmentation by chemical class
(64)   The market investigation revealed that PA parasiticides with different chemical
       classes can be used interchangeably and that the chemical class is not a key
       parameter of competition. For instance, a competitor stated: “efficacy and price are
       the main drivers, the chemical class is not that relevant”.60 In any event, for the
       purpose of this Decision, the exact relevant product market definition can be left
       open since the Transaction does not give rise to serious doubts as to its compatibility
       with the internal market under any plausible product market definition.
57 Questionnaires Q1 to competitors (question 62) and Q3 to PA customers (questions 10 and 11).
58 Questionnaires Q1 to competitors (question 64) and Q3 to PA Customers (question 9).
59 Questionnaires Q1 to competitors (question 63) and Q3 to PA customers (question 13).
60 Questionnaires Q1 to competitors (questions 65 and 66) and Q3 to PA customers (questions 12 and 14).
                                                             14
 ---pagebreak--- Segmentation by duration of efficacy or withdrawal period
(65)    The past decisional practice did not consider a segmentation of the PA parasiticides
        markets by period of efficacy or by period of withdrawal. Nothing in the market
        investigation suggested that the Commission should depart in the present case from
        its previous practice.
        (d)      Conclusion
(66)    Based on the results of the market investigation, for the purposes of this Decision,
        the Commission concludes that endo, ecto and endecto products for PA constitute
        distinct product markets/market segments and that the markets for PA parasiticides
        should be segmented by species.
(67)    For the purposes of this Decision, the Commission also considers that it can be left
        open (i) whether there exist alternative product markets comprising PA endo /
        endecto products and PA ecto / endecto products; (ii) whether the markets for PA
        parasiticides should be further segmented by mode of administration, indication or
        chemical class, since the Transaction does not give rise to serious doubts as to its
        compatibility with the internal market under any plausible product market definition.
3.1.3.2. Antimicrobials
        (a)      Commission’s precedents
(68)    The Commission’s decisional practice and the approach outlined in Section 3.1.2.2
        (a) above concerning antimicrobials for CA are also applicable to PA. As regards the
        mode of administration for PA antimicrobials, the Commission previously also
        considered a possible further sub-segmentation of oral PA antimicrobials into pre-
        mixes and solubles, but ultimately left the question open.61 In previous cases, the
        Commission has also considered that mastitis treatments for cattle can be
        distinguished from other forms of antimicrobial treatment on the basis of their
        singular mode of administration, namely intra-mammary injections.62 As the Parties’
        activities do not overlap in mastitis treatments, this segment will not be considered in
        the rest of this Decision.
        (b)      The Parties’ views
(69)    The Parties submit the same views for PA antimicrobials as for CA antimicrobials
        described in Section 3.1.2.2(b). In respect of defining markets for antimicrobials by
        reference to chemical class or mode of administration, the Parties agree with the
        Commission’s previous paractice that there can be limited demand-side
        substitutability between antimicrobials that make use of different chemical classes or
        modes of administration. Moreover, within oral antimicrobials, the Parties consider
        that there is a meaningful difference from a customer perspective between pre-mixes
        and other products like water solubles. As regards a potential segmentation by
        reference to species, the Parties do not consider this appropriate from both supply-
        and demand-side substitutability.
61 See case M.7277 - Eli Lilly/Novartis Animal Health, paragraph 41.
62 See cases M.4691 - Schering-Plough/Organon Biosciences, paragraph 340; M.5476 - Pfizer/Wyeth, paragraph 358;
    and M.7917 - Boehringer Ingelheim/Sanofi Animal Health Business, 200.
                                                             15
 ---pagebreak---         (c)       The Commission’s assessment
(70)    As regards a segmentation by mode of administration (i.e. oral vs. injectable), the
        results of the market investigation were not conclusive. From the demand side, most
        customers do not consider antimicrobials with different modes of administration to
        be interchangeable, with some respondents specifying “except in certain cases.”63
        The majority of suppliers do consider them to be interchangeable, however
        specifying that it depends on the target indication.64
(71)    As regards a segmentation by species, the results of the market investigation
        confirmed that this is not appropriate. The large majority of customers65 and
        suppliers responded that most antimicrobials are indicated for multiple species.66
(72)    As regards a segmentation by chemical class, the results of the market investigation
        were mixed. From the demand side, the majority of customers do not consider
        antimicrobials with different chemical classes to be interchangeable,67 while the
        large majority of suppliers responded that antimicrobials with different chemical
        classes are considered interchangeable, specifying that it depends on the target
        bacteria.68
        (d)       Conclusion
(73)    Based on the results of the market investigation, for the purposes of this Decision the
        Commission does not consider further segmentation of the PA antimicrobials market
        by species. The question of segmentation of the market by mode of administration or
        chemical class can be left open in the present case as the Transaction does not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
3.1.3.3. Anticoccidials
        (a)       Commission’s precedents
(74)    Anticoccidials act against single-celled parasites known as coccidia. Various types of
        drug are used for coccidiosis prevention and control: (i) prophylactic anticoccidials
        approved on an EEA-wide scale as preventative feed-in anticoccidials to be
        administered routinely, in particular for poultry (including turkey); (ii)
        pharmaceutical coccidiostats authorised as veterinary medicinal products available
        throughout the EEA for prevention, treatment or aid in the control of coccidiosis
        (dependent on the pharmacokinetic characteristics of their active substances); and
        (iii) coccidiosis vaccines: used as a preventative preparation, to induce active
        immunity against coccidiosis, in particular for poultry.
63  Questionnaire Q3 to PA customers, question 41.
64  Questionnaire Q1 to competitors, question 99.
65  Questionnaire Q3 to PA customers, question 42.
66  Questionnaire Q1 to competitors, question 100.
67  Questionnaire Q3 to PA customers, question 44.
68  Questionnaire Q1 to competitors, question 101.
                                                   16
 ---pagebreak--- (75)    The Commission has considered PA anticoccidials in previous cases.69 In these
        cases, the Commission has defined a separate market for poultry anticoccidials
        compared to anticoccidials for other species. Within poultry anticoccidials, the
        Commission further defined the following categories: (i) prophylactic anticoccidials,
        (combining categories (i) and (iii) above in paragraph 74) with a possible market
        segmentation between vaccines and feed additives, and (ii) pharmaceutical
        coccidiostats, corresponding to category (ii) above in paragraph 74.70 The sub-
        segmentation of prophylactic anticoccidials between vaccines and feed additives was
        ultimately left open.
(76)    As regards other species (cattle, sheep and swine), the Commission has not
        previously assessed these products and therefore has not considered any potential
        segmentation.
        (b)      The Parties’ views
(77)    As regards poultry, the Parties support the above segmentation distinguishing
        between pharmaceutical coccidiostats and prophylactic anticoccidials, potentially
        with separate sub-markets within the latter for vaccines and feed additives.
(78)    As regards other species, the Parties submit that only pharmaceutical coccidiostats
        are available on the market and, that for each of cattle, sheep and swine, there is a
        single market for species-specific pharmaceutical coccidiostats.
(79)    The Parties submit that there is no basis for further segmentation by mode of
        administration or indication, as the relevant anticoccidials are all administered orally,
        and all products indicated for each of cattle, sheep and swine target all of the
        coccidiosis-causing species relevant for the respective species.
        (c)      The Commission’s assessment
(80)    As regards the separation of anticoccidials for poultry from other species, and the
        segmentation of poultry anticoccidials into prophylactic anticoccidials and
        pharmaceutical coccidiostats, the market investigation did not provide any element
        to depart from the previous decisional practice and the Parties’ views.71 On this
        basis, no overlap among the Parties’ activities would arise and therefore poultry
        products will not be considered further in this Decision.
69 See cases M.6205 - Eli Lilly/Janssen Pharmaceutica Animal Health Business Assets; and M.885 - Merck/Rhone-
   Poulenc-Merial.
70 See case M.6205 - Eli Lilly/Janssen Pharmaceutica Animal Health Business Assets, paragraph 19.
71 Questionnaires Q1 to competitors (questions 81 and 82) and Q3 to PA customers (questions 27 and 28).
                                                             17
 ---pagebreak--- (81)      As regards segmentation by single species for non-poultry species, the market
          investigation did not confirm the Parties’ views that this is appropriate. The majority
          of responding competitors and customers confirm that PA pharmaceutical
          coccidiostats are indicated for multiple species and not single species. Respondents
          highlighted that there are products indicated for ruminants (i.e. both cattle and sheep)
          suggesting this possible grouping of species within the non-poultry species72.
(82)      As only pharmaceutical coccidiostats are available for non-poultry species, further
          segmentation between prophylactic anticoccidials and pharmaceutical coccidiostats
          for these species was not considered meaningful and as such was not investigated
          further.
(83)      The Commission does not consider any further segmentation by mode of
          administration or indication to be meaningful as the relevant anticoccidials are all
          administered orally, and all products indicated for each of cattle, sheep and swine
          target all of the coccidiosis-causing species relevant for the respective species.
          Furthermore, the market investigation results did not indicate that any segmentations
          by chemical class, period of efficacy or period of withdrawal are relevant and they
          are not considered for the purpose of this case.
          (d)       Conclusion
(84)      In the present case, the question of segmentation of the non-poultry PA anticoccidial
          market by (groups of) species (i.e. considering ruminants and swine separately or
          together) can be left open as the Transaction raises serious doubts as to its
          compatibility with the internal market under any plausible market definition.
3.2.      Geographic market definition
          (a)       Commission’s precedents and the Parties’ view
(85)      The Commission has consistently defined the geographic markets for marketed
          animal pharmaceuticals as being national in scope.73 With respect to pipeline
          pharmaceuticals, the Commission has consistently held that the geographic scope of
          the market is either global or EEA-wide.74
(86)      The Parties agree with the above approach but submits, with respect to marketed
          products, that there is a growing trend towards competition across borders in the
          EEA (due to the increasing harmonisation of the regulation at European level and the
          fact that many animal health players are active in multiple EEA countries), which
          should be taken into account in the competitive assessment.75
72 Questionnaires Q1 to competitors (question 80) and Q3 to PA customers (question 26).
73 See cases M.7917 - Boehringer Ingelheim/Sanofi Animal Health Business, paragraph 148; M.7277 - Eli Lilly/Novartis
     Animal Health, paragraph 58; M.6205 - Eli Lilly/Janssen Pharmaceutica Animal Health Business Assets, paragraph
     15; and M.5476 - Pfizer/Wyeth, paragraph 126.
74 See notably case M.8955 - Takeda/Shire, paragraph 56.
75 In particular, Elanco submits that, although the geographic market for marketed animal pharmaceutical is still national
     in scope, the barriers to entry/expand to other geographies have been significantly reduced and that suppliers in a
     given EEA country are constrained not just by actual competitors but also by potential entrants already active in other
     EEA countries.
                                                               18
 ---pagebreak---          (b)      Commission’s assessment and conclusion
(87)     As regards marketed products, the results of the market investigation confirmed that
         the geographic market for animal pharmaceuticals should be defined at national
         level. However, the market investigation also supports, at least to some extent, the
         growing supranational dimension of competition put forward by the Parties. For
         example, although most competitors fix prices and organise their sales and
         marketing teams at national level, this is also done by some players at regional or
         EEA level.76 Similarly, although customers typically source animal pharmaceuticals
         at national level, some of them organise their procurement at regional or EEA
         level.77 Therefore, for the purpose of this Decision, the Commission considers that
         the geographic market for marketed animal pharmaceuticals is national in scope, and
         it will consider the growing supranational dimension of competition in its
         competitive assessment.
(88)     As regards pipeline products, nothing in the market investigation suggests that the
         Commission should depart in the present case from its previous decisional practice
         concerning the geographic market definition. In fact, companies which invest
         significant resources in R&D to develop new products expect to sell those products
         in as many countries as possible. It is not possible to allocate pipeline products to
         specific countries. Therefore, pipeline products should be considered at EEA or
         global level.
4.       COMPETITIVE ASSESSMENT
4.1.     Methodology for the identification and the assessment of affected markets
(89)     In line with Commission precedents in pharmaceutical mergers with a large number
         of affected markets (involving numerous product and geographic markets), the
         Commission has applied a system of filters aimed at determining the group of
         markets where concerns are most likely and on which it focuses its analysis. In line
         with Commission precedents in the pharmaceutical sector,78 affected markets can be
         classified in four categories:
               Group 1, where the Parties' combined market share exceeds 35% and the
                increment exceeds 1%;
               Group 1+, where either (i) the combined market share is below 35% (but
                above 20%), and only one other competitor remains on the market, or where
                (ii) the combined market share exceeds 35% and the increment is below 1%,
                but the party with the small increment is a recent entrant;79
               Group 2, where the Parties' combined market share exceeds 35% but the
                increment is below 1%; and
76 Questionnaire 1 to Competitors, non-confidential replies to questions 5 and 6.
77 Questionnaires Q2 to CA Customers (question 5), Q3 to PA Customers (question 5) and Q1 to Competitors (question
     7).
78 See cases M.8889 - Teva/PGT OTC Assets, paragraph 35; M.7746 – Teva/Allergan Generics, paragraph 58; and
     M.9044 - CVC/Recordati, paragraph 25.
79 See case M.5778 - Novartis/Alcon, paragraph 25.
                                                               19
 ---pagebreak---                Group 3, where the Parties' combined market share is between 20% and 35%,
                and Group 1+ conditions are not met.
(90)     The Commission has analysed all markets affected by the Transaction under all
         plausible market definitions.
(91)     In line with precedents,80 Group 3 markets are not discussed individually in this
         Decision.81 The Commission assessed the competitive situation in these markets by
         considering the combined market shares of the Parties and their competitors over the
         last three years, other factors including the presence of competitors with a significant
         presence, the date of patent expiry and competition from generics, the Parties’
         pipeline products, as well as the results of the market investigation. The Commission
         reached the conclusion that the Transaction does not raise serious doubts as to its
         compatibility with the internal market in relation to the possible Group 3 markets
         arising from the Transaction, due to the limited market shares of the Parties and the
         presence of significant competitors remaining on the market post-Transaction that
         will likely sufficiently constrain the merged entity.
(92)     Similarly, in line with precedents,82 Group 2 markets are not discussed individually
         in this Decision. Generally, the Parties have combined market shares below 50%83
80 See cases M.8889 - Teva/PGT OTC Assets, paragraph 36; M.7746 – Teva/Allergan Generics, paragraph 58; M.7645 –
   Mylan/Perrigo, paragraph 30; and M.7379 – Mylan/Abbott EPD-DM, paragraph 36.
81 Based on 2019 market shares provided by the Parties, Group 3 markets arise in the following possible product
   markets/country pairs: Antimicrobials for CA, oral mode of administration, in Austria; Antimicrobials for PA, oral
   mode of administration, in Hungary, Ireland and Spain; Antimicrobials for PA, oral-non-premix mode of
   administration, in Greece and Netherlands; Antimicrobials for cats, oral mode of administration, in Austria;
   Antimicrobials for dogs, all modes of administration, fluoroquinolones in Spain; Antimicrobials for dogs, oral mode
   of administration, fluoroquinolones in Spain; Antimicrobials for cats, all modes of administration, fluoroquinolones in
   Spain; Antimicrobials for cats, oral mode of administration, fluoroquinolones in Spain; Antimicrobials for CA, all
   modes of administration, fluoroquinolones in Spain; Antimicrobials for CA, oral mode of administration,
   fluoroquinolones in Spain; Ecto products for cats, all modes of administration, in Austria, Bulgaria, Poland and the
   UK; Ecto and Endecto products for cats, all modes of administration, in Belgium, Czechia, France, Poland, Romania
   and the UK; Ecto products for dogs, all modes of administration, in Austria, Bulgaria, France, Portugal and Spain;
   Ecto and Endecto products for dogs, all modes of administration, in Austria, Belgium, Bulgaria, France, Hungary,
   Ireland, Netherlands, Portugal, Spain and the UK; Ecto and Endecto products for cattle, all modes of administration,
   in Germany; Ecto and Endecto products for sheep, all modes of administration, in Germany; Endecto products for
   cattle, all modes of administration, in Germany; Endecto products for dogs, all modes of administration, in Austria
   and Poland; Endo products for dogs, all modes of administration, in Finland, Italy and Poland; Endo products for
   dogs, oral mode of administration, in Finland, Italy and Poland; Endo products for dogs against heartworm, all modes
   of administration, in Greece, Portugal and Spain; Endo and Endecto products for dogs, all modes of administration, in
   Finland, France, Greece, Hungary, Italy, Netherlands, Poland, Romania and Spain; Endo products for cats, all modes
   of administration in Hungary and Poland; Endo products for cats against heartworm, all modes of administration, in
   France; Endo and Endecto products for cats, all modes of administration, in Belgium, Czechia, France, Greece,
   Hungary, Ireland and Poland; Endo products for poultry, all modes of administration, in Germany; Endo and Endecto
   products for poultry, all modes of administration, in Germany; Endo and Endecto products for sheep, all modes of
   administration in France; Endo products for swine, all modes of administration, in Austria; Otitis daily-use products
   for CA (all species), all modes of administration in Belgium, Czechia, Greece, Italy, Netherlands, Romania and
   Sweden; Otitis daily-use products for cats, all modes of administration in Italy and Netherlands; Otitis daily-use
   products for dogs, all modes of administration in Austria, Belgium, Czechia, Greece, Ireland, Italy, Netherlands and
   Romania; Ketosis products in Spain; Dermatitis products for dogs and for CA in Germany; Rehydration treatments for
   cattle in Germany; Sedatives and tranquilizers for CA in the UK; Injectable NSAIDS for cats in Germany; and
   Corticosteroids for all species in Italy.
82 See cases M.7645 – Mylan/Perrigo, paragraph 30; M.7379 – Mylan/Abbott EPD-DM, paragraph 36; and M.5865 -
   Teva/Ratiopharm, paragraphs 386-390.
83 Based on 2019 market shares provided by the Parties, Group 2 markets arise in the following possible product
   markets/country pairs: Otitis daily-use products for CA (all species), all modes of administration, in Austria, Finland,
   Germany, Ireland and the UK; Otitis daily-use products for dogs, all modes of administration, in Germany and the
   UK; Ecto/Endecto products for dogs, all modes of administration, in Poland; Ecto products for dogs, all modes of
   administration, in Poland; Endecto products for dogs, all modes of administration in Germany and the UK; Ecto
   products for cats, all modes of administration in Romania.
                                                               20
 ---pagebreak---           with a de minimis increment below 1%. In some markets, combined market shares
          are above 50%,84 with a de minimis increment below 1%. Post-Transaction, the
          Parties will face at least three competitors with market shares equal or above the
          increment (including meaningful players with market share above 5%) in all these
          markets. Moreover, the market investigation did not reveal any concerns in these
          markets. In light of the above, the Commission considers that the Transaction is
          unlikely to remove any significant competitive constraint on the Group 2 markets
          and, thus, will not lead to any competition concerns on these markets.
(93)      In the following, the Commission individually assesses all Group 1 and 1+ markets.
4.2.      Companion animals
4.2.1. Parasiticides
4.2.1.1. Endoparasiticides85
          (a)        Overview of the market and the Parties’ products
(94)      As explained in Section 3 above, endoparasiticides are used to control internal
          parasites, such as flukes, tapeworms and roundworms. Each type of endo-product
          has a different mode of administration and works on endoparasiticides more or less
          effectively. The Parties estimate that, in 2018, the total size of the endoparasiticides
          segment in the EEA was […].86 The Parties explained that the demand for CA
          endoparasiticides is growing and expected to further grow in the next years due to
          increasing pet adoption and expenditure on veterinary healthcare.
(95)      Endoparasiticides for CA can be administered (i) topically, with a typical frequency
          of application/duration of a month or once every three months; (ii) by injection, with
          a typical frequency of application/duration of one time per year; (iii) orally
          (including both preventive and treatment endoparasiticides; in the former case, they
          can be administered monthly or quarterly, while in the latter case, they should be
          administered daily, for a certain number of days).
(96)      There are a number of chemical classes used in endo products. The core chemical
          classes used in currently marketed endo products are: avermectins, benzimidazoles
          and isoquinoles. Avermectins are a class of endos used also as endectos. This class is
          effective against intestinal worms, heartworms and lungworms, as well as
          ectoparasites. Benzimidazoles are a class of endos with a broad spectrum of action
          and a high safety profile; they are effective against roundworms (such as hookworms
          and whipworms) and some tapeworms. Isoquinolines include praziquantel and
84 Based on 2019 market shares provided by the Parties, Group 2 markets with combined market shares above 50% arise
     in the following possible product markets/country pairs: Otitis daily-use products for dogs, all modes of
     administration, in Finland (Combined market shares: [50-60]%, number of competitors above or equal to increment:
     6); Otitis daily-use products for cats, all modes of administration, in Belgium (Combined market shares: [50-60]%,
     number of competitors above increment: 4), Czechia (Combined market shares: [60-70]%, number of competitors
     above or equal to increment: 7), Denmark (Combined market shares: [50-60]%, number of competitors above or equal
     to increment: 6), Germany (Combined market shares: [70-80]%, number of competitors above or equal to increment:
     6), Ireland (Combined market shares: [70-80]%, number of competitors above or equal to increment: 4), the UK
     (Combined market shares: [50-60]%, number of competitors above or equal to increment: 7).
85 Endoparasiticides include heartworm products which are assessed separately in Section 4.2.1.4.
86 See Form CO, paragraph 6.266.
                                                                21
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---         players (i.e. BI, Merck and Zoetis), which have a significant presence in most EEA
        national markets, and (ii) several smaller competitors (such as Ceva and Virbac),
        with market shares comparable to Elanco’s in certain national markets. Second, the
        Parties claim that their products face fierce competition from generics (several of the
        Parties’ products being off-patent, including Elanco’s Milbemax, as well as most of
        BAH’s Drontal family of products). Third, the Parties argue that their products do
        not closely compete with each other as they are differentiated (i) in terms of
        spectrum of indications. Elanco’s Milbemax can be used against a wider range of
        worms, while BAH’s Drontal, Drontal Plus and Profender are not effective against
        either heartworm or lungworm. In addition, Droncit can only be used in cases of
        tapeworm and is not effective against other gastro-intestinal worms; and (ii) in terms
        of distribution channels, Elanco focusing on veterinaries, whereas BAH increasingly
        distributes its products through the OTV channel. Finally, the Parties argue that
        barriers to entry from neighbouring geographic markets in which certain CA
        endoparasiticides are already sold are relatively low.
(102) In any event, the Parties have agreed to divest BAH’s Drontal and Profender families
        of products in the EEA in order to remove the full overlap between their activities in
        the market for CA endoparasiticides. More details on this remedy are provided in
        Section 5 below.
        (d)        The Commission’s assessment
(103) As a preliminary remark, it should be noted that, unless otherwise specified, the
        findings set out in this Section 4.2.1.1, and in particular the results of the market
        investigation, do not materially differ depending on the species and MoAs.89 As
        regards possible differences depending on the analysed EEA country, although
        national specificities exist (with e.g. market share variations at national level), the
        main characteristics of supply and demand in the markets for feline and canine
        endoparasiticides (and sub-segments) do not appear to vary significantly across
        countries. Therefore, unless otherwise specified, the findings of Section 4.2.1.1
        (regarding e.g. closeness of competition, generic competition and the feedback
        received from market participants) do not materially differ depending on the
        geographic market at stake.
(104) For the reasons set out below, the Commission considers that the Transaction raises
        serious doubts as to the compatibility of the Transaction with the internal market and
        the functioning of the EEA Agreement in some markets for CA endoparasiticides
        (and potential sub-segments).
(105) First, the Commission notes that the Transaction leads to large or very large
        combined market shares in a number of affected markets (see Table 3 above).90 As
89 Questionnaires Q1 to competitors (e.g. questions 18.1, 18.2, 21.2, 21.3, 22.6) and Q2 to CA customers (e.g. questions
   16.1, 22.6, 23.6).
90 The Commission notes that, in relation to the markets mentioned in Table 3 but not assessed individually in
   paragraph 105, that is to say (i) Austria, endo/endecto canine and endo/endecto feline, (ii) Belgium, endo/endecto
   canine, (iii) Czechia, endo/endecto canine, (iv) Denmark, endo feline, (v) Finland, endo feline (oral) and endo/endecto
   feline, (vi) France, endo canine (all MoAs), endo canine (oral) and endo feline (oral), (vii) Germany, endo/endecto
   canine, (viii) Greece, endo canine (all MoAs), endo canine (oral) and endo feline (oral), (ix) Hungary, endo canine (all
   MoAs) and endo canine (oral), (x) the Netherlands, endo canine (all MoAs), endo canine (oral) and endo/endecto
   feline, (xi) Portugal, endo canine (both all MoAs and oral only), endo feline (both all MoAs and oral only),
   endo/endecto (both canine and feline), (xii) Romania, endo feline (both all MoAs and oral only), (xiii) Spain, endo
   canine (all MoAs and oral only) and endo feline (oral), and (xiv) the UK, endo/endecto (both canine and feline) and
                                                              26
 ---pagebreak---         set out in the Horizontal Merger Guidelines, market shares provide a useful first
        indication of the market structure and of the competitive importance of both the
        Parties and their competitor.91 In the present case, the Commission considers that the
        high market shares would lead to a significant increase of market power and/or the
        strengthening or creation of a dominant position of the merged entity post-
        Transaction. More specifically:
        (a)       In Austria: the Parties have high combined market shares with a significant
                  increment in (i) the canine endo market, both encompassing all modes of
                  administration and including oral products only ([50-60]% combined market
                  share, with a [20-30]% increment brought by BAH); in (ii) the feline endo
                  market ([60-70]% combined market share, with a [30-40]% increment
                  brought by Elanco); and in (iii) the feline endo market including only
                  products administered orally ([60-70]% combined market share, with a [10-
                  20]% increment brought by BAH). Post-Transaction, (a) in the canine endo
                  market, both encompassing all modes of administration and including oral
                  products only, the new entity would face five competitors, with Ceva and
                  Virbac being the largest ([10-20]-[10-20]%), followed by Zoetis, Merck and
                  Vetoquinol (with market shares between [5-10]% and below [0-5]%); and (b)
                  in the feline endo market, both encompassing all modes of administration and
                  considering oral products only, the new entity would face four competitors,
                  the largest being Ceva and Virbac, with market shares between [10-20]-[10-
                  20]%, followed by Merck, Zoetis, Vetoquinol and BI, with market shares
                  below [5-10]%.
        (b)       In Belgium: the Parties have high combined market shares in (i) the canine
                  endo market, both encompassing all modes of administration and including
                  oral products only ([60-70]% combined market share, with a [30-40]%
                  increment brought by Elanco), in (ii) the feline endo market ([60-70]%
                  combined market share, with a [20-30]% increment brought by Elanco),
                  similarly in the (iii) the feline endo market including only products
                  administered orally ([50-60]% combined market share, with a [20-30]%
                  increment brought by BAH). Post-Transaction, (a) in the canine endo market,
                  both encompassing all modes of administration and considering the products
                  administered orally only, the new entity would face seven competitors, with
                  Ceva and Virbac being the largest (with market shares of [5-10]% and [10-
                  20]%, respectively); and (b) in the feline endo market, both encompassing all
                  modes of administration and considering oral products only, the new entity
                  would face four competitors, the largest being Virbac and Zoetis, with market
                  shares between [10-20]-[10-20]%, followed by Ceva and Krka, with market
                  shares between [0-5]-[5-10]%.
        (c)       In Czechia: the Parties have high combined market shares in (i) the canine
                  endo market, both encompassing all modes of administration and including
   endo feline (oral), the Parties’ combined market shares are moderate, with the presence of a sufficient number of
   competitors post-Transaction, and thus do not raise serious doubts. In any event, the Final Commitments aimed at
   remedying the horizontal non-coordinated effects of the Transaction in other endoparasiticides markets also exclude
   the possibility that the Transaction would lead to horizontal non-coordinated effects in those markets. Indeed, the
   Final Commitments will fully remove the full overlap between the Parties’ activities in the markets for CA
   endoparasiticides at EEA level.
91 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations
   between undertakings (“Horizontal Merger Guidelines”), OJ C 31, 5.2.2004, p. 5, para. 14.
                                                             27
 ---pagebreak---     oral products only ([50-60]% combined market share, with a [20-30]%
    increment brought by BAH); and in (ii) the feline endo market, both
    encompassing all modes of administration and considering oral products only
    ([60-70]-[50-60]% combined market share, with a [5-10]-[5-10]% increment
    brought by Elanco). Post-Transaction, (a) in the canine endo market, both
    encompassing all modes of administration and considering only the products
    administered orally, the new entity would face 13-12 competitors, all with a
    very limited market presence (between [5-10]% and below [0-5]% market
    share), and only with Krka having a larger market share of [10-20]%; and (b)
    in the feline endo market, both encompassing all modes of administration and
    considering oral products only, the new entity would face eight competitors,
    all with a limited market presence (between [5-10]% and below [0-5]%
    market share) and only with Krka having a larger market share between [10-
    20]-[20-30]%.
(d) In Denmark: the Parties have high combined market shares in (i) the canine
    endo market, both encompassing all modes of administration and considering
    only oral products ([50-60]% combined market share, with a [20-30]%
    increment brought by BAH), in (ii) the feline endo market ([60-70]%
    combined market share, with a [20-30]% increment brought by Elanco).
    Similarily, the Parties have high combined market shares in (iii) the canine
    endo/endecto market ([60-70]% combined market share, with a [20-30]%
    increment brought by Elanco) and (iv) the feline endo/endecto market ([60-
    70]% combined market share, with a [20-30]% increment brought by
    Elanco). Post-Transaction, (a) in the canine endo market, both encompassing
    all modes of administration and considering only the products administered
    orally, the new entity would face four competitors, two of which (Merck and
    Virbac) with a larger market presence between [20-30]-[10-20]% market
    share and the other two (Ceva and Zoetis) with a negligible market share
    between [0-5]% and below [0-5]%; similarily, (b) in the feline endo market,
    the new entity would face four competitors, all with a limited market
    presence (between [5-10]% and below [0-5]% market share), with the only
    exception represented by Virbac holding a larger market share of [20-30]%;
    (c) in the canine endo/endecto market, the new entity would face four
    competitors, the largest ones being Merck ([10-20]%) and Virbac ([10-20]%)
    and the other two with a market share between [5-10]% and [0-5]%; and (d)
    in the feline endo/endecto market, the new entity would face five
    competitors, the largest one being Virbac ([20-30]%) and the others with a
    negligible market share between [0-5]% and [0-5]%.
(e) In Finland: the Parties have high combined market shares in the feline endo
    market ([50-60]% combined market share, with a [10-20]% increment
    brought by Elanco). Post-Transaction, in the feline endo market,
    encompassing all modes of administration, the new entity would face only
    three competitors, the largest one being Merck with a [30-40]% market share
    and the two remaining ones (Virbac and Zoetis), with market shares between
    [10-20]% and below [0-5]%.
(f) In France: the Parties have high combined market shares in the feline endo
    market ([50-60]% combined market share, with a [20-30]% increment
    brought by BAH). Post-Transaction, in the feline endo market, encompassing
    all modes of administration the new entity would face five competitors, with
                                      28
 ---pagebreak---     the larger ones being Ceva ([10-20]%) and Virbac ([10-20]%), followed by
    Clément Thekan ([10-20]%), and Merck and Zoetis with a market share
    between [0-5]% and below [0-5]%.
(g) In Germany: the Parties have high combined market shares in (i) the canine
    endo market, both encompassing all modes of administration and
    consideringonly oral products ([50-60]% combined market share, with a [10-
    20]% increment brought by BAH), in (ii) the feline endo market ([70-80]%
    combined market share, with a [30-40]% increment brought by Elanco).
    When considering (iii) the feline endo market, including oral products only,
    the increment brought by BAH is less significant but still contributes to high
    combined market shares for the Parties ([50-60]% combined market share,
    with a [0-5]% increment brought by BAH). Post-Transaction, (a) in the
    canine endo market, both encompassing all modes of administration and
    considering only the products administered orally, the new entity will face 6-
    5 competitors, the largest being Virbac, Merck and Ceva ([20-30]-[10-20]%)
    and the others with a more negligible market presence; and (b) in the feline
    endo market, both encompassing all modes of administration and considering
    oral products only, the new entity would face 5-4 competitors, the largest
    being Virbac ([10-20]-[20-30]%) and the others holding a more negligible
    market share.
(h) In Greece: the Parties have high combined market shares in the feline endo
    market, encompassing all modes of administration ([50-60]% combined
    market share, with a [20-30]% increment brought by Elanco). Post-
    Transaction, in the feline endo market, encompassing all modes of
    administration, the new entity would face four competitors, with Virbac and
    Zoetis being the largest ([10-20]-[20-30]%) and the others with a more
    limited market presence ([10-20]-[0-5]%).
(i) In Ireland: the Parties have high combined market shares in (i) the canine
    endo market, both encompassing all modes of administration and considering
    oral products only ([50-60]% combined market share, with a [20-30]%
    increment brought by BAH); (ii) the feline endo market, both encompassing
    all modes of administration and considering oral products only ([50-60]-[50-
    60]% combined market share, with a [20-30]-[10-20]% increment brought by
    BAH) and (iii) the canine endo/endecto market ([50-60]% combined market
    share, with a [20-30]% increment brought by Elanco). Post-Transaction, (a)
    in the canine endo market, both encompassing all modes of administration
    and considering only the products administered orally, the new entity would
    face six competitors, the largest being Virbac ([30-40]%) and the others
    having a more negligible presence (between [5-10]% and below [0-5]%); (b)
    in the feline endo market, both encompassing all modes of administration and
    considering only the products administered orally, the new entity would face
    four competitors, the largest one being Virbac ([30-40]-[30-40]%) and the
    others having a more negligible market presence (between [5-10]% and
    below [0-5]%); and (c) in the canine endo/endecto market, the new entity
    would face seven competitors, the largest one being Virbac ([30-40]%) and
    the others having a more negligible market presence (all well below [5-
    10]%).
                                      29
 ---pagebreak--- (j) In Italy: the Parties have high combined market shares in the feline endo
    market, both encompassing all modes of administration and considering only
    oral products ([70-80]-[60-70]% combined market share, with a [30-40]-[30-
    40]% increment brought by Elanco). Post-Transaction, in the feline endo
    market, both encompassing all modes of administration and considering only
    oral products, the new entity would face nine competitors, the largest one
    being Merck ([10-20]-[10-20]%) and all the others with a very negligible
    market presence equal to or well below [5-10]%.
(k) In the Netherlands: the Parties have high combined market shares in (i) the
    feline endo market, both encompassing all modes of administration and
    considering oral products only ([60-70]-[50-60]% combined market share,
    with a [10-20]-[5-10]% increment brought by BAH). Post-Transaction, in the
    feline endo market, both encompassing all modes of administration and
    considering only the products administered orally, the new entity would face
    8-7 competitors, with Virbac and Beaphar being the largest ([10-20]-[10-
    20]%) and the others with a more limited market presence (between [5-10]%
    and below [0-5]%).
(l) In Norway: the Parties have high combined market shares (i) in the canine
    endo market, both encompassing all modes of administration and considering
    oral products only ([70-80]% combined market share, with a [20-30]%
    increment brought by BAH); (ii) in the feline endo market, the increment
    brought by Elanco being equally significant, leading to a situation of quasi-
    monopoly ([90-100]% combined market share, with a [20-30]% increment
    brought by Elanco) and (iii) in the feline endo market, including oral
    products only ([90-100]% combined market share, with a [20-30]%
    increment brought by BAH). Still very high is the increment brought by
    BAH and Elanco, respectively, (iv) in the canine endo/endecto market ([60-
    70]% combined market share, with a [20-30]% increment brought by BAH)
    and (v) in the feline endo/endecto market ([80-90]% combined market share,
    with a [20-30]% increment brought by Elanco). Post-Transaction, across the
    various segments, the new entity would face only 2-3 competitors, the largest
    being Merck and Zoetis.
(m) In Romania: the Parties have high combined market shares in the canine
    endo market, both encompassing all modes of administration and considering
    only oral products ([50-60]-[50-60]% combined market share, with a [5-10]-
    [5-10]% increment brought by Elanco). Post-Transaction, in the canine endo
    market, both encompassing all modes of administration and considering only
    oral products, the new entity would face only four competitors, the largest
    ones being Ceva ([30-40]%) and Krka ([10-20]%), the two others with a
    negligible market presence equal to or well below [0-5]%.
(n) In Spain: the Parties have high combined market shares in the feline endo
    market, encompassing all modes of administration ([50-60]% combined
    market share, with a [20-30]% increment brought by BAH). Post-
    Transaction, in this segment, the new entity would face 9 competitors, the
    largest being Virbac ([10-20]%) and the others with a moderate to negligible
    market presence (between [10-20]% and below [0-5]%).
                                     30
 ---pagebreak---         (o)       In Sweden: the Parties have high combined market shares (i) in the canine
                  endo market, both encompassing all modes of administration and considering
                  oral products only ([70-80]% combined market share, with a [10-20]%
                  increment brought by BAH); (ii) in the feline endo market, both
                  encompassing all modes of administration and considering oral products only
                  ([90-100]% combined market share, with a [10-20]-[5-10]% increment
                  brought by BAH), leading to a situation of quasi-monopoly, and (iii) in the
                  canine and feline endo/endecto markets ([70-80]-[80-90]% combined market
                  share, with a [10-20]% increment brought by BAH). Post-Transaction, in all
                  segments, the new entity would face only 3-4 competitors, the largest being
                  Merck ([0-5]-[10-20]%) and the others (Zoetis, Virbac and BI) with a much
                  more limited market presence (equal to or well below [5-10]%, with the
                  exception of Zoetis which holds a [10-20]% in the canine endo/endecto
                  market).
        (p)       In the UK: the Parties have high combined market shares with a significant
                  increment brought by Elanco in (i) the canine endo market, both
                  encompassing all modes of administration and including oral products only,
                  ([50-60]-[50-60]% combined market share, with a [20-30]% increment
                  brought by Elanco); and (ii) the feline endo market, encompassing all modes
                  of administration ([60-70]% combined market share, with a [10-20]%
                  increment brought by Elanco). Post-Transaction, across the various
                  segments, the new entity would face between 10 and 8 competitors, the
                  largest being BI, Merck, Virbac and Zoetis (with market shares varying
                  between [20-30]% and [0-5]% across the different segments) and the others
                  with a more limited market presence (between [5-10]% and, more frequently,
                  below [0-5]%).
(106) Second, the results of the market investigation confirm that Elanco and BAH are
        perceived as close competitors and as the two largest players in the EEA markets for
        CA endoparasiticides, followed by BI, Ceva and Virbac. Zoetis and Merck are also
        mentioned among the top five competitors, although to a lesser extent.92 Competitors
        also stressed that (i) Elanco is an innovative player and is particularly strong thanks
        to its well known brands and large portfolio of products and (ii) BAH also benefits
        from a large portfolio of strong brands and, although less innovative than Elanco, it
        has a significant presence in the OTV distribution channel, which represents one of
        its major strengths, against other competitors.93
(107) Third, a large majority of competitors indicated that the Parties are the only
        alternatives available or among the very few suppliers in the EEA with respect to
        certain CA endoparasiticides. One competitor indicated that the merged entity would
        be “Dominant on the tapewormer market with Milbemax, Drontal and
        Profender”.94 95
92 Questionnaires Q1 to competitors (question 18) and Q2 to CA customers (question 16).
93 Questionnaires Q1 to competitors (question 19) and Q2 to CA customers (question 17).
94 Some competitors stressed the existence of specific concerns with regards to some of the Parties’ CA
   endoparasiticides products targeting tapeworms. As indicated above in Section 3.1.2.1, the market investigation did
   not suggest the existence of a distinct market segment for tapeworms. In any event, any potential competition concern
   related to tapeworms would be addressed by the divestiture of the Drontal and Profender families of products.
95 Questionnaire Q1 to competitors (question 20.1).
                                                               31
 ---pagebreak--- (108) Fourth, the market investigation results were mixed with regards to the competitive
         pressure exercised by generic products over branded products in the market for CA
         endoparasiticides.
(109) Fifth, respondents to the market investigation indicated that there has been no
         material originator entry in the EEA in the past three years nor is such entry expected
         to occur in the next three years in the market for CA endoparasiticides and that,
         generally, entry in this market is perceived as difficult.96
(110) Finally, both competitors and customers, who responded to the market investigation,
         confirmed the existence of serious competition concerns in relation to the
         combination of the Parties’ marketed feline and canine endoparasiticides.
         (e)      Conclusion
(111) In view of the above considerations, taking into account the market investigation and
         all the evidence available, the Commission concludes that the Transaction raises
         serious doubts as to its compatibility with the internal market and functioning of the
         EEA Agreement with respect to overlaps between the Parties’ marketed
         endoparasiticides for CA in the markets/market segments listed and assessed in
         paragraph 105. The Commission notes that, in relation to the markets mentioned in
         Table 3 but not listed and assessed in paragraph 105 (see foonote 90 above), the
         Parties’ combined market shares and the presence of a sufficient number of
         competitors post-Transaction do not raise serious doubts. In any event, the Final
         Commitments aimed at remedying the horizontal non-coordinated effects of the
         Transaction in other CA endoparasiticides markets also exclude the possibility that
         the Transaction would lead to horizontal non-coordinated effects in those markets.
         Indeed, the Final Commitments will fully remove the overlap between the Parties’
         activities in CA endoparasiticides at EEA level.
4.2.1.2. Ectoparasiticides97
         (a)      Overview of the market and the Parties’ products
(112) As explained in Section 3 above, ectoparasiticides are used to control external
         parasites, such as fleas and ticks.
(113) The Parties estimate that the total size of the CA ectoparasiticide sector was […] in
         the EEA in 201898 and explain that demand is growing due to increasing pet
         adoption and expenditure on veterinary healthcare.
(114) A number of chemical classes are used in ecto products. Most of them were
         originally developed for crop protection applications and subsequently applied to
         animal health. The main ecto chemical classes currently available on the market
         (which can be used alone or in combination) are: pyrazoles, neonicotinoids,
         pyrethroids, insect growth regulators, spinosyns and isox products (the newest class
96 Questionnaires Q1 to competitors (question 24) and Q2 to CA customers (question 21).
97 The present Section only assesses the marketed-to-marketed overlaps in CA ectoparasiticides. In CA ectoparasiticides,
    the Transaction also gives rise to overlaps involving pipeline products (isox) which are assessed in Section 4.2.1.3
    below.
98 See Form CO, paragraph 6.213.
                                                              32
 ---pagebreak---  ---pagebreak---  ---pagebreak---          new entity would face significant competition across the EEA from a range of
         competitors, including (i) three significant players (i.e. BI, Merck and Zoetis), with
         at least two of them equalling or surpassing BAH in size, and (ii) several smaller
         rivals (such as Ceva and Virbac), with market shares comparable to Elanco’s. Third,
         the Parties claim that their products face strong competitive constraints from
         generics (several of their products being off-patent, including Elanco’s Comfortis
         and Capstar, as well as most of BAH’s Advantage family of products). Fourth, it is
         argued that competitors supplying CA ectoparasiticides in other EEA countries can
         easily and quickly expand to countries giving rise to Group 1 markets. Finally,
         Elanco and BAH argue that their products do not closely compete as they are
         differentiated (i) in terms of MoAs, Elanco’s key brands (i.e. Comfortis, Credelio,
         Capstar) being all administered orally, whereas BAH’s key brands (i.e. Advantix,
         Advantage and Seresto) are administered topically or by collar; (ii) in terms of
         spectrum of indications, BAH’s key brands being indicated for use against a broader
         range of ectoparasites compared to Elanco’s portfolio (Comfortis and Capstar, being
         only active against fleas) and (iii) in terms of distribution channels, Elanco focusing
         on veterinarians, whereas BAH increasingly distributes its products through the
         OTV channel.
         (d)       The Commission’s assessment
(122) As a preliminary remark, it should be noted that, unless otherwise specified, the
         findings set out in this Section 4.2.1.2, and in particular the results of the market
         investigation, do not materially differ depending on the species or the mode of
         administration.102 As regards possible differences depending on the analysed EEA
         country, although national specificities exist (with e.g. market share variations at
         national level), the main characteristics of supply and demand in the markets for
         feline and canine ectoparasiticides do not appear to vary significantly across
         countries. Therefore, unless otherwise specified, the findings of Section 4.2.1.2
         (regarding e.g. closeness of competition, generic competition and the feedback
         received from market participants) do not materially differ depending on the
         geographic market at stake.
(123) The evidence in the Commission’s file generally confirms the Parties’ claims. It
         allows the Commission to exclude serious doubts as to the compatibility of the
         Transaction with the internal market and the functioning of the EEA Agreement
         resulting from the overlap of the Parties’ activities in feline and canine
         ectoparasiticites regardless of possible further segmentations.
(124) First, it appears from Table 6 above that the Transaction gives rise to Group 1
         markets for CA ecto in only seven countries, with combined shares not exceeding
         50% and a moderate increment brought by Elanco comprised between 1% and 10%
         (except in two cases where the increment is above 10%). More specifically:
           (a)     In Belgium: the Parties have medium combined market shares with a limited
                   or moderate increment brought by Elanco in (i) the canine ecto market ([30-
                   40]%, with a [0-5]% increment), and (ii) the feline ecto market ([40-50]%,
                   with a [5-10]% increment). Post-Transaction, in both markets, the new entity
102 Questionnaires Q1 to competitors (e.g. questions 18.1, 18.2, 21.2, 21.3, 22.6) and Q2 to CA customers (e.g. questions
    16.1, 22.6, 23.6).
                                                               35
 ---pagebreak---     would face significant competitors, with market shares above [20-30]%,
    namely Merck and BI, as well as several other players (including Zoetis,
    Ceva and Virbac);
(b) In Czechia: the Parties have medium combined market shares with a modest
    increment brought by Elanco in (i) the canine ecto market ([30-40]%, with a
    [0-5]% increment), (ii) the feline ecto market ([40-50]%, with a [0-5]%
    increment), and (iii) the canine ecto/endecto market ([30-40]%, with a [0-5]%
    increment). Post-Transaction, in the above markets, the new entity would
    face at least three competitors with market shares well above the increment
    (between [5-10]% and [40-50]%), namely Merck, BI and Zoetis, as well as
    several other players, such as Ceva, Virbac, Vetoquinol and Krka (whose
    market shares are comparable to Elanco’s);
(c) In France: the Parties have a combined market share of [40-50]% in the
    feline ecto market ([10-20]% for Elanco and [20-30]% for BAH). Post-
    Transaction, the new entity would face (i) two significant competitors, with
    market shares above [10-20]%, namely BI ([20-30]%) and Merck ([10-
    20]%), (ii) several other meaningful players, including Clement Thekan ([5-
    10]%) and Virbac ([5-10]%), as well as (iii) generic players (such as
    Biocanina, Krka and Vetoquinol);
(d) In Italy: the Parties have medium combined market shares with a modest
    increment brought by Elanco in (i) the canine ecto market ([40-50]%, with a
    [0-5]% increment), and (ii) the canine ecto/endecto market ([30-40]%, with a
    [0-5]% increment). Post-Transaction, in both markets, the new entity would
    face two significant competitors, with market shares comprised between [10-
    20]% and [30-40]%, namely BI and Merck, and several other players,
    including three rivals with market share above the increment (i.e. Zoetis,
    Ceva and Virbac);
(e) In the Netherlands: the Parties’ combined market shares do not exceed [50-
    60]%, with a limited or moderate increment brought by Elanco in (i) the
    canine ecto market ([30-40]%, with a [0-5]% increment), (ii) the feline ecto
    market ([50-60]%, with a [5-10]% increment), and (iii) the feline
    ecto/endecto market ([30-40]%, with a [5-10]% increment). Post-Transaction,
    in the above markets, the new entity would face many competitors, including
    significant players with market shares well above [10-20]% (such as Merck
    and BI, as well as Zoetis in the feline ecto/endecto market) and several other
    players (such as Ceva, Virbac, and Fengo);
(f) In Portugal: the Parties have medium combined market shares with a
    moderate increment brought by Elanco in (i) the feline ecto market ([40-
    50]%, with a [5-10]% increment), and (ii) the feline ecto/endecto market
    ([30-40]%, with a [5-10]% increment). Post-Transaction, in both markets, the
    new entity would face two significant competitors, with market shares
    comprised between [10-20]% and [20-30]%, namely BI and Merck, as well
    as several other players (such as Calier, Ceva, Virbac, Zoetis, and
    Vetoquinol); and
(g) In Spain: the Parties have a medium combined market share of [30-40]% in
    the feline ecto market ([10-20]% for Elanco and [20-30]% for BAH). Post-
                                       36
 ---pagebreak---                    Transaction, the new entity would face many competitors, including (i) one
                   rival with a comparable market share, namely BI ([30-40]%), (ii) two other
                   meaningful players, i.e. Merck ([5-10]%) and Virbac ([5-10]%), and (iii)
                   several other competitors (e.g. Ceva, Ecuphar, Beaphar, Karizoo,
                   Vetoquinol).
(125) Second, the results of the market investigation confirmed that, post-Transaction, the
         new entity would continue to face strong competitive constraints from a number of
         rivals. Although BAH is generally perceived by competitors as the main player in
         the EEA markets for CA ectoparasiticides, Elanco is typically ranked number five in
         the EEA, after Merck, BI and Zoetis.103 In fact, the vast majority of customers and
         most competitors indicated that there would remain sufficient alternative suppliers
         post-Transaction.104
(126) Third, a large majority of customers confirmed the Parties’ claim that generics exert
         pressure on the prices of branded CA ectoparasiticides that are off-patent.105
(127) Fourth, the market investigation confirmed the Parties’ claim that their marketed
         products are differentiated. Indeed, most customers and a large number of
         competitors consider that Elanco’s and BAH’s marketed CA ectoparasiticides do not
         closely compete.106 The market investigation also confirmed that the MoAs and the
         spectrum of indications are key factors in the choice of CA ectoparasiticides for
         customers,107 two parameters that differentiate the Parties’ main products: (i) BAH’s
         key brands (i.e. Advantix, Advantage and Seresto, which together account for more
         than […] of BAH’s CA ecto sales in the EEA) are administered topically or by collar
         and are indicated for use against a broad range of ectoparasites, whereas (ii) Elanco’s
         key brands (i.e. Comfortis, Credelio, Capstar, which together account for more than
         […] of Elanco’s CA ecto sales in the EEA) are all administered orally, and two of
         these brands are only active against fleas.
(128) Finally, market participants did not express competition concerns in relation to the
         combination of the Parties’ marketed feline and canine ectoparasiticides.108
         (e)       Conclusion
(129) In view of the above considerations, taking into account the market investigation and
         all the evidence available to it, 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 with respect to overlaps between the Parties’
         marketed ectoparasiticides for CA.109
103 Questionnaires Q1 to competitors (question 18) and Q2 to CA customers (question 16).
104 Questionnaires Q1 to competitors (question 27, see also question 20) and Q2 to CA customers (question 22, see also
    question 18).
105 Questionnaire Q2 to CA customers (question 20).
106 Questionnaires Q1 to competitors (question 22) and Q2 to CA customers (question 19).
107 Questionnaires Q1 to competitors (question 17) and Q2 to CA customers (question 15).
108 Questionnaires Q1 to competitors (questions 27, 28 and 131) and Q2 to CA customers (questions 22, 23 and 58).
109 In CA ectoparasiticides, the Transaction also gives rise to overlaps involving pipeline products (isox) which are
    assessed in Section 4.2.1.3 below.
                                                              37
 ---pagebreak---  ---pagebreak--- (133) As detailed above:
          Elanco has two marketed isox products in the EEA, which are marketed under
              the same brand and based on the same API (Lotilaner), namely Credelio Dog
              (canine ecto product) and Credelio Cat (feline ecto product). In addition to its
              marketed products, Elanco has […] isox pipelines (including both feline and
              canine ecto and endecto products), […]114 […];
          BAH has no marketed isox products in the EEA (and worldwide) but […] pipeline
              isox products, […].115 […]116, […].
         (b)      The Parties’ views
(134) The Parties submit that the Transaction does not raise competition concerns in
         relation to isox for several reasons.117 First, as indicated in Section 3.1.2.1(b) above,
         they strongly contest the existence of a distinct market segment for isox products,
         arguing that isox products compete with other chemical classes. Second, they claim
         that, in the hypothetical isox segment, Elanco is “weak” on the ground that Credelio
         (i) is the fourth isox launched in the EEA, with modest sales and market shares
         across the EEA (well behind Merck, BI and Zoetis) and (ii) does not enjoy any
         beneficial differentiation compared to other isox products. Third, the Parties submit
         that, from a chemical point of view, BAH’s pipelines are not strictly speaking isox
         compounds ([…]). Fourth, they argue that many of the overlapping pipelines are at
         an early stage of development, with low probability of success and several years
         away from an hypothetical market launch. The Parties consider that such early-stage
         pipelines are too speculative to have an impact on the competitive assessment. Fifth,
         the Parties claim that, post-Transaction, the new entity would face many competitors
         (irrespective of the market definition), including (i) the established and well-known
         isox products marketed by BI (NexGard), Merck (Bravecto) and Zoetis (Simparica);
         (ii) several “isox-like” products currently on the market (i.e. products which are not
         based on isox but have similar features and closely compete with isox products)
         (such as BI’s Frontline and Broadline and Ceva’s Vectra 3D); (iii) generics, with the
         expiration of Bravecto (Merck)’s and NexGard (BI)’s patents in the coming years;
         and (iv) potential entrants, with the existence of considerable R&D opportunities
         regarding both isox and isox-like compounds. Finally, the Parties also claim that,
         post-Transaction, the new entity would have incentives to continue the development
         of BAH’s pipeline products, which are differentiated from and, thus, complementary
         with Elanco’s product portfolio.
         (c)      The Commission’s assessment
(135) As detailed in Table 7 above, the Parties’ isox activities give rise to several market-
         to-pipeline and pipeline-to-pipeline overlaps.
114 […].
115 […].
116 […].
117 See Annex 74 to the Form CO, and the Parties’ submission on isox theory of harm dated 11 May 2020.
                                                             39
 ---pagebreak--- (136) In line with the four-layer competitive assessment framework118 used in the
          Commission’s past decisional practice,119 the Commission has assessed the overlaps
          involving the Parties’ isox pipeline products in terms of both (a) potential (product
          and price) competition, assessing the overlaps (i) between the Parties’ existing
          (marketed) and pipeline products at advanced stages of development and (ii)
          between the Parties’ pipeline products at advanced stages of development; and (b)
          innovation competition in relation to the Parties’ early stage pipeline
          products/projects, assessing the risk of significant loss of innovation competition
          resulting from the discontinuation, delay or redirection of one party’s early stage
          pipeline products/projects overlapping with the other Party’s existing products or
          advanced or early stage pipeline products/projects .
(137) For the reasons set out below, the results of the market investigation and the
          evidence in the Commission’s file strongly suggest that the combination of the
          Parties’ isox activities would raise serious doubts as to its compatibility with the
          internal market and the functioning of the EEA Agreement under any plausible
          market definitions.
Isox products as a distinct market segment
(138) Should isox products constitute a distinct market segment, the Transaction gives rise
          to (i) marketed-to-pipeline overlaps in the canine ecto segment between Elanco’s
          Credelio Dog (marketed), on the one hand, and BAH’s […] (pipelines) on the other
          hand; (ii) a marketed-to-pipeline overlap in the feline ecto segment between Elanco’s
          Credelio Cat (marketed) and BAH’s […] (pipeline);120 and (iii) a pipeline-to-pipeline
          overlap in the feline endecto segment between […].
(139) The Commission finds that the above overlaps would raise competition concerns for
          the following reasons.
(140) First, the number of players with marketed isox products is limited. As detailed
          in Table 8 below, in the EEA, only four companies are currently supplying isox
          products. In several sub-segments, the number of players is even more limited, with
          duopolies in the feline ecto and endecto segments, as well as in the canine endecto
          segment.
118 The four layers correspond to the overlaps between the parties’ activities in terms of: (1) Actual (product and price)
    competition (i.e. assessment of the overlaps between the parties' existing (marketed) products), (2) Potential (product
    and price) competition (i.e. assessment of the overlaps (i) between the parties’ existing (marketed) and pipeline
    products at advanced stages of development and (ii) between the parties’ pipeline products at advanced stages of
    development); (3) Innovation competition in relation to the parties’ early stage pipeline projects (i.e. assessment of the
    risk of significant loss of innovation competition resulting from the discontinuation, delay or redirection of one
    party’s early stage pipeline products/projects overlapping with the other party’s existing products or advanced or early
    stage pipeline products/projects; and (4) Innovation competition in relation to the capability and incentives to innovate
    (i.e. assessment of the risk of a significant loss of innovation competition resulting from a structural reduction of the
    overall level of innovation).
119 See cases M.7932 - Dow/Dupont, recitals 272-302; M.8084 - Bayer/Monsanto, recitals 48-54; M.9294 –
    BMS/Celgene, paragraph 22; and M.9461-– AbbVie/Allergan, paragraph 19.
120 In the canine and feline ecto segment, Elanco also has […] pipelines, […].
                                                                  40
 ---pagebreak---  ---pagebreak---          compounds of the family (those with better profile), too significant research and
         development costs for mid-size players (huge barriers of entry).”124
(146) Fourth, the market investigation revealed that very few players are currently
         developing either isox products or isox-like products (i.e. compounds, which are
         not isox from a chemical point of view but have similar features in terms notably of
         spectrum of claim, method and ease of administration, duration of efficacy and
         systemic effects).125
(147) In fact, the Phase I investigation did not allow the Commission to identify
         potential entrants other than BAH.
(148) The Parties contest the above on the ground that BAH’s […] pipelines are not
         strictly speaking isox compounds (from a chemical point of view). In this respect,
         the Commission notes that […],126 […] some industry reports127 and some market
         participants128, qualify these pipelines as isox. Similarly, the World Health
         Organisation also classifies […] as an “isoxazoline compound”, together with
         Afoxolaner, Fluralaner, Lotilaner and Sarolaner (i.e. the APIs of the isox products
         currently marketed in the EEA).129
(149) In any event, the Parties acknowleged that […]’s features are similar to isox in terms
         of spectrum of claim, method and ease of administration, duration of efficacy and
         systemic effects. In fact, the Parties expressly indicated that […]130
(150) As regards the Parties’ claim that BAH’s pipelines are at a too early stage to have an
         impact on the market and that forecasts about market entry are too speculative, the
         Commission notes that (i) in previous pharmaceutical cases, the Commission has
         regularly assessed overlaps involving pipelines which were several years away from
         the market and requested their divestment when necessary;131 (ii) BAH’s pipelines
         are expected to reach the market in the short/medium term: […] should be launched
         in less than […], while […] pipelines’ commercialisation is anticipated in […] (by
         comparison the total development process of animal pharmaceuticals can take up to
         13 years according to the Parties and up to 15 years according to competitors);132 and
         (iii) the methodology used by BAH to compute […] probability of success is
         unclear.
124 Questionaire Q1 to competitors (questions 9, 23 and 26). See also non-confidential minutes of a conference call with a
    competitor dated 21 January 2020, para. 18.
125 Questionaires Q1 to competitors (question 9) and R1 to competitors (question 36). See also the replies to the RFI sent
    to KOL on 18 May 2020.
126 […].
127 Parties’ Reply to RFI 1, Attachment A.26, Vetnosis report “Bayer PP July 2019”, (pp.78 and 82) and the Parties’
    Reply to RFI 4, question 26.
128 Non-confidential minutes of a conference call with a competitor dated 17 January 2020, p.2.
129 See https://www.who.int/medicines/services/inn/StemBook_2018.pdf (p.116). Fluralaner is the API of Bravecto
    (Merck); Sarolaner is the API of Simparica (Zoetis); Afoxolaner is the API of NexGard (BI) and Lotilaner is the API
    of Credelio (Elanco). […].
130 Form CO, Annex 74, para. 1.16.
131 See case M.8401 – J&J/Actelion.
132 See Form CO, para. 8.77 and Questionnaire Q1 to competitors (question 128).
                                                               42
 ---pagebreak--- (151) Fifth, BAH’s pipelines are expected to be very competitive due […]. In this
         respect, the Parties’ internal documents stress […].133 Internal documents also
         emphasise […]. For instance, an internal presentation of BAH indicates that […].134
         Similarly, another internal presentation states that […].135 The competitivity of
         BAH’s pipelines is also supported by the fact that […].
(152) It stems from the above that the Parties’ isox products will likely be close
         competitors, with a significant risk of cross-cannibalisation. In this context, post-
         Transaction, the new entity will most likely have limited incentives to develop and
         market in parallel BAH’s and Elanco’s isox products. Conversely, it is likely that
         Elanco will have the incentive to maximise the profits it could generate by
         developing and marketing its isox products, by avoiding to the maximum extent
         possible competition between them. To this end, Elanco would likely make changes
         to the development programs that Elanco and BAH had planned absent the merger.
         Changes may include the termination of specific programs, a change in their timing
         (for example to introduce a new product on the market only when another product is
         losing patent protection), or a change in their scope (for example overlapping
         indications with other products). Therefore, the Commission considers that there is a
         significant risk that the new entity would discontinue, delay or reorient the isox
         products of either one of the Parties to eliminate or mitigate the risk of
         cannibalisation. As a result, the Transaction would lead to a reduction in the number
         of players that is already very low (especially in the feline isox segments), leading to
         potentially less choice and higher prices.
Isox products as part of broader markets for CA ecto and endecto
(153) Should isox products be part of the markets for CA ecto and endecto, the
         Transaction gives rise to several overlaps between the Parties’ marketed and pipeline
         ecto and endecto products for CA, the most relevant ones being the marketed-to-
         pipeline and pipeline-to-pipeline overlaps listed in paragraph 138 above.
(154) The risk of discontinuation, delay or reorientation of the isox products of either one
         of the Parties (see previous Section) would also have a detrimental impact on these
         broader markets for the following reasons.
(155) First, as explained in Section 3.1.2.1(c) above, the market investigation largely
         confirmed that isox have a singular profile resulting from the combination of various
         features (in terms of mode of administration, duration, efficacy, distribution channel,
         etc.). For instance, a competitor stated that isox products are very “strong” due to
         their “larger spectrum (including ticks), the oral administration which is seen by
         owners as a safe and environmental friendly option, and for some of them, the longer
         time of action, up to 3 months” and noted that “when topical and collar parasiticides
         became OTC, new prescription-only oral products [isox] were favoured by a
         growing number of vets”.136 It follows that, within the markets for CA ecto and
         endecto products, isox products are close competitors.
133 […].
134 Parties’ reply to RFI 11, Annex 2.2.5, p.18.
135 […].
136 Non-confidential minutes of a conference call with a competitor dated 21 January 2020, para. 17. Similarly, the
    Parties submitted that, contrary to isox, “other ecto chemical classes are either only effective against a sub-set of
    ectoparasites, do not produce systemic effects for one month or greater, or have encountered resistance issues with
    fleas or ticks […]” and that “for these reasons and also given that isox products are prescription-only (whereas ecto
                                                               43
 ---pagebreak--- (156) Conversely, the market investigation revealed that non-isox based ecto and endecto
         products for CA currently marketed in the EEA are “distant competitors” to isox-
         based ecto and endecto products for CA. In particular, the results of the market
         investigation contradicted the Parties’ claim that (i) BI’s Frontline/ Broadline; (ii)
         Virbac’s Effipro/Effitix, and (iii) Ceva’s Vectra/Vectra 3D have similar features and
         closely compete with isox products. For instance, a respondent indicated that “None
         of these products come close to Isox products. […] Isox products are mainly tablets
         that work 4 to 12 weeks, which is completely different in administration to a topical”
         and that isox are favoured by vets “giving the advise that Isox products are better
         than anything else on the market (mainly because it brings them more margin).”
         Another competitor indicated: “All the products above are based on fipronil and are
         topical. The products they are compared to have a new active instead of Fipronil
         (Isox) which is able to overcome any developing resistance and have a long duration
         action (monthly or longer) when given orally.”137
(157) Second, the Commission found that isox products are cannibalising the sales of
         other ecto/endecto products and are perceived by several market participants as
         ‘game changer’.138 In fact, the market investigation showed that isox products are
         very popular and have rapidly increased market share at the expense of other
         ecto/endecto products. According to the Parties’ estimates, oral isox products
         account now for […]% of total global canine flea treatments and […]% of total
         global feline flea treatments, and will continue to gain market shares.
(158) Competitors generally share the Parties’ view on the above. For instance, a rival
         stressed the fact that “the market dynamic is largely in favor of isox-based products”,
         explaining that in EEA, (i) between 2015 and 2019, all isox-based product (ecto and
         endecto) had compound annual growth rate of +34% vs. -3% for non isox-based
         products and that (i) since 2015, isox-based ecto and endecto products have grown
         respectively by 27% and +117% per year, while ecto and endecto products based on
         other chemical class have dropped respectively by -2% and -7% per year over the
         same period.139
(159)     The fact that isox products are cannibalising other CA ecto and endecto products is
         also corroborated by the Parties’ internal documents. […].140
(160) Finally, several market participants raised concerns about the combination of the
         Parties’ isox products and its negative impact on the other ecto/endecto classes.
         For example, a competitor indicated that “the combined entity will have a very
         strong position in the ecto- and endecto markets due to leveraging isox mono and
         combination products”.141 Another player submitted that the combination of the
         Parties’ isox products may lead to the foreclosure of mid-size players: “the merged
         entity will probably hold three products from this isoxazoline class of compounds
    spot-on products are also broadly available in OTV channels where applicable), isox products are increasingly
    endorsed by vets” (Form CO, Annex 74, para. 1.8).
137 Questionnaires R1 to competitors (question 37) and R2 to CA customers (question 10). See also the replies to the RFI
    sent to KOL on 18 May 2020.
138 For instance a competitor indicated that isox products are “changing the dynamic” in CA parasiticides (see
    Questionnaire Q1 to competitors, question 18). See also Non-confidential minutes of a conference call with a
    competitor dated 17 January 2020, p.2: “The antiparasiticide segment has recently had new entrants leveraging a new
    innovative isoxazoline molecule. […] This is changing the antiparasiticide landscape […].”
139 Questionnaire R1 to competitor, question 37.
140 […].
141 Questionnaire Q1 to competitor, question 27.
                                                               44
 ---pagebreak---         […] the unchallenged […] positions of the top 4 leaders on this segment makes the
        competition totally unfair on the total parasiticides segments by leveraging strong
        ectos positions […] to dominate the full market, also developing ENDECTOS to eat
        the ENDOS market of mid-size players like us. […] ELANCO/BAYER are already
        dominating the ENDOS and ECTOS segments. By combining their forces and
        launching the [isox] products they have in their pipeline (ENDECTOS) they will
        dominate the entire market”.142
(161) As a result of the above, some market participant expressly stressed the need for a
        remedy in relation to isox: “In our mind, the Parties should divest also in the flea
        and tick category, in particular an ISOX compound (CREDELIO)”.143
        (d)       Conclusion
(162) In view of the above considerations, taking into account the market investigation and
        all the evidence available to it, the Commission concludes that the Transaction raises
        serious doubts as to its compatibility with the internal market and the functioning of
        the EEA Agreement with respect to overlaps between the Parties’ isox products due
        to its likely horizontal non-coordinated effects in the EEA markets for feline ecto
        and endecto products and their potential sub-segments for isox-based feline ecto and
        endecto products. In the present case, the Commission does not need to take a view
        on whether the overlaps between the Parties’ isox products raise serious doubts in
        the EEA markets for canine ecto markets and their potential sub-segments for isox-
        based canine ecto, as in any event the remedy offered by the Parties covers the full
        overlap in the EEA for viability reasons.
4.2.1.4. Heartworm products
        (a)       Overview of the market and the Parties’ products
(163) Heartworm is an endoparasitic worm that primarily resides in the heart of the host
        animal (mainly dogs and to a lesser extent cats) and that is spread through mosquito
        bites. Heartworms can be fatal and are difficult to treat once contracted, so
        preventative treatments are typically used. In the EEA, heartworm is endemic only in
        southern Europe, including in particular in Greece, Italy, Portugal, Spain and France.
(164) Treatments against heartworm for cats and dogs (i) include endoparasiticides that are
        exclusively indicated for heartworms, as well as (ii) endo and endecto products that
        have a broader spectrum of claims and can also treat other parasites.
(165) In the EEA, the Parties market several products indicated for the
        treatment/prevention of heartworm in CA (see Table 9 below). Only Elanco’s
        Guardian SR product is indicated for heartworm alone.
142 Questionnaire Q1 to competitor, question 18.
143 Questionnaire Q1 to competitor, question 29.
                                                  45
 ---pagebreak---  ---pagebreak---          (c)       The Parties’ views
(167) The Parties submit that the Transaction does not raise competition concerns in
         relation to the supply of heartworm products for CA in France and Hungary for
         several reasons.147 First, the Parties submit that the increment brought by the
         Transaction is modest, with no material impact on the market, and that their market
         shares are declining. Second, post-Transaction, the new entity would face a wide
         range of competing originator products (both endo and endecto) indicated for the
         treatment of heartworm, including BI’s Broadline and Heartgard, Zoetis’
         Revolution/Stronghold, as well as numerous generic versions of their own products
         which are all off-patent. Finally, the Parties claim that their products are
         differentiated: while BAH’s Advocate product is a spot-on endecto, Elanco’s main
         heartworm products are endos that are administered orally or by injection.
         (d)       The Commission’s assessment
(168) As a preliminary remark, it should be noted that, unless otherwise specified, the
         findings set out in this Section 4.2.1.4, and in particular the results of the market
         investigation, do not materially differ depending on the species.148 As regards
         possible differences depending on the analysed EEA country, although national
         specificities exist, the overall structure and the main characteristics of supply and
         demand in the markets for heartworm products do not appear to vary significantly in
         France and Hungary. Therefore, unless otherwise specified, the findings of Section
         4.2.1.4 (regarding e.g. closeness of competition, generic competition and the
         feedback received from market participants) do not materially differ depending on
         the geographic market at stake.
(169) The evidence in the Commission’s file generally confirms the Parties’ claims. It
         allows the Commission to exclude serious doubts as to the compatibility of the
         Transaction with the internal market and the functioning of the EEA Agreement
         resulting from the overlap of the Parties’ activities in heartworm products for CA.
(170) First, it appears from Table 10 above that the Transaction gives rise to only two
         Group 1 markets for the supply of heartworm product for CA in France and
         Hungary, where (i) the Parties have combined shares below 50% and declining sales,
         (ii) the increment brought by the Transaction is modest (below 5%) and (iii) several
         competitors will remain post-Transaction. More specifically:
           (a)     In France, in the canine heartworm market, the Parties have (i) a combined
                   market shares of [40-50]%, with a [0-5]% increment brought by BAH, and
                   (ii) declining sales (in the past four years, Elanco and BAH lost respectively
                   [10-20] and [5-10] percentage points of market shares). Post-Transaction, the
                   new entity would face many rivals, including four competitors with market
                   shares above the increment, namely BI ([20-30]%), Ceva ([10-20]%), Virbac
                   ([5-10]%) and Clement Thekan ([5-10]%); and
           (b)     In Hungary, in the feline heartworm market, the Parties (i) have a combined
                   market share of [40-50]%, with a [0-5]% increment brough by Elanco, and
147 See Form CO, paras. 6.347 and ff.
148 Questionnaires Q1 to competitors (e.g. questions 18.1, 18.2, 21.2, 21.3, 22.6) and Q2 to CA customers (e.g. questions
    16.1, 22.6, 23.6).
                                                               47
 ---pagebreak---                   (ii) declining market shares (in the past four years, BAH and Elanco lost
                  respectively [10-20] and [0-5] percentage points of market shares). Post-
                  Transaction, the new entity would face four competitors with market shares
                  above the increment, namely Zoetis ([20-30]%), Krka ([10-20]%), BI ([10-
                  20]%) and Merck ([5-10]%).
(171) It stems from the above that the Transaction is unlikely to have a material impact on
        competition in the above markets. In fact, Elanco has de minimis sales in Hungary
        (below […]), whereas BAH has de minimis sales in France (below […]).
(172) Second, the results of the market investigation confirmed that, post-Transaction, the
        new entity would continue to face strong competitive constraints from a number of
        rivals.149 In particular, market participants emphasised that BI has a very efficacious
        heartworm product, with a well-known and established brand (i.e. Heartguard).150
        Other significant competing (originator) products include Stronghold Plus (Zoetis)
        and Broadline (BI). The Parties also stressed the fact that Zoetis has recently
        launched in the EEA an isox-based endecto with a heartworm claim (Simparica
        Trio), which is expected to be very successful: Elanco expects Simparica Trio to
        gain a [20-30]% market share in the EEA countries where heartworm is endemic in
        the next six years. In fact, the vast majority of customers and competitors indicated
        that there would remain sufficient alternative suppliers post-Transaction.151
(173) Third, a large majority of customers confirmed that generics exert pressure on the
        prices of originator heartworm products.152 Several competitors offer generic endo or
        endecto product with heartworm claim, including generic versions of the Parties’
        products. For instance, in France and Hungary, generic versions of Elanco’s key
        product (Milbemax) are offered by Ceva (Milbactor), Virbac (Milpro) and Krka
        (Milprazon), which explains the decline in Elanco’s sales in these two countries.
(174) Fourth, the market investigation confirmed the Parties’ claim that their marketed
        products are differentiated. Indeed, most customers and competitors consider that
        Elanco and BAH do not closely compete.153 The market investigation also confimed
        the MoAs, the spectrum of claim and the duration of efficacy are key factors in the
        choice of heartworm products for customers,154 three parameters that differentiate the
        Parties’ main products: (i) all of BAH’s sales derive from Advocate, which is an
        endecto product administered topically once a month, whereas (ii) Elanco’s two
        main products (i.e. Guardian SR and Milbemax) are pure endo products
        administered orally or by injection and one of them (Guardian SR) is only applied
        once for the entire season.
(175) Finally, the market investigation did not reveal any substantiated competition
        concerns in relation to the combination of the Parties’ heartworm products.155
149 Questionnaires Q1 to competitors (question 18) and Q2 to CA customers (question 16).
150 Questionnaire Q1 to competitors (question 19).
151 Questionnaires Q1 to competitors (question 27, see also question 20) and Q2 to CA customers (question 22, see also
    question 18).
152 Questionnaire Q2 to CA customers (question 20).
153 Questionnaires Q1 to competitors (question 22) and Q2 to CA customers (question 19).
154 Questionnaires Q1 to competitors (question 17) and Q2 to CA customers (question 15).
155 Questionnaires Q1 to competitors (questions 27, 28 and 131) and Q2 to CA customers (questions 22, 23 and 58).
                                                              48
 ---pagebreak---  ---pagebreak---  ---pagebreak---          (c)        The Parties’ views
(182) The Parties make the following observations on these Group 1 markets for
         fluoroquinolone antimicrobials for CA. The increment is caused by Elanco’s Zobuxa
         product in all markets except Czechia, where in four putative segments the increment
         is caused by BAH’s Baytril. Notably, in all the countries in which Group 1 affected
         markets for CA antimicrobials arise and in which Zobuxa represented at some point
         in the 2016-2018 period more than 5% of the total market, typically, more than 50%
         of all fluoroquinolones sold comprise Baytril generics, the majority of which are not
         attributable to Zobuxa. As such, the Parties argue that the Transaction would not
         lead to a material loss of competitive pressure on Baytril, since other generic
         versions of Baytril would continue to constrain it, and Baytril generics present in
         other geographies could also enter these Group 1 markets in the short-term.
         Moreover, the Parties note that the extent and strength of the presence of generic
         Baytril products may not be fully captured in the market share estimates, given the
         general lack of visibility into generic activity by reference to the CEESA156 dataset.
         (d)        The Commission’s assessment
(183) The evidence in the Commission’s file generally confirms the Parties’ claims. It
         allows the Commission to exclude serious doubts as to the compatibility of the
         Transaction with the internal market and the functioning of the EEA Agreement
         resulting from the overlap of the Parties’ activities in antimicrobials for CA.
(184) First, the market investigation confirmed the Parties’ claim that generics exert
         pressure on the prices of branded CA antimicrobials.157 In addition to Elanco’s
         Zobuxa, there are several enrofloxacin generics marketed in the EEA by Vetoquinol,
         Virbac and Ceva. In each of the countries listed in Table 12 except for Czechia,
         there is at least one other enrofloxacin generic besides Zobuxa. Further, in each of
         the countries listed in Table 12 including Czechia, there is at least one other
         fluoroquinolone antimicrobial (marbofloxacin being the active ingredient) marketed
         by competitors.
(185) Second, the results of the market investigation confirm that, generic entry into the
         antimicrobials market is straightforward. One supplier explained that “We believe
         this [entry] would be relatively easy for generics…”158 and another mentioned that
         “…these [development and registration] costs are significantly lower when the
         product is a generic copy…The level of cost and difficulty would also be lower
         depending on the supplier – a supplier that has an existing product, established in
         one country market would be able to enter another country with that product at a
         lower cost and with less difficulty than a supplier developing and establishing a
         product from scratch.” Provided they have established commercial presence in the
         country, other players could also enter these segments with generic products.
156 In Europe, the main third-party data source for the animal health industry is the European Animal Health Study Centre
    or Centre Européen d’Etudes pour la Santé Animale (“CEESA”). CEESA is a non-profit international association,
    based in Belgium, which collects sales data on the animal health market worldwide, including data on 22 countries in
    the EEA. There are 31 reporting members within the EEA. However, most regional or local firms and most generic
    manufacturers do not report their sales to CEESA. To estimate market shares, the Parties relied on CEESA data in
    addition to their own sales data and business intelligence.
157 Questionnaire Q1 to competitors (questions 39) and Questionnaire Q2 to CA customers (question 35).
158 Questionnaire Q1 to competitors, question 42.
                                                                51
 ---pagebreak--- (186) Third, the use of fluoroquinolones is expected to decline due to the impact of EMA
         regulation159, according to which it is classified as higher risk, and pressure on prices
         may be expected in such shrinking markets, with customers seeking alternatives to
         antimicrobial use altogether. The overarching trend in respect of antimicrobials is the
         growing awareness of bacterial resistance to human antibiotics. As a result of this
         growing awareness, there continues to be significant regulatory focus (at both the
         European and national levels). This focus has already resulted in a significant decline
         in antimicrobial usage across Europe. This decline (at a rate of an estimated 5-10%
         per annum, based on annual declines in antimicrobial usage to date) will continue in
         the near and longer term in the EEA. While concerns have been more focused on the
         use of antimicrobials in PA, the use of high risk antibiotics is also discouraged by
         regulation for CA. Indeed, the majority of competitors and customers confirmed that
         regulation has had an impact on the CA antimicrobials market as well. 160 One CA
         customer explained that “Antimicrobials in the veterinary sector have been reduced,
         especially … and Fluorochinolons.” 161 As such, competitors and customers both
         stressed the fact that while BAH has a strong brand, a key weakness is that the
         molecule is a fluoroquinolone. 162
(187) Fourth, the market investigation did not reveal any substantiated competition
         concerns in relation to the combination of the Parties’ CA antimicrobials. Overall,
         the large majority of customers and competitors indicated that there would remain
         sufficient alternative suppliers post-Transaction and do not expect a price increase in
         CA antimicrobials.163
(188) Lastly, looking at the individual countries, the Transaction gives rise to Group 1
         markets for CA antimicrobials in six countries. More specifically:
           (a)    In Austria: the Parties have combined market shares below [50-60]% with
                  moderate increments in (i) fluoroquinolone antimicrobials for all CA ([5-
                  10]% for Elanco and [40-50]% for BAH), (ii) oral fluoroquinolone
                  antimicrobials for all CA ([5-10]% for Elanco and [40-50]% for BAH), (iii)
                  canine fluoroquinolone antimicrobials ([5-10]% for Elanco and [30-40]% for
                  BAH), (iv) oral canine fluoroquinolone antimicrobials ([5-10]% for Elanco
                  and [30-40]% for BAH), and above [50-60]% in (v) feline fluoroquinolone
                  antimicrobials ([5-10]% for Elanco and [50-60]% for BAH) and (vi) oral
                  feline fluoroquinolone antimicrobials ([5-10]% for Elanco and [50-60]% for
                  BAH). Post-Transaction, in all segments, the new entity would continue to
                  face three competitors, two of which have market shares significantly above
                  the increment. Specifically, Ceva has market shares of [30-40]%, [30-40]%,
                  [30-40]%, [40-50]%, [20-30]% and [20-30]% in markets (i)-(vi) respectively,
                  while Vetoquinol has market shares of [10-20]%, [10-20]%, [10-20]%, [10-
                  20]%, [10-20]% and [10-20]% respectively. The new entity would also
                  continue to face the possibility of further generic entry. Moreover, the market
                  investigation did not reveal any substantiated concerns, and the majority of
159 See paragraph 36.
160 Questionnaire Q1 to competitors (questions 35) and Questionnaire Q2 to CA customers (question 30).
161 Questionnaire Q2 to CA customers (question 30).
162 Questionnaire Q1 to competitors (questions 37) and Questionnaire Q2 to CA customers (question 32).
163 Questionnaire Q1 to competitors (questions 44, 45) and Questionnaire Q2 to CA customers (question 37, 38).
                                                             52
 ---pagebreak---     customers and competitors consider that there will remain sufficient suppliers
    and do not see a risk of price increases in this market.
(b) In Czechia: the Parties have combined market shares above [50-60]% in (i)
    fluoroquinolone antimicrobials for all CA ([40-50]% for Elanco and [30-
    40]% for BAH), (ii) oral fluoroquinolone antimicrobials for all CA ([40-
    50]% for Elanco and [30-40]% for BAH), (iii) canine fluoroquinolone
    antimicrobials ([50-60]% for Elanco and [10-20]% for BAH), (iv) oral canine
    fluoroquinolone antimicrobials ([50-60]% for Elanco and [5-10]% for BAH),
    (v) feline fluoroquinolone antimicrobials ([20-30]% for Elanco and [60-70]%
    for BAH) and (vi) oral feline fluoroquinolone antimicrobials ([20-30]% for
    Elanco and [60-70]% for BAH). The increment brought by Elanco in these
    segments ranges between [5-10]% and [30-40]% (corresponding to between
    EUR […] and […]). Post-Transaction, the new entity would continue to face
    one competitor, Vetoquinol, with market shares above [10-20]% in all
    segments, as well as the possibility of further generic entry. In addition to
    Vetoquinol, a number of suppliers (Ceva, Krka, Chanelle, Pharmagal and Le
    Vet Beheer) have marketing authorizations for generic CA fluoroquinolones
    in Czechia. In addition, BI was active in the market until 2018, so could re-
    enter. Moreover, the market investigation did not reveal any concerns, and
    the majority of customers and competitors consider that there will remain
    sufficient suppliers and do not see a risk of price increases in this market.
(c) In Germany: the Parties have combined market shares above [50-60]% with
    a limited increment brought by Elanco in (i) fluoroquinolone antimicrobials
    for all CA ([0-5]% for Elanco and [50-60]% for BAH), (ii) oral
    fluoroquinolone antimicrobials for all CA ([0-5]% for Elanco and [50-60]%
    for BAH), (iii) canine fluoroquinolone antimicrobials ([0-5]% for Elanco and
    [40-50]% for BAH), (iv) oral canine fluoroquinolone antimicrobials ([0-5]%
    for Elanco and [40-50]% for BAH), (v) feline fluoroquinolone antimicrobials
    ([0-5]% for Elanco and [60-70]% for BAH) and (vi) oral feline
    fluoroquinolone antimicrobials ([0-5]% for Elanco and [60-70]% for BAH).
    Post-Transaction, the new entity would continue to face three competitors,
    Vetoquinol, Ceva and Virbac (at least one of which has significantly higher
    market shares than the increment, and above [10-20]% in any case), as well
    as the possibility of further generic entry. Moreover, the market investigation
    did not reveal any substantiated concerns, and the majority of customers and
    competitors consider that there will remain sufficient suppliers and do not see
    a risk of price increases in this market.
(d) In Hungary: the Parties have combined market shares above [50-60]% with
    a limited increment brought by Elanco in (i) fluoroquinolone antimicrobials
    for all CA ([0-5]% for Elanco and [70-80]% for BAH), (ii) oral
    fluoroquinolone antimicrobials for all CA ([0-5]% for Elanco and [70-80]%
    for BAH), (iii) canine fluoroquinolone antimicrobials ([5-10]% for Elanco
    and [60-70]% for BAH), (iv) oral canine fluoroquinolone antimicrobials ([5-
    10]% for Elanco and [50-60]% for BAH), (v) feline fluoroquinolone
    antimicrobials ([0-5]% for Elanco and [90-100]% for BAH) and (vi) oral
    feline fluoroquinolone antimicrobials ([0-5]% for Elanco and [90-100]% for
    BAH). The increment brought by Elanco in these segments ranges between
    [0-5]% and [5-10]% (corresponding to between EUR […] and […]). Post-
    Transaction, the new entity would continue to face two competitors,
                                        53
 ---pagebreak---               Vetoquinol and Ceva (both of which have higher market shares than the
              increment in all segments), as well as the possibility of further generic entry.
              Indeed Ceva has increased its market shares significantly since entering in
              2017, while BAH’s have dropped in the same period. In addition to
              Vetoquinol and Ceva (Krka, Le Vet, Animedica, Livisto, and CP-Pharma)
              have marketing authorizations for generic CA fluoroquinolones in Hungary.
              Moreover, the market investigation did not reveal any substantiated concerns,
              and the majority of customers and competitors consider that there will remain
              sufficient suppliers and do not see a risk of price increases in this market.
        (e)   In Italy: the Parties have combined market shares above [50-60]% with a
              moderate increment brought by Elanco in (i) fluoroquinolone antimicrobials
              for all CA ([5-10]% for Elanco and [50-60]% for BAH), (ii) oral
              fluoroquinolone antimicrobials for all CA ([5-10]% for Elanco and [50-60]%
              for BAH), (iii) canine fluoroquinolone antimicrobials ([5-10]% for Elanco
              and [60-70]% for BAH), (iv) oral canine fluoroquinolone antimicrobials ([5-
              10]% for Elanco and [60-70]% for BAH), (v) feline fluoroquinolone
              antimicrobials ([10-20]% for Elanco and [40-50]% for BAH) and (vi) oral
              feline fluoroquinolone antimicrobials ([10-20]% for Elanco and [40-50]% for
              BAH). Post-Transaction, the new entity would continue to face four
              competitors, Vetoquinol, Virbac, Fatro and Ceva (at least one of which has a
              higher market share than the increment and above [10-20]% in all segments),
              as well as the possibility of further generic entry. Indeed Ceva has increased
              its market shares significantly since entering in 2017, while BAH’s have
              dropped in the same period. Moreover, the market investigation did not
              reveal any substantiated concerns, and the majority of customers and
              competitors consider that there will remain sufficient suppliers and do not see
              a risk of price increases in this market.
        (f)   In Poland: the Parties have combined market shares above [50-60]% with a
              limited increment brought by Elanco in (i) feline fluoroquinolone
              antimicrobials ([0-5]% for Elanco and [60-70]% for BAH) and (ii) oral feline
              fluoroquinolone antimicrobials ([0-5]% for Elanco and [60-70]% for BAH),
              and below [50-60]% in (iii) fluoroquinolone antimicrobials for all CA ([0-
              5]% for Elanco and [30-40]% for BAH). Post-Transaction, the new entity
              would continue to face two competitors, Vetoquinol and Ceva (both of which
              have higher market shares than the increment, and at least one of which has a
              market share above [20-30]% in all segments), as well as the possibility of
              further generic entry. Moreover, the market investigation did not reveal any
              substantiated concerns, and the majority of customers and competitors
              consider that there will remain sufficient suppliers and do not see a risk of
              price increases in this market.
      (e)     Conclusion
(189) In view of the above considerations, taking into account the market investigation and
      all the evidence available to it, 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 with respect to antimicrobials for CA in Austria,
      Czechia, Germany, Hungary, Italy, Poland under any potential market definition.
                                                  54
 ---pagebreak--- 4.2.3. Otitis
4.2.3.1. Long-acting otitis products
(190) In the EEA, both Parties market long-acting otitis products. However, based on 2019
        market shares, the Transaction does not give rise to any overlap, as BAH started
        commercializing its product Neptra in 2020. In 2019, Elanco was the only supplier
        commercializing a long-acting otitis product in the EEA. Therefore, currently
        Elanco’s Osurnia and BAH’s Neptra are the only long-acting otitis products
        currently available in the EEA.
        (a)       The Parties’ views
(191) To expedite the clearance of the Transaction, the Parties propose to divest Elanco’s
        Osurnia otitis product at global level to a suitable purchaser.
        (b)       The Commission’s assessment
(192) Osurnia was launched in 2015 in the EEA, and Neptra launched in 2020. Following
        the launch of BAH’s Neptra otitis product across the EEA at the beginning of 2020,
        horizontal overlaps arise in the long-acting otitis product market. Market shares are
        not available as Neptra was launched in 2020. Neptra and Osurnia being the only
        long-acting otitis products available in the EEA, the Transaction would suppose a
        merger to monopoly in this market and the merged entity would control 100% of the
        market without other alternatives available. Osurnia and Neptra being the only two
        long-acting products in the EEA will compete closely against each other.
(193) This is confirmed by the market investigation. Competitors indicated that the only
        alternatives available in the EEA for long-acting otitis products are the Parties’
        products. For example, one competitor explains that “Osurnia from Elanco was the
        unique long lasting offer until Bayer launched Neptra in Europe”.164 In the same
        vein, several customers also explained that only the Parties offer long-acting otitis
        products. For example, one customers submitted that “Osurnia and Neptra are the
        only long duration otitis products”.165
        (c)       Conclusion
(194) In view of the above considerations, taking into account the market investigation and
        all the evidence available to it, the Commission considers that the Transaction raises
        serious doubts as to its compatibility with the internal market and the functioning of
        the EEA Agreement due to its likely horizontal non-coordinated effects as regards
        long-acting otitis products in the EEA, in particular given the absence of alternative
        competitors.
4.2.3.2. Daily-use otitis products
(195) In the EEA, both Parties market daily-use otitis products. The Transaction does not
        give rise to any Group 1/1+ in 2019 considering a market for daily-use otitis
164 Questionnaire Q1 to competitors, non-confidential replies to question 48.
165 Questionnaire Q2 to customers, non-confidential replies to question 44.
                                                               55
 ---pagebreak---  ---pagebreak---          otitis externa. Moreover, even if a systemic antibiotic were used by a vet, because
         Baytril contains a fluoroquinolone, which is classified as Group B ‘Restrict’ in the
         EMA Antimicrobial Expert Group (“AMEG”) list (and has been classified as a
         restricted antibiotic since the first AMEG list was published in 2014), it would
         typically be used as a second-choice antibiotic. Indeed, the use of high risk
         antibiotics is discouraged by EMA regulation for CA166. In this vein, the majority of
         competitors and customers confirmed that regulation has had an impact on the CA
         antimicrobials market as well. One CA customer explained that “Antimicrobials in
         the veterinary sector have been reduced, especially … and Fluorochinolons.” Finally
         the mode of administration is also different: Baytril Injectable is administered by
         injection and Baytril Tablets are administered orally. In contrast, Surolan is
         administered topically to the ear, as is the case for most otitis externa treatments.
(202) Second, BAH is not a strong player in otitis daily-use products. Market shares across
         all EEA countries are very low, generally below [0-5]% and always below [0-5]%.
         This is confirmed by the market investigation. Competitors indicated that Elanco,
         Virbac, Vetoquinol, Merck and Dechra are the top suppliers. BAH was not identified
         among the top 5 suppliers by any of the competitors responding to the market
         investigation.167 Similarly, customers identified as top suppliers Elanco, Virbac,
         Vetoquinol, Merck and Dechra, but not BAH. Moreover, customers identified a
         significant number of additional suppliers of otitis daily-use products.168
(203) Third, the majority of suppliers and customers consider that post-Transaction there
         will remain sufficient alternative suppliers of otitis products for customers in the
         EEA to obtain competitive offers.169
(204) Finally, the majority of suppliers and customers consider that the Transaction will
         not lead to price increases with respect to otitis products in the EEA.170
Austria
(205) A group 1 market arises in Austria for the supply of daily-use otitis products for
         cats171.
(206) The value market shares of the Parties and their competitors for daily-use otitis
         products for cats are provided below in Table 14.
166 See Section 4.2.2.
167 Questionnaire Q1 to competitors, non-confidential replies to question 49.
168 Questionnaire Q2 to customers, non-confidential replies to question 42.
169 Questionnaire Q1 to competitors, non-confidential replies to question 57 and Questionnaire Q2 to customers, non-
    confidential replies to question 48.
170 Questionnaire Q1 to competitors, non-confidential replies to question 58 and Questionnaire Q2 to customers, non-
    confidential replies to question 49.
171 Market shares for otitis daily-use products may include sales of general antibiotics with an otitis indication, similar to
    BAH products.
                                                               57
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---       number of competitors active in Germany and in other EEA countries which exert
      significant competitive pressure on the Parties.
      (d)      The Commission’s assessment
(235) As a preliminary remark, it should be noted that, unless otherwise specified, the
      findings set out in this Section 4.3.1.1, and in particular the results of the market
      investigation, do not materially differ depending on the species. As regards possible
      differences depending on the analysed EEA country, although national specificities
      exist, the overall structure and the main characteristics of supply and demand in the
      markets for endoparasiticides and endo/endecto products for PA do not appear to
      vary significantly across countries. Therefore, unless otherwise specified, the
      findings of Section 4.31.1 (regarding e.g. closeness of competition, generic
      competition and the feedback received from market participants) do not materially
      differ depending on the geographic market at stake.
(236) The evidence in the Commission’s file generally confirms the Parties’ claims. It
      allows the Commission to exclude serious doubts as to the compatibility of the
      Transaction with the internal market and the functioning of the EEA Agreement
      resulting from the overlap of the Parties’ activities in PA endoparasiticides and
      endo/endecto products, under all plausible market definitions.
(237) First, it appears from Table 18 above that the Transaction gives rise to Group 1
      markets for PA endoparasiticides and PA endo/endecto products in only two
      countries, with combined shares not exceeding 50%. More specifically:
          (a) In France: the Parties have moderate combined market shares of [30-40]%,
               with a [10-20]% increment brought by BAH, in the PA endoparasiticides
               market for sheep. Post-Transaction, the new entity would face five
               competitors, the largest one being Zoetis with a market share higher than the
               Parties’ combined market share ([40-50]%).
          (b) In Germany: the Parties have higher combined market shares in (i) the
               endoparasiticides market for sheep ([40-50]% combined market share, with a
               20% increment brought by Elanco), (ii) endoparasiticides market for swine
               ([40-50]% combined market share, with a minor increment of [0-5]% brought
               by BAH), (iii) endo/endecto products market for sheep ([40-50]% combined
               market share, with a [20-30]% increment brought by Elanco) and (iv)
               endo/endecto products market for swine ([40-50]% combined market share,
               with a [10-20]% increment, brought by BAH). Albeit the higher combined
               market shares, post-Transaction, the new entity would face competition from
               a significant large player, Zoetis, with [40-50]-[40-50]% market share,
               depending on the segment, and other competitors with a more negligible
               market presence (Merck, BI, Ceva, Virbac).
(238) Second, the market investigation results indicated that Merck is perceived as the
      market leader, followed by Elanco and Zoetis in endoparasiticides and
      endo/endectoparasitices for PA. BAH is also mentioned among the top five
      competitors but to a lesser extent.
                                                63
 ---pagebreak---  ---pagebreak---  ---pagebreak--- (251) Third, similarly to the market feedback received for PA endoparasiticides, according
        to most competitors, there are no specific PA parasiticides for which the Parties are
        either the only alternatives available or among the very few suppliers in the EEA.
(252) Fourth, similarly to the market feedback received for PA endoparasiticides,
        competitors indicated that generics exert a competitive constraint over branded PA
        endectocides.
(253) Fifth, the large majority of market respondents indicated that Elanco and BAH are
        not close competitors in the market for PA endectocides, since their products can be
        differentiated by indication and withdrawal period.
(254) Finally, customers and competitors did not indicate any substantiated competition
        concerns in relation to the combination of the Parties’ marketed endectocides for PA.
        (e)     Conclusion
(255) In view of the above considerations, taking into account the market investigation and
        all the evidence available to it, 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 with respect to overlaps between the Parties’
        marketed endectocides for swine in Germany, under all plausible market definitions.
4.3.1.3. Ectoparasiticides
        (a)     Overview of the market and the Parties’ products
(256) As explained in Section 3 above, ectoparasiticides are used to control external
        parasites and present similar characteristics to ectoparasiticides for CA. There are a
        number of classes of ecto products, with different mechanisms of action, that are
        used alone or in combination. The major chemical classes of ecto products are
        organophosphates, synthetic pyrethroids, formamidines and insect growth regulators.
        With specific regard to ecto products for sheep, they are generally administered
        topically.
(257) Similarily to endoparasiticides for PA (see paragraph 228 above), the Parties expect
        a reduction of the demand for PA ectoparasiticides, as a consequence of the decrease
        in the number of farm animals and farms in the EEA in the future. They also observe
        an increase in buyer power, through the concentration of veterinaries into large
        clinics and hospitals, buying groups and the expansion of large corporate customers
        in the PA sector. Another trend indicated by the Parties is the increase in the
        presence of generics, which would lead to downward pricing pressure on animal
        health companies in the future.
(258) In the EEA, both Parties market several PA ectoparasiticides and the Transaction
        gives rise to the following Group 1/1+ markets in 2019.
                                                   66
 ---pagebreak---  ---pagebreak---         (d)      The Commission’s assessment
(262) As a preliminary remark, it should be noted that, unless otherwise specified, the
        findings set out in this Section 4.3.1.3, and in particular the results of the market
        investigation, do not materially differ depending on the species. As regards possible
        differences depending on the analysed EEA country, although national specificities
        exist, the overall structure and the main characteristics of supply and demand in the
        markets for ectoparasiticides and ecto/endecto products for PA do not appear to vary
        significantly across countries. Therefore, unless otherwise specified, the findings of
        Section 4.3.1.3 (regarding e.g. closeness of competition, generic competition and the
        feedback received from market participants) do not materially differ depending on
        the geographic market at stake.
(263) The evidence in the Commission’s file generally confirms the Parties’ claims. It
        allows the Commission to exclude serious doubts as to the compatibility of the
        Transaction with the internal market and the functioning of the EEA Agreement
        resulting from the overlap of the Parties’ activities in PA ectoparasiticides, under all
        plausible market definitions.
(264) First, it appears from Table 22 above that the Transaction gives rise to Group 1
        markets for PA ectoparasiticides in only two countries. More specifically:
             (a) In France: the Parties have (i) high combined market shares of [60-70]%,
                 with a [10-20]% increment brought by BAH, in the PA ectoparasiticides
                 market for sheep and (ii) more moderate combined market shares of [30-
                 40]%, with a [10-20]% increment brought by BAH, in the PA ecto/endecto
                 products market for sheep. Albeit the significant combined market shares in
                 the PA ectoparasiticides market for sheep, post-Transaction, the new entity
                 would face a strong competitor, Merck ([30-40]% market share)176. The new
                 entity would face strong competitors also in the ecto/endecto products market
                 for sheep, such as BI ([20-30]% market share), followed by Merck ([10-
                 20]%) and Zoetis ([10-20]%). In addition, the Parties indicated that the
                 market share estimates provided to the Commission do not capture all the
                 generic competitors active in the above market (the Parties’ estimates are
                 based on the CEESA database, which does not systematically report the sales
                 of all the generic players active in the EEA). Therefore, it is likely that the
                 new entity will also face competition from generics, which is corroborated by
                 the feedback received from market participants (see paragraphs 266 and 267
                 below).
             (b) In Germany: the Parties have high combined market shares of [70-80]%,
                 with an increment of [5-10]% brought by Elanco, in the ecto/endecto
                 products market for swine. Albeit the higher combined market shares, the
                 increment brought by the Transaction ([5-10]% brought by Elanco) is
                 relatively small; in addition, post-Transaction, the new entity would still face
                 competition from a strong player (BI, with [30-40]% market share). In
                 addition, the Parties indicated that the market share estimates provided to the
                 Commission do not capture all the generic competitors active in the above
                 market (the Parties’ estimates are based on the CEESA database, which does
                 not systematically report the sales of all the generic players active in the
176 Also Vetoquinol is active in this segment with a negligible market share of below 1%.
                                                                68
 ---pagebreak---                EEA). Therefore, it is likely that the new entity will also face competition
               from generics, which is corroborated by the feedback received from market
               participants (see paragraphs 266 and 267 below).
(265) Second, the market investigation results indicated that, with regard to, more broadly,
       the EEA market for ectoparasiticides for PA, Merck is perceived as the market
       leader, followed by Elanco, BAH and Zoetis in ectoparasiticides for PA. Other
       players, such as BI, Virbac and Bimeda, are also often mentioned among the top five
       competitors in this segment.
(266) Third, similarly to the considerations made above for PA endoparasiticides and PA
       endectocides, according to most competitors, there are no specific PA parasiticides
       for which the Parties are either the only alternatives available or among the very few
       suppliers in the EEA.
(267) Fourth, similarly to the considerations made above for PA endoparasiticides and PA
       endectocides, competitors indicated that generics exert a competitive constraint over
       branded PA ectoparasiticides.
(268) Finally, customers and competitors did not indicate any substantiated competition
       concerns in relation to the combination of the Parties’ marketed ectoparasiticides for
       PA.
       (e)     Conclusion
(269) In view of the above considerations, taking into account the market investigation and
       all the evidence available to it, 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 with respect to overlaps between the Parties’
       marketed ectoparasiticides for sheep in France and ecto/endecto products for sheep
       in France and for Swine in Germany, under all plausible market definitions.
4.3.2. Antimicrobials
       (a)     Overview of the market and the Parties’ products
(270) As explained in Section 3 above, antimicrobials (also known as antibiotics) are
       pharmaceutical products that destroy or prevent the growth of microbes such as
       bacteria, mycoplasma or fungi and treat diseases associated with them.
(271) Elanco supplies two products in countries giving rise to Group 1 / 1+ markets; Tylan
       and Denagard. Tylan is a macrolide antimicrobial indicated for swine, poultry and
       cattle; Denagard is a pleuromutilin antimicrobial indicated for swine and poultry.
       Both are chiefly administered orally.
(272) BAH supplies one product in the same markets; Baytril, a fluoroquinolone
       antimicrobial indicated for cattle, poultry, swine, goats and rabbits (as well as CA).
       Baytril is predominantly administered by way of injection, but also comes in oral
       pharmaceutical forms. Fluoroquinolones are categorised as higher risk antimicrobials
       than macrolides or pleuromutilins, mentioned above.
                                                 69
 ---pagebreak---  ---pagebreak---  ---pagebreak---          macrolides, pleuromutilins or other) have already been used. Importantly, Baytril
         (including the Baytril 10% oral solution product that determines BAH’s market
         position in all Group 1 affected markets) has a specific contraindication that states
         that it should not be used for prophylaxis i.e. preventative treatments. Thus they are
         typically used at different stages of the treatment.
(279) On the other hand, a number of competitor products are in the same chemical family
         as one or other of the Parties’ products. For example, Zoetis and Virbac both market
         macrolide antimicrobials, which compete more closely with Elanco’s products, and
         Hipra markets fluoroquinolone antimicrobials, which compete more closely with
         BAH’s product.
(280) Further, the Parties’ respective portfolios differ materially in the withdrawal periods
         following administration, before which animals cannot be slaughtered. These relative
         differences reflect the portfolios’ differing underlying chemical classes: Baytril’s
         oral products require withdrawal periods of a minimum of 5-13 days depending on
         the species, compared to 0-1 days for Elanco’s oral products. From a customer
         perspective, therefore, switching between the Parties’ products would require
         meaningful adjustment to planning and organisation in order to incorporate different
         withdrawal periods.
(281) Lastly, all of the Parties’ key antimicrobial products are off-patent and generics play
         a particularly significant role in the supply of antimicrobial products in Europe.
         (d)      The Commission’s assessment
(282) The evidence in the Commission’s file generally confirms the Parties’ claims. It
         allows the Commission to exclude serious doubts as to the compatibility of the
         Transaction with the internal market and the functioning of the EEA Agreement
         resulting from the overlap of the Parties’ activities in antimicrobials for PA.
(283) First, most customers confirm the Parties’ views that antimicrobials with different
         chemical classes are not interchangeable. Indeed, with the EMA categorisation of
         antibiotics by chemical class177, and consequent restriction of the use of antibiotics
         belonging to certain chemical classes, there are elements to indicate that antibiotics
         with chemical classes in different risk categorisations (as are Elanco’s and BAH’s
         products respectively) do not compete closely. Indeed, one customer elaborated
         further that “Avoiding antimicrobial resistance plays a big part in product
         choice…”178 Most customers also confirmed that the withdrawal period is the most
         important factor in the selection for a PA antimicrobial179. As such, the Parties’
         products, being of different chemical classes, and different withdrawal periods, are
         not close competitors. In the EEA Virbac (Pharmasin), BI (Suanovil) and Zoetis
         (Zactran and Draxxin) all supply macrolides (the same class as Elanco’s Tylan); and
         Virbac (Stalimox), Calier (Caliermutin) and Ceva (Timavet) all supply
         pleuromutilins (the same class as Elanco’s Denagard); while as regards BAH’s
         Baytril product, Zoetis (Dicural and Advocin), Hipra (Hiprolana), Calier (Roxacin)
         and Ceva (Flumisol) all supply fluoroquinolones.
177 See paragraph 36.
178 Questionnaire Q3 to PA customers (question 44).
179 Questionnaire Q3 to PA customers (questions 41, 45).
                                                         72
 ---pagebreak--- (284) Second, the results of the market investigation confirm that, post-Transaction, the
         new entity would continue to face competitive constraints from rivals. Competitors
         and customers consider Zoetis as the leader in the overall EEA PA Antimicrobials
         markets, followed by Merck, Ceva, BAH, BI and Virbac, whereas Elanco is not
         widely considered to be among the top players180. The results of the market
         investigation also confirm that the Parties are not close competitors.181
(285) Third, the market investigation confirmed the Parties’ claim that generics exert
         pressure on the prices of branded PA antimicrobials182. In the EEA there are several
         generics of Tylan, Denagard and Baytril marketed by larger players such as Ceva,
         Vetoquinol, Huvepharma and Krka as well as a number of smaller, regional players.
         Further, competitors noted that generic entry into the antimicrobials market is
         straightforward and that suppliers active in some EEA countries can also enter
         others. One supplier explained that “It [entry] will be easier / less intensive capital
         investment for generic entrants.” Another noted “Overall there is no significant
         different barriers of entry between … countries in the EEA zone.” 183 Provided they
         have established commercial presence in the country, other players could also enter
         these segments with generic products. The Parties estimate that it would be low cost
         ([…]) and quick ([…]) for suppliers to obtain authorisations in Norway and Sweden
         for generic versions of the Parties’ products.
(286) Fourth, the market investigation did not reveal any substantiated competition
         concerns in relation to the combination of the Parties’ PA antimicrobials.184 Overall,
         the large majority of customers and competitors indicated that there would remain
         sufficient alternative suppliers post-Transaction and do not expect a price increase in
         PA antimicrobials.
(287) Lastly, looking at the individual countries, the Transaction gives rise to Group 1
         markets for PA antimicrobials in two countries. More specifically:
           (a)     In Norway: the Parties have a combined market share of [80-90]% with
                   BAH’s increment of [10-20]% (or EUR […]) in the oral antimicrobials for all
                   species and oral non-premix antimicrobials for all species segments, which
                   are the same in Norway. However, in Norway Elanco’s only product in these
                   segments is Denagard, which is exclusively used for swine in Norway
                   (Denagard is not registered for species other than swine in Norway). BAH’s
                   products (Baytril 2.5% and 10%), on the other hand, are used solely for
                   poultry and cattle185. As such, the Parties are effectively not competing in
                   these segments. The third supplier in this market, Virbac, targets niche
                   species other than swine, poultry or cattle, and thus in the pre-transaction
                   situation none of the three suppliers compete closely. Moreover, the so-called
                   PA antimicrobials market leaders Zoetis and Merck were present in these
180 Questionnaire Q1 to competitors (question 104) and Questionnaire Q3 to PA customers (question 47).
181 Questionnaire Q1 to competitors (question 108) and Questionnaire Q3 to PA customers (question 50).
182 Questionnaire Q1 to competitors (question 107) and Questionnaire Q3 to PA customers (question 51).
183 Questionnaire Q1, Questionnaire to competitors (question 110).
184 Questionnaire Q1 to competitors (questions 112, 113) and Questionnaire Q3 to PA customers (questions 53, 54).
185 Indeed, the usage of fluoroquinolones in PA is increasingly rare in Nordic countries in particular for swine (given the
    detrimental effects on antibiotic resistance for human health purposes) – for instance, in Denmark the usage of
    fluoroquinolones is prohibited in swine.
                                                               73
 ---pagebreak---                   segments in previous years, and would presumably have the commercial
                  presence to be able to re-enter and compete with the new entity. Further, for
                  generic fluoroquinolone products there is currently a marketing authorisation
                  in Norway for Exoflox (Le Vet Beheer) and were previously a number of
                  additional marketing authorizations which were then withdrawn by the
                  holders (including Enrotron of antiMedica and Fenoflox of Chanelle). The
                  Parties estimate that it would be low cost ([…]) and quick ([…]) for suppliers
                  to obtain Norwegian authorisations for these products. Lastly, no competitors
                  or customers have raised concerns for this market during the investigation.
          (b)     In Sweden: the Parties have high combined market shares with limited
                  increments; (i) [90-100]% ([0-5]% or EUR […] increment from BAH) in the
                  oral antimicrobials for all species segment and (ii) [90-100]% ([0-5]% or
                  EUR […] increment from BAH) in the overall oral non-premix
                  antimicrobials for all species segment. In Sweden, Elanco supplied Denagard
                  and Tylan in 2018, over [70-80]% of which is supplied to swine, with the
                  remainder going to poultry. BAH’s products, on the other hand (Baytril 2.5%
                  and 10%), are used predominantly for poultry ([80-90]%) and cattle ([20-
                  30]%). As such the Parties are not considered to compete closely in these
                  segments. The new entity will face competitors with higher market shares
                  than BAH, namely Ceva ([0-5]% and [0-5]% respectively) and Vetoquinol
                  ([0-5]% and [0-5]% respectively). Further, for generic fluoroquinolone
                  products there is currently a marketing authorisation in Norway for Exoflox
                  (Le Vet Beheer) and Fenoflox (Chanelle), and there were previously a
                  number of additional marketing authorizations which were then withdrawn
                  by the holders (including Enrotron of antiMedica). The Parties estimate that it
                  would be low cost ([…]) and quick ([…]) for suppliers to obtain Swedish
                  authorisations for these products. Lastly, no competitors or customers have
                  raised concerns for this market during the investigation.
        (e)       Conclusion
(288) In view of the above considerations, taking into account the market investigation and
        all the evidence available to it, 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 with respect to antimicrobials for PA under any
        potential market definition.
4.3.3. Anticoccidials
        (a)       Overview of the market and the Parties’ products
(289) As explained in Section 3 above, anticoccidials act against coccidiosis, a parasitic
        disease of the intestinal tract of animals caused by pathogenic coccidia.
(290) The Parties’ products giving rise to Group 1 / 1+ markets are Elanco’s Vecoxan
        indicated for cattle and sheep and BAH’s Baycox product indicated for cattle, sheep
        and swine. Both products are licensed for the prevention rather than treatment of
        coccidiosis.186 These products are principally used to prevent coccidiosis in an entire
186 Only in the UK, Vecoxan is licensed for both prevention and treatment of coccidiosis.
                                                              74
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak--- (309) First, most competitors consider that the Parties are close competitors in
        anticoccidials for cattle and sheep.188 A number of customers also highlighted that
        for ruminant anticoccidials the Parties’ products are the only alternatives or are
        among very few suppliers available189. Moreover, both customers and competitors
        consider BAH and Elanco to be in the top three players in ruminant anticoccidials190.
(310) Second, while the market investigation does confirm the Parties’ claim that generics
        exert pressure on the prices of branded products, generics accounted for less than
        20% of most customers’ PA anticoccidial purchases191. One supplier points out that
        for PA anticoccidials “Generics create price competition but branded products
        benefit from brand loyalty.”
(311) Third, the large majority of competitors consider that entering the EEA markets for
        PA anticoccidials is difficult, with the main barriers to entry cited being R&D costs,
        access to APIs, and the need for large volume production facilities.192.
(312) Fourth, most competitors consider that there is a risk of price increase in ruminant
        anticoccidials as a result of the transaction.193 One supplier notes that “… Elanco &
        Bayer are major providers of … (toltrazuril, diclazuril). There is no alternative
        except generics that are not a lot.”
(313) Lastly, looking at the individual countries, the Commission notes that the
        Transaction leads to high or moderate combined market shares in a number of
        affected markets. More specifically:
          (a)     In Austria: the Parties have high combined market shares in Anticoccidials
                  for cattle and sheep ([80-90]%, with a [40-50]% increment). There are two
                  competitors, even the larger of which has significantly a lower market share
                  ([10-20]%) than the increment.
          (b)     In Belgium: the Parties have high combined market shares in Anticoccidials
                  for cattle and sheep ([80-90]%, with a [30-40]% increment). There is one
                  competitor with a significantly lower market share ([10-20]%) than the
                  increment.
          (c)     In Czechia: the Parties have moderate combined market shares in
                  Anticoccidials for cattle and sheep ([40-50]%, with a [5-10]% increment).
                  There are two competitors, both with higher market shares ([30-40]% and
                  [20-30]%) than the increment.
          (d)     In France: the Parties have high combined market shares in Anticoccidials
                  for cattle and sheep ([70-80]%, with a [10-20]% increment). There are three
                  competitors, all with market shares ([5-10]%, [5-10]%, [5-10]% respectively)
                  lower than the increment.
188 Questionnaire Q1 to competitors (question 91) and Questionnaire Q3 to PA customers (question 35).
189 Questionnaire Q3 to PA customers (question 34).
190 Questionnaire Q1 to competitors (question 87) and Questionnaire Q3 to PA customers (question 32).
191 Questionnaire Q1 to competitors (question 90) and Questionnaire Q3 to PA customers (questions 4, 36).
192 Questionnaire Q1 to competitors (question 93).
193 Questionnaire Q1 to competitors (question 96) and Questionnaire Q3 to PA customers (question 39).
                                                             81
 ---pagebreak---         (e)   In Germany: the Parties have high combined market shares Anticoccidials
              for cattle and sheep ([80-90]%, with a [20-30]% increment). There are two
              competitors, both with significantly lower market shares ([10-20]% and [0-
              5]%) than the increment.
        (f)   In Greece: the Parties have high combined market shares in Anticoccidials
              for cattle and sheep ([60-70]%, with a [0-5]% increment). There are two
              competitors, one with a significantly higher market share ([30-40]%) than the
              increment.
        (g)   In Hungary: the Parties have high combined market shares in Anticoccidials
              for cattle and sheep ([80-90]%, with a [20-30]% increment). There is only
              one competitor, with a lower market share ([10-20]%) than the increment.
        (h)   In Ireland: the Parties have high combined market shares in Anticoccidials
              for cattle and sheep ([80-90]%, with a [10-20]% increment). There is one
              competitor with a lower market share ([10-20]%) than the increment.
        (i)   In the Netherlands: the Parties have high combined market shares in
              Anticoccidials for cattle and sheep ([60-70]%, with a [5-10]% increment).
              There are four competitors, two of which have higher market shares ([10-
              20]% and [10-20]%) than the increment.
        (j)   In Spain: the Parties have moderate combined market shares in
              Anticoccidials for cattle and sheep ([40-50]%, with a [20-30]% increment).
              There are two competitors, one with a higher market share ([50-60]%) than
              the Parties’ combined market share.
        (k)   In the UK: the Parties have high combined market shares in Anticoccidials
              for cattle and sheep ([50-60]%, with a [0-5]% increment). There are two
              competitors, both with significantly higher market shares ([30-40]% and [10-
              20]%) than the increment.
      (e)     Conclusion
(314) The Commission considers that the high market shares, combined with the closeness
      of competition between the Parties’ products, the lack of sufficient competitors and
      the other elements of the market investigation described above, point to a significant
      increase of market power of the merged entity post-Transaction in a number of
      countries. It derives from this assessment that the Transaction raises serious doubts
      as to its compatibility with the internal market, due to its likely horizontal non-
      coordinated effects in Anticoccidials for cattle and sheep in Austria, Belgium,
      France, Germany, Hungary, and Ireland. In the present case, the Commission does
      not need to take a view on the markets in Czechia, Greece, the Netherlands, Spain
      and the UK, as in any event the remedy offered by the Parties covers the full overlap
      on an EEA-wide basis for viability purposes.
                                                82
 ---pagebreak--- 4.4. Innovation
         (a)      The Commission’s assessment
(315) The Commission has assessed whether the Transaction could lead to a reduction in
         innovation competition in relation to the capability to innovate in certain innovation
         spaces, assessing the risk of a significant loss of innovation competition resulting
         from a structural reduction of the overall level of innovation, in line with the four-
         layer competitive assessment framework used in previous decisions.194 This
         assessment has been conducted looking at the general innovation capabilities of the
         Parties and their competitors, over and beyond the competitive situation for specific
         marketed and pipeline products, which have been assessed in detail in the sections
         above.
(316) The market investigation showed that barriers to entry with regards to innovation in
         the animal health sector are high in particular for parasiticides due to substantial
         development costs and the synergies stemming from internal R&D capabilities to
         develop parasiticides for crops in the development of parasiticides for animal
         health.195
(317) This notwithstanding, the Commission found that the Transaction will not result in a
         significant loss of innovation for several reasons.
(318) First, the Parties are well below the top 3 undertakings in term of R&D (i.e. Zoetis,
         Merck, and BI). In particular, the results of the market investigation revealed that:
         (a)      According to the data provided by the Parties, […]. Moreover, the market
                  investigation revealed that the Parties underestimated the R&D expenditure
                  and number of full time employees of several of their competitors. It follows
                  that, post-Transaction, several competitors will have significant resources in
                  terms of budget and number of employees to compete in innovation with the
                  merged entity;
         (b)      BAH has not been a particularly strong innovator in recent years, including in
                  parasiticides. For instance, contrary to its competitors (including also
                  medium size companies), BAH has launched no new parasiticides (based on
                  new molecules) in recent years. In this vein, one of the top competitors
                  explained that “BAH is not considered in the same league as Zoetis, BI,
                  Merck and Elanco in terms of innovation” and explained that animal health
                  was no longer a priority of Bayer.196 This is indeed confirmed by Bayer’s
                  decision to exit the animal health business;
         (c)      Customers perceive Merck, Zoetis and Boehringer as the strongest innovators
                  in animal health and in parasiticides in particular, while Elanco, BAH and
                  Ceva would be number four, five and six respectively.197
194 See paragraph 138 and foonote 119 above.
195 Questionnaires Q1 to Competitors, non-confidential replies to questions 127 and 128.
196 Questionnaires Q1 to Competitors, non-confidential replies to question 124.
197      Questionnaires Q2 to Customers, non-confidential replies to question 55 and Questionnaire Q3 to Customers,
    non-confidential replies to question 60.
                                                              83
 ---pagebreak--- (319) Second, the market investigation showed that medium-size companies have the
         capability to develop new products in all relevant product categories concerned by
         this Transaction, including parasiticides. In fact, thirteen companies indicated they
         would be capable of developing new originator products based on new molecules or
         active ingredients and fourteen companies have the capabilities to develop new
         products based on life cycle management.198 The market investigation revealed that
         medium-size companies (without internal crop R&D) have the possibility to
         conclude partnerships with third-parties. In fact, in recent years, several parasiticides
         originator products have been launched to the market by medium-size companies,
         such as Ceva, Fatro or Beaphar.199
(320) Finally, the overwhelming majority of customers and competitors indicated that the
         impact of the Transaction in R&D and innovation would be neutral or positive. In
         fact, some of the most important competitors believe that the Transaction may create
         synergies and lead to faster development of products.200
         (b)       Conclusion
(321) Based on the above considerations, taking into account the market investigation and
         all the evidence available to it, the Commission concludes that the Transaction does
         not raise serious doubts as to its compatibility with the internal market or the
         functioning of the EEA agreement in relation to effects on innovation.
5.    COMMITMENTS
 5.1.    Framework for the assessment of the Commitments
(322) Where a notified concentration raises serious doubts as to its compatibility with the
         internal market, the parties may undertake to modify the concentration to remove the
         grounds for the serious doubts identified by the Commission. Pursuant to Article
         6(2) of the Merger Regulation, where the Commission finds that, following
         modification by the undertakings concerned, a notified concentration no longer
         raises serious doubts, it shall declare the concentration compatible with the internal
         market pursuant to Article 6(1)(b) of the Merger Regulation.
(323) As set out in the Commission's Remedies Notice,201 the commitments have to
         eliminate the competition concerns entirely, and have to be comprehensive and
         effective from all points of view.202
(324) In assessing whether commitments will maintain effective competition, the
         Commission considers all relevant factors, including the type, scale and scope of the
         proposed commitments with reference to the structure and the particular
         characteristics of the market in which the Transaction is likely to significantly
198 Questionnaires Q1 to Competitors, non-confidential replies to question 116.
199      Questionnaires Q1 to Competitors, non-confidential replies to question 117.
200 Questionnaires Q2 to Customers, non-confidential replies to question 55; Questionnaires Q3 to Customers, non-
    confidential replies to question 61; and Questionnaires Q1 to Competitors, non-confidential replies to question 129.
201 Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission
    Regulation (EC) No 802/2004 (OJ C 267, 22.10.2008, p. 1-27), the "Remedies Notice".
202 Remedies Notice, paras. 9 and 61.
                                                                84
 ---pagebreak---       impede effective competition, including the position of the Parties and other
      participants on the market.203
(325) In order for the commitments to comply with those principles, they must be capable
      of being implemented effectively within a short period. Concerning the form of
      acceptable commitments, the Merger Regulation gives discretion to the Commission
      as long as the commitments meet the required standards. Structural commitments
      will meet the conditions set out above only in so far as the Commission is able to
      conclude with the requisite degree of certainty, at the time of its Decision, that it will
      be possible to implement them and that it will be likely that the new commercial
      structures resulting from them will be sufficiently workable and lasting to ensure that
      effective competition will be maintained.204 Divestiture commitments are normally
      the best way to eliminate competition concerns resulting from horizontal overlaps.
(326) The divested activities must consist of a viable business that, if operated by a
      suitable purchaser, can compete effectively with the merged entity on a lasting basis
      and that is divested as a going concern. The business must include all the assets
      which contribute to its current operation or which are necessary to ensure its viability
      and competitiveness and all personnel which are currently employed or which are
      necessary to ensure the business' viability and competitiveness.205
(327) The intended effect from the divestiture will only be achieved if and once the
      business is transferred to a suitable purchaser in whose hands it will become an
      active competitive force in the market. The potential of a business to attract a
      suitable purchaser is an important element of the Commission's assessment of the
      appropriateness of the proposed commitment.206
(328) Even though normally the divestiture of an existing viable stand-alone business is
      required, the Commission, by observing the principle of proportionality, may also
      advise the Parties to consider the divestiture of businesses which have existing
      strong links or are partially integrated with businesses retained by the parties and
      therefore need to be ‘carved out’ in those respects. Conversely, carving-out a
      business from the scope of the commitments can only be accepted by the
      Commission if it can be certain that, at least at the time when the business is
      transferred to the purchaser, a viable business on a stand-alone basis will be divested
      and the risks for the viability and competitiveness caused by the carve-out will
      thereby be reduced to a minimum.
 5.2. Procedure
(329) In order to render the concentration compatible with the internal market, the Parties
      have submitted a set of commitments under Article 6(2) of the Merger Regulation on
      13 May 2020 (the "Initial Commitments"). The Commission market tested the Initial
      Commitments on 14 May 2020 in order to assess whether they were sufficient and
      suitable to remedy the serious doubts identified at Section 4 above. Following the
      feedback received from market test, amended commitments were submitted on 3
203   Remedies Notice, para. 12.
204   Remedies Notice, para. 10.
205   Remedies Notice, paras. 23-25.
206   Remedies Notice, para. 47.
                                                 85
 ---pagebreak---          June 2020 (the “Final Commitments”). The Final Commitments are annexed to this
         Decision207 and form an integral part thereof.
 5.3.    The Initial Commitments
5.3.1. Description of the Initial Commitments
(330) The Initial Commitments are set out in two submissions: the “Main Commitments”
         and the “Additional Commitments”.
(331) Under the Main Commitments, the Parties offered the divestiture of the following
         products (together referred as the “Main Divestment Businesses”):
           (i)       Elanco’s VECOXAN (anticoccidials for ruminants) at global level (the
                     “Anticoccidials Divestment Business”);
           (ii)      Elanco’s OSURNIA (long lasting otitis treatment) at global level (the
                     “Otitis Divestment Business”); and
           (iii)     BAH’s Drontal and Profender family of products208 (CA endoparasiticides)
                     at EEA level (the “Parasiticides Divestment Business”).
(332) The Main Commitments provide that the divestiture of the Anticoccidial Divestment
         Business, the Otitis Divestment Busines and the Parasiticide Divestment Business
         would be implemented by way of asset sales and that each of them may be sold to
         different suitable purchasers (the “Purchaser(s)”). The Main Divestment Businesses
         would include all rights, title, and interest in the concerned products (including the
         rights to develop, improve, manufacture, commercialise and distribute these
         products), as well as all the assets that are necessary to ensure its viability, in
         particular: (i) all contracts related to these products (such as supply and distribution
         agreements); (ii) all licences, product registrations and authorisations; (iii) all
         intellectual property rights related to the development, manufacturing and
         exploitation of the concerned products; (iv) all customer orders and records and (v)
         all other tangible and intangible assets (e.g., inventory, regulatory files, books and
         records). At the option of the Purchaser(s), the Main Divestment Businesses would
         also include staff currently employed by the Main Divestment Businesses (the
         “Personnel”). Furthermore, with the aim of ensuring a smooth transfer of the Main
         Divestment Businesses, the Parties committed to offer a number of transitional
         supply arrangements to the Purchaser(s).
(333) In addition to the standard purchaser requirements contained in the Commission’s
         template for divestiture remedies, the Main Commitments provide that the
         Purchaser(s) must have: (i) established capabilities or a track record in the
         manufacture, marketing and distribution of animal health products in the EEA; (ii)
         adequate manufacturing and regulatory capabilities to successfully implement a
         production transfer in relation to the Main Divestment Businesses (where relevant);
         (iii) sufficient R&D ressources and experience to develop the relevant pipeline
207 See Annex II, which comprises two parts: part 1 includes the Final Main Commitments ("Annex II.1") and part 2
    includes the Final Additional Commitments ("Annex II.2").
208 Including the following products: Drontal (Cat), Drontal Plus (Dog), Drontal Puppy/Welpan (Dog), Droncit Injectable
    (Cat and Dog) / Spot On (Cat) / Tablet (Cat and Dog); Profender Spot-on (Cat) / Tablet (Dog), Dronspot (Cat), and
    Procox (Dog).
                                                               86
 ---pagebreak---          products included in the scope of the Main Divestment Businesses (where relevant);
         (iv) complementary products and expertise to the Main Divestment Businesses.
(334) Furthermore, the Main Commitments provide for an upfront buyer provision
         pursuant to which the Transaction cannot be implemented until the Commission has
         given its approval to the purchase of the Main Divestment Businesses by the
         Purchaser(s).
(335) Under the Additional Commitments, the Parties offered to divest globally to one
         or several Purchaser(s) BAH isox pipelines, comprising […] (together referred as the
         “ESP Divestment Business”) or, alternatively, Elanco’s marketed and pipeline isox
         products […] at EEA level (the “Alternative Divestment Business”).209 […],210 […].
         The Parties would be obliged to implement the Alternative Divestment Business if
         they are not able to implement the divestiture of the BAH Divestment Business
         within the time frame of the first Divestiture Period.211
(336) The ESP Divestment Businesses, or the Alternative Divestment Business (as
         applicable), would be divested by way of asset sales. They would include all rights,
         title, and interests to develop, improve, manufacture and commercialise the products
         concerned, as well as all the assets necessary to ensure their viability (insofar as they
         relate to the ESP Divestment Business or the Alternative Divestment Business), in
         particular: (i) all contracts related to these products; (ii) all product licences, permits,
         registrations and authorisations; (iii) all intellectual property rights related to to the
         development, improvement, manufacturing and exploitation of the concerned
         products; and (iv) all other tangible and intangible assets (e.g., inventory, regulatory
         files, books and records). In addition, the ESP Divestment Business includes certain
         employees working on the development of BAH’s isox pipeline (the “Key
         Personnel”). Furthermore, with the aim of ensuring a smooth transfer of the ESP
         Divestment Business, or the Alternative Divestment Business (as applicable), the
         Parties committed to offer a number of transitional supply arrangements to the
         Purchaser.
(337) Moreover, at the option of the Purchaser(s), the ESP Divestment Businesses, or the
         Alternative Divestment Business (as applicable), would also include personnel.212
(338) […].
(339) In addition to the standard purchaser requirements contained in the Commission’s
         template for divestiture remedies, the Additional Commitments provide that the
         Purchaser(s) must have: (i) established capabilities or a track record in the clinical
         development of animal health products in the EEA (including with regard to having
         interactions with relevant EEA-wide or national bodies that decide on approval of
         animal health products); (ii) established capabilities or a track record in the
209 […]. For more details, see Table 7 in Section 4.2.1.3(a) above.
210 […].
211 The Anticcocidials Divestment Business, the Otitis Divestment Business, the Parasiticides Divestment Business, as
    well as the ESP Divestment Business and the Alternative Isox Divestment Business are together referred as the
    “Divestment Businesses”. In addition, with regard to the scope of the Parties’ obligation to implement the Alternative
    Divestment Business, paragraph 2 of the Additional Commitments provides that, should Elanco not enter into a final
    binding sale and purchase agreement for the sale of the ESP Divestment Business by the end of the first Divestiture
    Period, it shall sell the Alternative Divestment Business.
212 Paragrapghs 9 and 18 of the Additional Commitments.
                                                               87
 ---pagebreak---         manufacture, commercialisation and distribution of animal health products in the
        EEA; (iii) sufficient R&D ressources and experience to develop the relevant pipeline
        products included in the scope of the ESP Divestment Business or, if applicable, the
        Alternative Divestment Business; (iv) complementary products and expertise to the
        ESP Divestment Business or, if applicable, the Alternative Divestment Business.
5.3.2. Assessment of the Initial Commitments
(340) The Commission analysed the suitability of the Initial Commitments to remedy the
        serious doubts raised by the Transaction, in particular under the principles set out in
        the Commission Remedies Notice. In its assessment, the Commission relied inter
        alia on the results of the market test launched on 14 May 2020.
        (a)        The Initial Commitments appear generally capable to address the competition
                   concerns identified in Section 4.
(341) For the reasons set out below, the Commission considers that the Initial
        Commitments appear generally capable to fully address the competition concerns
        identified in Section 4.
(342) First, respondents to the market test were generally positive about the Initial
        Commitments and confirmed that they are suitable to eliminate the competition
        concerns identified by the Commission.213
(343) Second, in terms of scope, the vast majority of market participants considered that
        the Divestment Businesses contain all the necessary assets to remain a viable and
        competitive force in the relevant markets.214 In fact, virtually all market participants
        generally consider that the divestiture of the Divestment Businesses will not result in
        a reduction of their sales.215 More specifically, competitors confirmed that no
        transfer of other assets or personnel is needed to ensure the viability and
        competitiveness of the Divestment Businesses, other than the Key Personnel of ESP
        Divestment Business. In this respect, competitors confirmed that the Key Personnel
        as identified in the Additional Commitments covered all the necessary roles.216
(344) Third, the results of the market test confirmed that all the Divestment Businesses are
        attractive businesses.217 In particular, many competitors expressed interest in the
        acquisition of either the ESP Divestment Business or the Alternative Divestment
        Business.218
(345) Fourth, the results of the market test confirmed the relevance of the purchaser
        requirements included in the Initial Commitments. Indeed, respondents consider
        almost unanimously that the Purchaser Criteria are sufficient to ensure the
213 Market test of the Initial Commitments (R1, R2 and R3).
214 Questionnaires R1 to Competitors (questions 1, 11, 21 and 31); R2 to CA Customers (questions 1, 4 and 7); and R3 to
    PA Customers (question 1).
215 Questionnaires R1 to Competitors (questions 6, 16 and 26); and R2 to CA Customers (questions 13 and 15); and R3 to
    PA Customers (question 6).
216 Questionnaire R1 to Competitors (question 2, 12, 22, 32 and 33).
217 Questionnaire R1 to Competitors (questions 3, 13, 23 and 34).
218 Questionnaire R1 to Competitors (questions 35.1 and 35.2).
                                                              88
 ---pagebreak---         Purchaser(s) is/are able to compete actively and effectively in the relevant
        markets.219
(346) Fifth, virtually all competitors consider that the proposed transitional agreements
        provided for in the Initial Commitments were sufficient, both in terms of scope and
        duration, to ensure a smooth transfer of the Divestment Businesses.220
(347) Finally, respondents to the market test were generally positive about the Initial
        Commitments and confirmed, almost unanimously, that the sales of the Divestment
        Businesses would be sufficient to solve any competition concerns arising from the
        Transaction in the relevant markets.221
        (b)       Shortcomings of the Initial Commitments
(348) Nonetheless, the results of the market test also identified a few issues with the Initial
        Commitments requiring further improvements in order to make the Parasiticides
        Divestment Business and the Additional Divestment Business viable and
        competitive. The market test did not identify any shortcomings with regards to the
        Otitis Divestment Business or the Anticoccidials Divestment Business. On the basis
        of the results of the Market Test, the Commission considered the following
        amendments to the Initial Commitments to be necessary.
(349) As regards the Parasiticides Divestment Business, the market test revealed that
        the […] Pipeline is closely related to one of the […] products included in the
        Parasiticides Divestment Business, namely […]. Indeed, the […] pipeline product is
        […]. As a result, the […] pipeline product is expected to closely compete with […].
        Taking these considerations into account, some respondents to the market test […]
        and indicated that this product should be divested together with […] to ensure the
        viability of the Parasiticides Divestment Business ([…]). In particular, one
        competitor indicated that “the only possibility to remove them [the competition
        concerns] completely is to couple the sale of the Endoparasiticides Divestment
        Business and of […]”.222 […].223
(350) Moreover, the market test also revealed that the […] Pipeline is very advanced, the
        drug having reached the final process of registration, with only a few ongoing
        studies, and that the marketing authorisation of the […] pipeline could be
        jeopardized without the support of BAH to finalise the ongoing studies and the final
        process with the EMA.
(351) As regards the Additional Commitments, and more specifically the Alternative
        Divestment Business, the Commission considered that (i) additional safeguards were
        needed to ensure that the development of the pipeline products included in the
        Alternative Divestment Business (which is conducted under the supervision of the
        Purchaser and the Monitoring Trustee) and that (ii) to ensure the viability of the
219 Questionnaires R1 to Competitors (questions 4, 14, 24 and 38); R2 to CA Customers (question 11); and R3 to PA
    Customers (question 4).
220 Questionnaire R1 to Competitors (questions 7, 17, 27 and 39).
221 Questionnaires R1 to Competitors (questions 10, 20 and 30); R2 to CA Customers (question 3, 6 and 8); and R3 to PA
    Customers (question 3).
222 Questionnaire R1 to Competitors (question 30).
223 […].
                                                              89
 ---pagebreak---        Alternative Divestment Business, all the obligations for the interim period (e.g.,
       preservation of viability, ring fencing mechanism, hold-separate manager) (the
       “Interim Obligations”) should apply to the Alternative Divestment Business from the
       date of the adoption of the present Decision (the “Effective Date”).
 5.4.  The Final Commitments
(352) In order to address the shortcomings discussed in Section 5.3, the Parties submitted
       the Final Commitments, on 3 June 2020.
5.4.1. Description of the Final Commitments
(353) The Final Commitments are set out in two submissions: the “Final Main
       Commitments” and the “Final Additional Commitments”.
(354) With regards to the Parasiticides Divestment Business, the Final Commitments
       include the following improvements:
       (a)     The […] Pipeline is now part of the Parasiticides Divestment Business
               and will be sold to the same Purchaser together with all assets included in the
               Initial Commitments with regards to the Parasiticides Divestment Business.
       (b)     The Final Commitments include an obligation for the Parties to support the
               Purchaser of the Parasiticides Divestment Business […].
(355) With regards to the Additional Divestment Business, the Final Commitments include
       the following improvements:
       (a)     Enhanced safeguards for the Alternative Divestment Business in relation
               to the development of the pipeline products included in the Alternative
               Divestment Business. In particular: (i) the clinical development will be
               conducted under the supervision of the Purchaser, as well as the Monitoring
               Trustee; (ii) Elanco should devote sufficient resources in terms of budget and
               personnel, specifically, to conclude the clinical development phase without
               delays; (iii) the Purchaser will be granted a final say on all decisions related
               to the clinical development of the pipeline, which could impact the
               development and entry into market of the products in the EEE and; (iv) the
               Final Commitments provide for a fast-track dispute resolution mechanism in
               case of disputes between Elanco and the Purchaser in relation to the
               development of the the above-mentioned pipeline products.
       (b)     Interim Obligations will be applicable to the Alternative Divestment
               Business as of the Effective Date. All the obligations for the interim period
               (e.g., preservation of viability, ring fencing mechanism, hold-separate
               manager) apply to the Alternative Divestment Business from the Effective
               Date.
5.4.2. Assessment of the Final Commitments
(356) The Commission considers that these amendments adequately address the concerns
       raised by the market test respondents and the Commission itself in relation to the
       Initial Commitments. The Commission notes in particular that the changes done to
                                                  90
 ---pagebreak---        the Initial Commitments as described in Section 5.3, contributes to the viability and
       competitiveness of the Divestment Businesses.
(357) On the basis of the above, the Commission concludes that the Divestment
       Businesses are viable businesses and the modalities foreseen for their transfer under
       the Final Commitments will allow suitable Purchaser(s) to operate them in a
       competitive and viable manner.
(358) The Final Commitments fully address the competition concerns identified in the
       Decision as they remove the overlap between Elanco and BAH in all markets where
       serious doubt arise.
(359) Moreover, the Final Commitments are comprehensive, effective, and are capable of
       being implemented effectively within a short period of time.
5.4.3. Conclusion
(360) Based on the reasoning in Sections 5.3 and 5.4 and taking into consideration the
       results of the market test, the Commission therefore considers that the Final
       Commitments are sufficient to eliminate all serious doubts as to the compatibility of
       the Transaction with the internal market and the EEA Agreement.
 5.5.  Conditions and obligations
(361) Under the first sentence of the second subparagraph of Article 6(2) of the Merger
       Regulation, the Commission may attach to its decision conditions and obligations
       intended to ensure that the undertakings concerned comply with the commitments
       they have entered into vis-à-vis the Commission with a view to rendering a notified
       concentration compatible with the internal market.
(362) The achievement of the measure that gives rise to the structural change of the market
       is a condition, whereas the implementing steps which are necessary to achieve this
       result are generally obligations on the Parties. Where a condition is not fulfilled, the
       Commission’s decision declaring the concentration compatible with the internal
       market no longer stands. Where the undertakings concerned commit a breach of an
       obligation, the Commission may revoke the clearance decision in accordance with
       Article 8(6) of the Merger Regulation. The undertakings concerned may also be
       subject to fines and periodic penalty payments under Articles 14(2) and 15(1) of the
       Merger Regulation.
(363) In accordance with the distinction described above, this Decision in this case is
       conditioned on the full compliance with the requirements set out in Section B or
       Section C, as the case may be, of the Final Commitments (including the Schedules),
       which constitute conditions. The remaining requirements set out in the other sections
       of the Final Commitments constitute obligations on the Parties.
(364) The detailed text of the Final Commitments is annexed to this Decision. The full text
       of the Final Commitments forms an integral part of this Decision.
                                                 91
 ---pagebreak--- 6. CONCLUSION
(365) For the above reasons, the Commission has decided not to oppose the notified
      operation as modified by the Final Commitments and to declare it compatible with
      the internal market and with the functioning of the EEA Agreement, subject to full
      compliance with the conditions in Section B (or Section C as applicable) (including
      the Schedules) of the Final Commitments annexed to this Decision and with the
      obligations contained in the other sections of the said Final Commitments. This
      Decision is adopted in application of Article 6(1)(b) in conjunction with Article 6(2)
      of the Merger Regulation and Article 57 of the EEA Agreement.
                                                    For the Commission
                                                    (Signed)
                                                    Margrethe VESTAGER
                                                    Executive Vice-President
                                               92
 ---pagebreak---                                      Annex 1
2016 - 2019 market share data base of affected potential segments (in 2016-18 and/or
                                       2019)
                                        […]
 ---pagebreak---                      Case M.9554 – Elanco / Bayer Animal Health
                COMMITMENTS TO THE EUROPEAN COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (the “Merger Regulation”),
Elanco Animal Health Inc. (“Elanco”) and Bayer AG (together with its affiliates referred to as
“Bayer”) (the “Parties”, each a “Party”) hereby enter into the following Commitments (the
“Commitments”) vis-à-vis the European Commission (the “Commission”) with a view to
rendering Elanco’s acquisition of Bayer’s animal health business (“Bayer Animal Health” or
“BAH”) (the “Concentration”) compatible with the internal market and the functioning of the
EEA Agreement. The Commitments bind Bayer only in so far as necessary with regard to
actions that must be taken by Bayer with regards to the Parasiticides Divestment Business (as
defined below).
This text shall be interpreted in light of the Commission’s decision pursuant to Article 6(1)(b) of
the Merger Regulation to declare the Concentration compatible with the internal market and the
functioning of the EEA Agreement (the “Decision”), in the general framework of European
Union law, in particular in light of the Merger Regulation, and by reference to the Commission
Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under
Commission Regulation (EC) No 802/2004 (the “Remedies Notice”).
        SECTION A.       DEFINITIONS
1.      For the purpose of the Commitments, the following terms shall have the following
        meaning:
        Affiliated Undertakings: undertakings controlled by the Parties and/or by the ultimate
        parents of the Parties, whereby the notion of control shall be interpreted pursuant to
        Article 3 of the Merger Regulation and in light of the Commission Consolidated
        Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of
        concentrations between undertakings (the "Consolidated Jurisdictional Notice").
        Anticoccidials Divestment Business: the Divestment Business described in more
        detail in Schedule 1.
        API: active pharmaceutical ingredient(s).
        Assets: the tangible and intangible assets that contribute to the current operation or are
        necessary to ensure the viability and competitiveness of the Divestment Businesses
        including but not limited to the assets in Section B, paragraphs 6.1, 6.2, and 6.3 and
        described in more detail in the Schedules.
        Best Efforts: Best effort obligations shall be interpreted in light of the Commission's
        decision pursuant to Article 6(1)(b) of the Merger Regulation to declare the
        Concentration compatible with the internal market and the functioning of the EEA
        Agreement, the Merger Regulation and the general principles of EU law. Any
        interpretation that may be given to this term under the law of other jurisdictions is not
        relevant solely for the purpose of interpreting and/or implementing the Commitments.
 ---pagebreak--- Closing: the transfer of the legal title to the Divestment Businesses to the Purchaser(s).
Closing Period: For each Divestment Business the period of […] from the approval of
the Purchaser and the terms of sale by the Commission for that Divestment Business.
Confidential Information: any business secrets, know-how, commercial information, or
any other information of a proprietary nature that is not in the public domain.
Conflict of Interest: any conflict of interest that impairs the Trustee's objectivity and
independence in discharging its duties under the Commitments.
Contract: any written contract, agreement, lease, sublease, licence, sub-licence or
other legally binding commitment or arrangement.
Divestment Businesses: the businesses as defined in Section B and in the Schedules
which Elanco commits to divest, and “Divestment Business” shall mean any one of the
Divestment Businesses, as relevant.
Divestiture Trustee: one or more natural or legal person(s) who is/are approved by the
Commission and appointed by Elanco and who has/have received from Elanco the
exclusive trustee mandate to sell the Divestment Businesses to one or more Purchasers
at no minimum price.
Effective Date: the date of adoption of the Decision.
Endectocide Assets: part of the Parasiticides Divestment Business, described in
further detail in Part 2 of Schedule 3.
Endoparasiticides Assets: part of the Parasiticides Divestment Business, described in
further detail in Part 1 of Schedule 3.
Field: means animal health.
First Divestiture Period: the period of […] from the Effective Date.
Hold Separate Manager(s): the person(s) appointed by Elanco and/or Bayer (as
relevant) for the Divestment Businesses to manage the day-to-day business under the
supervision of the Monitoring Trustee.
Key Personnel: all personnel necessary to maintain the viability and competitiveness of
the Endectocide Assets, as listed in Schedule 3.
Monitoring Trustee: one or more natural or legal person(s) who is/are approved by the
Commission and appointed by Elanco, and who has/have the duty to monitor the
Parties’ compliance with the conditions and obligations attached to the Decision.
Otitis Divestment Business: the Divestment Business described in more detail in
Schedule 2.
                                               2
 ---pagebreak---    Overlapping Retained Business: (a) in the case of Personnel of the Anticoccidials
   Divestment Business, any business to be retained by Elanco that is related to
   anticoccidials for lambs and calves; (b) in the case of Personnel of the Otitis Divestment
   Business, any business to be retained by Elanco that is related to long-lasting canine
   otitis externa treatments; (c) in the case of Personnel of the Parasiticides Divestment
   Business, any business to be retained by the Parties that is related to canine and/or
   feline parasiticides (or in the case of Key Personnel, any business to be retained by the
   Parties that is related to canine and/or feline isoxazoline or isoxazoline-like
   parasiticides).
   Parasiticides Divestment Business: the Divestment Business described in more
   detail in Schedule 3, including both the Endoparasiticides Assets and the Endectocide
   Assets.
   Personnel: all staff currently employed by the Divestment Businesses, including staff
   seconded to the Divestment Business and shared personnel.
   Purchaser(s): one or more entities approved by the Commission as the acquirer(s) of
   the Divestment Businesses in accordance with the criteria set out in Section D. For the
   avoidance of doubt, (i) the Anticoccidials Divestment Business cannot be split and shall
   be sold to one entity approved by the Commission; (ii) the Otitis Divestment Business
   cannot be split and shall be sold to one entity approved by the Commission; and (iii) the
   Parasiticides Divestment Business cannot be split and shall be sold to one entity
   approved by the Commission.
   Purchaser Criteria: the criteria laid down in paragraph 21 of these Commitments that
   the Purchaser(s) must fulfil in order to be approved by the Commission.
   Schedules: the schedules to these Commitments describing more in detail the
   Divestment Businesses.
   Trustee(s): the Monitoring Trustee and/or the Divestiture Trustee as the case may be.
   Trustee Divestiture Period: the period of […] from the end of the First Divestiture
   Period.
   SECTION B. THE            COMMITMENT        TO    DIVEST    AND     THE    DIVESTMENT
   BUSINESSES
   Commitment to divest
2. In order to maintain effective competition, Elanco commits to divest, or procure the
   divestiture of, each of the Divestment Businesses by the end of the Trustee Divestiture
   Period as a going concern to a Purchaser or Purchasers and on terms of sale approved
   by the Commission in accordance with the procedure described in paragraph 22 of
   these Commitments. To carry out the divestiture, Elanco commits to find a Purchaser or
   Purchasers and to enter into a final binding sale and purchase agreement or
   agreements for the sale of the Divestment Businesses by the end of the First Divestiture
   Period. If Elanco has not entered into such an agreement at the end of the First
   Divestiture Period in relation to any Divestment Business, Elanco shall grant the
                                                3
 ---pagebreak---     Divestiture Trustee an exclusive mandate to sell the relevant Divestment Business in
    accordance with the procedure described in paragraph 34 in the Trustee Divestiture
    Period.
3.  The Concentration shall not be implemented before Elanco or the Divestiture Trustee
    has entered into a final binding sale and purchase agreement or agreements for the
    sale of the Divestment Businesses and the Commission has approved these
    Purchaser(s) and the terms of sale in accordance with paragraph 21.
4.  Elanco shall be deemed to have complied with this commitment if:
    (i)      By the end of the Trustee Divestiture Period, Elanco or the Divestiture Trustee
             has entered into a final binding sale and purchase agreement or agreements
             and the Commission approves the proposed Purchaser(s) and the terms of sale
             as being consistent with the Commitments in accordance with the procedure
             described in paragraph 21; and
    (ii)     The Closing of the sale of the Divestment Businesses to the Purchaser(s) takes
             place within the Closing Period.
5.  In order to maintain the structural effect of the Commitments, Elanco shall, for a period
    of 10 years after Closing, (i) not acquire, whether directly or indirectly, the possibility of
    exercising influence (as defined in paragraph 43 of the Remedies Notice, footnote 3)
    over the whole or part of the Divestment Businesses or (ii) not market generic versions
    of the divestment products, unless, following the submission of a reasoned request from
    Elanco showing good cause and accompanied by a report from the Monitoring Trustee
    (as provided in paragraph 48 of these Commitments), the Commission finds that the
    structure of the market has changed to such an extent that the absence of influence
    over the Divestment Businesses is no longer necessary to render the proposed
    Concentration compatible with the internal market.
    Structure and definition of the Divestment Businesses
6.  The Divestment Businesses comprise:
6.1 The Anticoccidials Divestment Business, as described in more detail in Schedule 1,
    which includes all assets that contribute to the current operation or are necessary to
    ensure the viability and competitiveness of the Anticoccidials Divestment Business
    globally, inter alia:
    (i)      All contracts related exclusively or primarily to the Anticoccidials Divestment
             Business and, according to the Purchaser’s needs, the rights and benefits of the
             relevant portion of contracts that are material and/or necessary to, but not
             exclusively or primarily related to, the Anticoccidials Divestment Business to the
             extent they are capable of being assigned. Elanco undertakes to use Best
             Efforts to obtain all necessary third-party consents where applicable;
    (ii)     All Assets;
                                                   4
 ---pagebreak---     (iii)   All licences, product registrations and authorisations issued by governmental
            organisations or other bodies for the benefit of the Anticoccidials Divestment
            Business;
    (iv)    All intellectual property and intellectual property rights (including product-
            specific know-how), which are owned, maintained, used and/or controlled by
            Elanco (as applicable), and related to the development, manufacturing and
            exploitation of the divestment products in the Field or for the maintenance of the
            product registrations being transferred;
    (v)     All customer orders and customer records of the Anticoccidials Divestment
            Business; and
    (vi)    The benefit of transitional arrangements to ensure the viability and
            competitiveness of the Anticoccidials Divestment Business for a transitional
            period following Closing.
6.2 The Otitis Divestment Business, as described in more detail in Schedule 2, which
    includes all assets that contribute to the current operation or are necessary to ensure
    the viability and competitiveness of the Otitis Divestment Business globally, inter alia:
    (i)     All contracts related exclusively or primarily to the Otitis Divestment Business
            and, according to the Purchaser’s needs, the rights and benefits of the relevant
            portion of contracts that are material and/or necessary to, but not exclusively or
            primarily related to, the Otitis Divestment Business to the extent they are
            capable of being assigned Elanco undertakes to use Best Efforts to obtain all
            necessary third-party consents where applicable;
    (ii)    All Assets;
    (iii)   All licences, product registrations and authorisations issued by governmental
            organisations or other bodies for the benefit of the Otitis Divestment Business;
    (iv)    All intellectual property and intellectual property rights (including product-
            specific know-how), which are owned, maintained, used and/or controlled by
            Elanco (as applicable), and related to the development, manufacturing and
            exploitation of the divestment products in the Field or for the maintenance of the
            product registrations being transferred;
    (v)     All customer orders and customer records of the Otitis Divestment Business;
            and
    (vi)    The benefit of transitional arrangements to ensure the viability and
            competitiveness of the Otitis Divestment Business for a transitional period
            following Closing.
6.3 The Parasiticides Divestment Business, as described in more detail in Schedule 3,
    which includes all assets that contribute to the current operation or are necessary to
    ensure the viability and competitiveness of the Parasiticides Divestment Business
                                                 5
 ---pagebreak--- including the Endoparasiticides Assets in the EEA/UK and the Endectocide Assets
globally, for which purposes:
(i)      The Endoparasiticides Assets include inter alia:
         (a)      All contracts related exclusively or primarily to the Endoparasiticides
                  Assets and, according to the purchaser’s needs, the rights and benefits
                  of the relevant portion of contracts that are material and/or necessary
                  to, but not exclusively or primarily related to, the Endoparasiticides
                  Assets to the extent they are capable of being assigned Elanco/BAH
                  undertake to use Best Efforts to obtain all necessary third-party
                  consents where applicable;
         (b)      All Assets;
         (c)      All licences, product registrations and authorisations issued by
                  governmental organisations or other bodies for the benefit of the
                  Endoparasiticides Assets;
         (d)      All intellectual property and intellectual property rights (including
                  product-specific know-how), which are owned, maintained and/or
                  control by the Parties (as applicable), and related to the development,
                  manufacturing and exploitation of the divestment products in the Field in
                  the EEA/UK or for the maintenance of the product registrations being
                  transferred;
         (e)      All customer orders and customer records of the Endoparasiticides
                  Assets; and
         (f)      The benefit of all transitional arrangements (including a transitional
                  manufacture and supply agreement, pending completion of the
                  technology transfer) that are necessary to ensure the viability and
                  competitiveness of the Endoparasiticides Assets for a transitional period
                  following Closing.
(ii)     The Endectocide Assets include inter alia:
         (a)      All rights, title and interests to develop, improve, manufacture and
                  commercialise (including the right to conduct the ongoing clinical trials
                  for) the products concerned for use in the Field;
         (b)      All contracts related exclusively or primarily to the Endectocide Assets
                  and, according to the Purchaser’s needs, the rights and benefits of the
                  relevant portion of contracts that are material and/or necessary to, but
                  not exclusively or primarily related to, the Parasiticide Divestment
                  Business to the extent they are capable of being assigned. Elanco
                  undertakes to use Best Efforts to obtain all necessary third party
                  consents where applicable;
         (c)      All Assets;
                                              6
 ---pagebreak---             (d)    Key Personnel;
            (e)    All product licences, permits, authorisations and registrations
                   (“regulatory approvals”) for the products concerned as, and all other
                   product registrations or regulatory approvals to the extent exclusively or
                   primarily relating to the products concerned for use in the Field;
            (f)    All intellectual property and intellectual property rights (including
                   product-specific know-how) which are owned, maintained, used and /or
                   controlled by Bayer (as applicable) and related to the development,
                   improvement, manufacturing and commercialisation of the products
                   concerned for use in the Field or for the maintenance of the regulatory
                   approvals being transferred;
            (g)    All customer orders and customer records of the Endectocide Assets;
                   and
            (h)    The benefit of transitional arrangements, including an R&D and
                   regulatory transitional service agreement, transitional manufacturing
                   and supply services, and a technology transfer (including know-how) to
                   the Purchaser(s), to ensure the viability and competitiveness of the
                   Endectocide Assets for a transitional period of […] following Closing
                   […], to ensure the smooth transfer of the Endectocide Assets.
7. All the Assets, which are necessary to, but not exclusively or primarily related to, the
   viability and competitiveness of the Divestment Business(es) and also relate to
   products/businesses retained by the Parties, shall also be transferred to the
   Purchaser(s) but only to the extent they relate to the Divestment Business(es) (and at
   the Purchaser’s option). In the event that materials to be transferred to the Purchaser(s)
   pursuant to the Commitments contain information that is confidential to the
   Elanco/BAH’s retained businesses and not relevant to the Divestment Business(es), the
   information shall be redacted as appropriate.
8. For the sake of clarity, with the exception of the Otitis Divestment Business, the
   Divestment Businesses shall not include any physical production assets, equipment or
   manufacturing units owned or operated by Elanco or the Parties (as applicable).
   Further, the Divestment Businesses shall not include any Personnel (save for Key
   Personnel and as provided for at paragraph 9 below).
9. At the option of the Purchaser(s), the Divestment Business(es) will include the
   Personnel who would reasonably be considered necessary to maintain the viability,
   marketability and competitiveness of the Divestment Business(es). The exercise of
   such option shall be supervised by the Monitoring Trustee and subject to applicable
   local employment legislation and employee consent. Should Elanco not agree with the
   request of the Purchaser, the Monitoring Trustee shall prepare a reasoned opinion
   within 7 working days and the Commission shall ultimately decide on the merits of the
   Purchaser proposal.
                                                7
 ---pagebreak--- 10. The sale of each Divestment Business shall be structured as an asset sale with licences
    and rights of access to certain shared assets. The manufacturing transfer for each
    Divestment Business will be effected as follows.
    (i)      As regards the Anticoccidials Divestment Business and the Otitis Divestment
             Business, a transfer of the relevant third-party supply contracts (or transfer of
             the rights and benefits of the relevant portion thereof where the supply contract
             is not exclusively or primarily used for that Divestment Business) related to the
             manufacture of the relevant product(s).
    (ii)     As regards the Parasiticides Divestment Business:
             (a)      For the Endoparasiticides Assets, a technology transfer (including
                      know-how) relating to the production of the Drontal/Profender Family,
                      together with transitional arrangements for the manufacture and supply
                      of finished products to the Purchaser for a period of […] following
                      Closing ([…]), pending completion of the technology transfer process,
                      as overseen by the Monitoring Trustee.
             (b)      For the Endectocide Assets, a technology transfer (including know-
                      how), transitional manufacturing and supply services and an R&D and
                      regulatory transitional service agreement for a period of […] following
                      Closing ([…]).
11. Strict firewall procedures will be adopted so as to ensure that any competitively
    sensitive information related to, or arising from, such supply arrangements (for example,
    product roadmaps) will not be shared with, or passed on to, anyone outside the
    Divestment Businesses’ operations, beyond what is reasonably required for the
    compliance with obligations relating to the transfer of the Divestment Businesses and
    supply of transitional services.
    SECTION C.        RELATED COMMITMENTS
    Preservation of viability, marketability and competitiveness
12. From the Effective Date until Closing, the Parties shall preserve or procure the
    preservation of the economic viability, marketability and competitiveness of the
    Divestment Businesses, in accordance with good business practice, and shall minimise,
    as far as possible, any risk of loss of competitive potential of the Divestment
    Businesses. In particular, the Parties undertake:
    (i)      Not to carry out any action that might have a significant adverse impact on the
             value, management or competitiveness of the Divestment Businesses or that
             might alter the nature and scope of activity, the industrial or commercial
             strategy, and/or the investment policy of the Divestment Businesses;
    (ii)     To make available, or procure to make available, sufficient resources for the
             development of the Divestment Businesses, on the basis and continuation of
             the existing business plans; and
                                                  8
 ---pagebreak--- 13. Furthermore, Elanco undertakes to take all reasonable steps, or procure that all
    reasonable steps are being taken, including appropriate incentive schemes (based on
    industry practice), to encourage all Key Personnel to remain with the Parasiticides
    Divestment Business, and not to solicit or move any Personnel to Elanco’s remaining
    business. Where, nevertheless, individual members of the Key Personnel exceptionally
    leave the Parasiticides Divestment Business, Elanco shall provide a reasoned proposal
    to replace the person or persons concerned to the Commission and the Monitoring
    Trustee. Elanco must be able to demonstrate to the Commission that the replacement
    is well suited to carry out the functions exercised by those individual members of the
    Key Personnel. The replacement shall take place under the supervision of the
    Monitoring Trustee, who shall report to the Commission.
    Hold-separate obligations
14. The Parties commit, from the Effective Date until Closing, to procure that the
    Divestment Businesses are kept separate from the business(es) that the Parties will be
    retaining and, after closing of the Concentration to keep the Divestment Businesses
    separate from the businesses they are retaining and to ensure that unless explicitly
    permitted under these Commitments:
    (i)      Management and staff of the businesses retained by the Parties have no
             involvement in the Divestment Businesses; and
    (ii)     Key Personnel and Personnel can be involved in businesses retained by the
             Parties only to the extent that (a) they are bound by the terms of non-disclosure
             agreements or similar arrangements preventing the disclosure of any
             information related to the Divestment Businesses; (b) they are not involved in a
             relevant Overlapping Retained Business; and (c) their involvement in other
             businesses retained by the Parties is compatible with their required involvement
             in the Divestment Businesses.
15. Until Closing, the Parties shall assist the Monitoring Trustee in ensuring that the
    Divestment Businesses are managed as distinct and saleable entities separate from the
    businesses which they are retaining. Immediately after the adoption of the Decision, the
    Parties shall appoint a Hold Separate Manager or Managers for the Divestment
    Businesses. The Hold Separate Manager(s) shall manage the Divestment Businesses
    independently and in the best interests of the relevant Divestment Business with a view
    to ensuring its continued economic viability, marketability and competitiveness and its
    independence from the businesses retained by the Parties. The Hold Separate
    Manager(s) shall closely cooperate with and report to the Monitoring Trustee and, if
    applicable, the Divestiture Trustee. In case of replacement of a Hold Separate
    Manager, the Parties shall provide a reasoned proposal to replace the person or person
    concerned to the Commission and the Monitoring Trustee. The Parties must be able to
    demonstrate to the Commission that the replacement is well suited to carry out the
    functions exercised by that individual. The replacement shall take place under the
    supervision of the Monitoring Trustee, who shall report to the Commission. The
    Commission may, after having heard the Parties, require the Parties to replace a Hold
    Separate Manager.
                                                  9
 ---pagebreak---     Ring-fencing
16. The Parties shall implement, or procure to implement, all necessary measures to ensure
    that they do not, after the Effective Date, obtain any Confidential Information relating to
    the Divestment Businesses and that any such Confidential Information obtained by the
    Parties before the Effective Date will be eliminated and not be used by them. In
    particular, the participation of the Divestment Businesses in any central information
    technology network shall be severed to the extent possible, without compromising the
    viability of the Divestment Businesses. The Parties may obtain or keep information
    relating to the Divestment Businesses which is reasonably necessary for the divestiture
    of the Divestment Businesses or the disclosure of which to the Parties is required by
    law.
    Non-solicitation clause
17. The Parties undertake, subject to customary limitations, not to solicit, and to procure
    that Affiliated Undertakings do not solicit, any Key Personnel or Personnel transferred
    with the Divestment Businesses for a period of two years after Closing.
    Due diligence
18. In order to enable potential purchasers to carry out reasonable due diligence of the
    Divestment Businesses, the Parties shall, subject to customary confidentiality
    assurances and dependent on the stage of the divestiture process:
    (i)       Provide to potential purchasers sufficient information as regards the Divestment
              Businesses;
    (ii)      Provide to potential purchasers sufficient information relating to the Personnel
              and allow them reasonable access to the Personnel to the extent required
              under paragraph 9 above.
    Reporting
19. Elanco shall submit written reports in English on potential purchasers of the Divestment
    Businesses and developments in the negotiations with such potential purchasers to the
    Commission and the Monitoring Trustee no later than 10 days after the end of every
    month following the Effective Date (or otherwise at the Commission’s request). Elanco
    shall submit a list of all potential purchasers having expressed interest in acquiring the
    Divestment Businesses to the Commission at each and every stage of the divestiture
    process, as well as a copy of all the offers made by potential purchasers within five days
    of their receipt.
20. Elanco shall inform the Commission and the Monitoring Trustee on the preparation of
    the data room documentation and the due diligence procedure and shall submit a copy
    of any information memorandum to the Commission and the Monitoring Trustee before
    sending such memorandum out to potential purchasers.
                                                 10
 ---pagebreak---     SECTION D.         THE PURCHASER
21. In order to be approved by the Commission, the Purchaser(s) must fulfil the following
    criteria:
    (i)       The Purchaser(s) shall be independent of and unconnected to Elanco and BAH
              and their Affiliated Undertakings (this being assessed having regard to the
              situation following the divestiture);
    (ii)      The Purchaser(s) shall have the financial resources, proven expertise and
              incentive to maintain and develop the Divestment Businesses as a viable and
              active competitive force in competition with the Parties and other competitors;
    (iii)     The acquisition of the Divestment Businesses by the Purchaser(s) must neither
              be likely to create, in light of the information available to the Commission, prima
              facie competition concerns nor give rise to a risk that the implementation of the
              Commitments will be delayed. In particular, the Purchaser(s) must reasonably
              be expected to obtain all necessary approvals from the relevant regulatory
              authorities for the acquisition of the Divestment Businesses; and
    (iv)      The Purchaser(s) shall have:
              (a)      Established capabilities or a track record in the manufacture, marketing
                       and distribution of animal health products in the EEA/UK;
              (b)      Adequate manufacturing and regulatory capabilities to successfully
                       implement a production transfer in relation to the Divestment
                       Businesses (where relevant);
              (c)      Sufficient R&D resources and experience to develop the relevant
                       pipeline products included in the scope of the Divestment Business(es);
                       and
              (d)      Complementary products and expertise relevant to the Divestment
                       Businesses.
22. The final binding sale and purchase agreement or agreements (as well as ancillary
    agreements) relating to the divestment of the Divestment Businesses shall be
    conditional on the Commission’s approval. When Elanco has reached an agreement
    with a purchaser, it shall submit a fully documented and reasoned proposal, including a
    copy of the final agreement(s), within one week to the Commission and the Monitoring
    Trustee. Elanco must be able to demonstrate to the Commission that the purchaser(s)
    fulfil the Purchaser Criteria and that the Divestment Businesses is being sold in a
    manner consistent with the Commission's Decision and these Commitments. For the
    approval, the Commission shall verify that the purchaser fulfils the Purchaser Criteria
    and that the Divestment Businesses are being sold in a manner consistent with the
    Commitments including their objective to bring about a lasting structural change in the
    market. The Commission may approve the sale of the Divestment Businesses without
    one or more Assets or any or part of any Personnel, or by substituting one or more
    Assets or parts of any Personnel with one or more different assets or different personnel
                                                     11
 ---pagebreak---     or support, if this does not affect the viability and competitiveness of the Divestment
    Businesses after the sale, taking account of the proposed purchaser(s).
    SECTION E.         TRUSTEE
    I.        Appointment procedure
23. Elanco shall appoint a Monitoring Trustee to carry out the functions specified in these
    Commitments for a Monitoring Trustee. Elanco commits not to close the Concentration
    before the appointment of a Monitoring Trustee.
24. If Elanco has not entered into a binding sale and purchase agreement or agreements
    regarding the Divestment Businesses one month before the end of the First Divestiture
    Period, or if the Commission has rejected a purchaser proposed by Elanco at that time
    or thereafter, Elanco shall appoint a Divestiture Trustee. The appointment of the
    Divestiture Trustee shall take effect upon the commencement of the Trustee Divestiture
    Period.
25. The Trustee shall:
    (i)       At the time of appointment, be independent of Elanco and its Affiliated
              Undertakings;
    (ii)      Possess the necessary qualifications to carry out its mandate, for example
              having sufficient relevant experience as an investment banker or consultant or
              auditor; and
    (iii)     Neither have nor become exposed to a Conflict of Interest.
26. The Trustee shall be remunerated by Elanco in a way that does not impede the
    independent and effective fulfilment of its mandate.             In particular, where the
    remuneration package of a Divestiture Trustee includes a success premium linked to
    the final sale value of the Divestment Businesses, such success premium may only be
    earned if the divestiture takes place within the Trustee Divestiture Period.
    Proposal by Elanco
27. No later than two weeks after the Effective Date, Elanco shall submit the name or
    names of one or more natural or legal persons whom Elanco proposes to appoint as the
    Monitoring Trustee to the Commission for approval. No later than one month before the
    end of the First Divestiture Period or on request by the Commission, Elanco shall submit
    a list of one or more persons whom Elanco proposes to appoint as Divestiture Trustee
    to the Commission for approval. The proposal shall contain sufficient information for the
    Commission to verify that the person or persons proposed as Trustee fulfil the
    requirements set out in paragraph 25 and shall include:
    (i)       The full terms of the proposed mandate, which shall include, for the avoidance
              of doubt, all provisions necessary to enable the Trustee to fulfil its duties under
              these Commitments;
                                                 12
 ---pagebreak---     (ii)      The outline of a work plan which describes how the Trustee intends to carry out
              its assigned tasks; and
    (iii)     An indication whether the proposed Trustee is to act as both Monitoring Trustee
              and Divestiture Trustee or whether different trustees are proposed for the two
              functions.
    Approval or rejection by the Commission
28. The Commission shall have the discretion to approve or reject the proposed Trustee(s)
    and to approve the proposed mandate subject to any modifications it deems necessary
    for the Trustee to fulfil its obligations. If only one name is approved, Elanco shall
    appoint or cause to be appointed the person or persons concerned as Trustee, in
    accordance with the mandate approved by the Commission. If more than one name is
    approved, Elanco shall be free to choose the Trustee to be appointed from among the
    names approved. The Trustee shall be appointed within one week of the Commission’s
    approval, in accordance with the mandate approved by the Commission.
    New proposal by Elanco
29. If all the proposed Trustees are rejected, Elanco shall submit the names of at least two
    more natural or legal persons within one week of being informed of the rejection, in
    accordance with paragraphs 23 and 28 of these Commitments.
    Trustee nominated by the Commission
30. If all further proposed Trustees are rejected by the Commission, the Commission shall
    nominate a Trustee, whom Elanco shall appoint, or cause to be appointed, in
    accordance with a trustee mandate approved by the Commission.
    II.       Functions of the Trustee
31. The Trustee shall assume its specified duties and obligations in order to ensure
    compliance with the Commitments. The Commission may, on its own initiative or at the
    request of the Trustee or Elanco, give any orders or instructions to the Trustee in order
    to ensure compliance with the conditions and obligations attached to the Decision.
    Duties and obligations of the Monitoring Trustee
32. The Monitoring Trustee shall:
    (i)       Propose in its first report to the Commission a detailed work plan describing
              how it intends to monitor compliance with the obligations and conditions
              attached to the Decision;
    (ii)      Oversee, in close co-operation with the Hold Separate Manager(s), the on-
              going management of the Divestment Businesses with a view to ensuring their
              continued economic viability, marketability and competitiveness and monitor
              compliance by the Parties with the conditions and obligations attached to the
              Decision. To that end the Monitoring Trustee shall:
                                                 13
 ---pagebreak---       (a)       Monitor the preservation of the economic viability, marketability and
                competitiveness of the Divestment Businesses, and the keeping
                separate of the Divestment Businesses from the business retained by
                the Parties, in accordance with paragraphs 12 and 14 of these
                Commitments;
      (b)       Supervise the management of the Divestment Businesses as distinct
                and saleable entities, in accordance with paragraph 15 of these
                Commitments;
      (c)       With respect to Confidential Information:
                (I)     Determine all necessary measures to ensure that the Parties do
                        not after the Effective Date obtain any Confidential Information
                        relating to the Divestment Businesses,
                (II)    In particular, strive for the severing of the Divestment
                        Businesses’ participation in a central information technology
                        network to the extent possible, without compromising the
                        viability of the Divestment Businesses,
                (III)   Make sure that any Confidential Information relating to the
                        Divestment Businesses obtained by the Parties before the
                        Effective Date is eliminated and will not be used by the Parties,
                        and
                (IV)    Decide whether such information may be disclosed to or kept by
                        the Parties as the disclosure is reasonably necessary to allow
                        the Parties to carry out the divestiture or as the disclosure is
                        required by law;
      (d)       Monitor the splitting of assets and the allocation of Personnel (to the
                extent required under paragraph 9) between the Divestment
                Businesses and the Parties or Affiliated Undertakings;
(iii) Propose to the Parties such measures as the Monitoring Trustee considers
      necessary to ensure the Parties’ compliance with the conditions and obligations
      attached to the Decision, in particular the maintenance of the full economic
      viability, marketability or competitiveness of the Divestment Businesses, the
      holding separate of the Divestment Businesses and the non-disclosure of
      competitively sensitive information;
(iv)  Review and assess potential purchasers as well as the progress of the
      divestiture process and verify that, dependent on the stage of the divestiture
      process:
      (a)       Potential purchasers receive sufficient and correct information relating
                to the Divestment Businesses and Personnel (to the extent required
                under paragraph 9) in particular by reviewing, if available, the data room
                                            14
 ---pagebreak---                         documentation, the information memorandum and the due diligence
                        process, and
              (b)       Potential purchasers are granted reasonable access to Personnel (to
                        the extent required under paragraph 9);
    (v)       Act as a contact point for any requests by third parties, in particular potential
              purchasers, in relation to the Commitments;
    (vi)      Provide to the Commission, sending Elanco a non-confidential copy at the same
              time, a written report within 15 days after the end of every month that shall
              cover the operation and management of the Divestment Businesses as well as
              the splitting of assets and the allocation of Personnel (to the extent required
              under paragraph 9) so that the Commission can assess whether the business is
              held in a manner consistent with the Commitments and the progress of the
              divestiture process as well as potential purchasers;
    (vii)     Promptly report in writing to the Commission, sending Elanco a non-confidential
              copy at the same time, if it concludes on reasonable grounds that the Parties
              are failing to comply with these Commitments;
    (viii)    Within one week after receipt of the documented proposal referred to in
              paragraph 22 of these Commitments, submit to the Commission, sending
              Elanco a non-confidential copy at the same time, a reasoned opinion as to the
              suitability and independence of the proposed purchaser(s) and the viability of
              the Divestment Businesses after the sale and as to whether the Divestment
              Businesses are sold in a manner consistent with the conditions and obligations
              attached to the Decision, in particular, if relevant, whether the sale of the
              Divestment Businesses without one or more Assets or none, or not all, of the
              Personnel (to the extent required under paragraph 9) affects the viability of the
              Divestment Businesses after the sale, taking account of the proposed
              purchaser(s); and
    (ix)      Assume the other functions assigned to the Monitoring Trustee under the
              conditions and obligations attached to the Decision.
33. If the Monitoring and Divestiture Trustee are not the same legal or natural persons, the
    Monitoring Trustee and the Divestiture Trustee shall cooperate closely with each other
    during and for the purpose of the preparation of the Trustee Divestiture Period in order
    to facilitate each other's tasks.
    Duties and obligations of the Divestiture Trustee
34. Within the Trustee Divestiture Period, the Divestiture Trustee shall sell at no minimum
    price the Divestment Businesses to a purchaser or purchasers, provided that the
    Commission has approved both the purchaser(s) and the final binding sale and
    purchase agreement or agreements (and ancillary agreements) as in line with the
    Commission's Decision and the Commitments in accordance with paragraphs 21 and
    22 of these Commitments. The Divestiture Trustee shall include in the sale and
    purchase agreement (as well as in any ancillary agreements) such terms and conditions
                                                  15
 ---pagebreak---     as it considers appropriate for an expedient sale in the Trustee Divestiture Period. In
    particular, the Divestiture Trustee may include in the sale and purchase agreement or
    agreements such customary representations and warranties and indemnities as are
    reasonably required to effect the sale. The Divestiture Trustee shall protect the
    legitimate financial interests of Elanco, subject to Elanco’s unconditional obligation to
    divest at no minimum price in the Trustee Divestiture Period.
35. In the Trustee Divestiture Period (or otherwise at the Commission’s request), the
    Divestiture Trustee shall provide the Commission with a comprehensive monthly report
    written in English on the progress of the divestiture process. Such reports shall be
    submitted within 15 days after the end of every month with a simultaneous copy to be
    sent to the Monitoring Trustee and a non-confidential copy to be sent to Elanco.
    III.     Duties and obligations of the Parties
36. The Parties shall provide and shall cause its advisors to provide the Trustee with all
    such co-operation, assistance and information as the Trustee may reasonably require to
    perform its tasks. The Trustee shall have full and complete access to any of the Parties’
    or the Divestment Businesses’ books, records, documents, management or other
    personnel, facilities, sites and technical information necessary for fulfilling its duties
    under the Commitments and the Parties and the Divestment Businesses shall provide
    the Trustee upon request with copies of any document. The Parties and the Divestment
    Businesses shall make available to the Trustee one or more offices on their premises
    and shall be available for meetings in order to provide the Trustee with all information
    necessary for the performance of its tasks.
37. The Parties shall provide the Monitoring Trustee with all managerial and administrative
    support that it may reasonably request on behalf of the management of the Divestment
    Businesses. This shall include all administrative support functions relating to the
    Divestment Businesses which are currently carried out at headquarters level. Elanco
    shall provide and shall cause its advisors to provide the Monitoring Trustee, on request,
    with the information submitted to potential purchasers, and in particular give the
    Monitoring Trustee access to the data room documentation and all other information
    granted to potential purchasers in the due diligence procedure. Elanco shall inform the
    Monitoring Trustee on possible purchasers, submit lists of potential purchasers at each
    stage of the selection process, including the offers made by potential purchasers at
    those stages, and keep the Monitoring Trustee informed of all developments in the
    divestiture process.
38. The Parties shall grant or procure Affiliated Undertakings to grant comprehensive
    powers of attorney, duly executed, to the Divestiture Trustee to effect the sale (including
    ancillary agreements), the Closing and all actions and declarations which the Divestiture
    Trustee considers necessary or appropriate to achieve the sale and the Closing,
    including the appointment of advisors to assist with the sale process. Upon request of
    the Divestiture Trustee, the Parties shall cause the documents required for effecting the
    sale and the Closing to be duly executed.
39. Elanco shall indemnify the Trustee and its employees and agents (each an
    “Indemnified Party”) and hold each Indemnified Party harmless against, and hereby
    agrees that an Indemnified Party shall have no liability to Elanco for, any liabilities
                                                16
 ---pagebreak---     arising out of the performance of the Trustee’s duties under the Commitments, except to
    the extent that such liabilities result from the wilful default, recklessness, gross
    negligence or bad faith of an Indemnified Party.
40. At the expense of Elanco, the Trustee may appoint advisors (in particular for corporate
    finance or legal advice), subject to Elanco’s approval (such approval not to be
    unreasonably withheld or delayed) if the Trustee considers the appointment of such
    advisors necessary or appropriate for the performance of its duties and obligations
    under the mandate, provided that any fees and other expenses incurred by the Trustee
    are reasonable. Should Elanco refuse to approve the advisors proposed by the Trustee
    the Commission may approve the appointment of such advisors instead, after having
    heard Elanco. Only the Trustee shall be entitled to issue instructions to the advisors.
    Paragraph 39 of these Commitments shall apply mutatis mutandis. In the Trustee
    Divestiture Period, the Divestiture Trustee may use advisors who served Elanco during
    the Divestiture Period if the Divestiture Trustee considers this in the best interest of an
    expedient sale.
41. The Parties agree that the Commission may share Confidential Information proprietary
    to the Parties with the Trustee. The Trustee shall not disclose such information and the
    principles contained in Article 17 (1) and (2) of the Merger Regulation apply mutatis
    mutandis.
42. Elanco agrees that the contact details of the Monitoring Trustee are published on the
    website of the Commission's Directorate-General for Competition and they shall inform
    interested third parties, in particular any potential purchasers, of the identity and the
    tasks of the Monitoring Trustee.
43. For a period of 10 years from the Effective Date the Commission may request all
    information from the Parties that is reasonably necessary to monitor the effective
    implementation of these Commitments.
    IV.      Replacement, discharge and reappointment of the Trustee
44. If the Trustee ceases to perform its functions under the Commitments or for any other
    good cause, including the exposure of the Trustee to a Conflict of Interest:
    (i)      The Commission may, after hearing the Trustee and Elanco, require Elanco to
             replace the Trustee; or
    (ii)     Elanco may, with the prior approval of the Commission, replace the Trustee.
45. If the Trustee is removed according to paragraph 44 of these Commitments, the Trustee
    may be required to continue in its function until a new Trustee is in place to whom the
    Trustee has effected a full hand over of all relevant information. The new Trustee shall
    be appointed in accordance with the procedure referred to in paragraphs 23 to 30 of
    these Commitments.
46. Unless removed according to paragraph 44 of these Commitments, the Trustee shall
    cease to act as Trustee only after the Commission has discharged it from its duties after
    all the Commitments with which the Trustee has been entrusted have been
                                                17
 ---pagebreak---         implemented. However, the Commission may at any time require the reappointment of
        the Monitoring Trustee if it subsequently appears that the relevant remedies might not
        have been fully and properly implemented.
        SECTION F.       THE REVIEW CLAUSE
47.     The Commission may extend the time periods foreseen in the Commitments in
        response to a request from Elanco or, in appropriate cases, on its own initiative. Where
        Elanco requests an extension of a time period, it shall submit a reasoned request to the
        Commission no later than one month before the expiry of that period, showing good
        cause. This request shall be accompanied by a report from the Monitoring Trustee, who
        shall, at the same time, send a non-confidential copy of the report to Elanco. Only in
        exceptional circumstances shall Elanco be entitled to request an extension within the
        last month of any period.
48.     The Commission may further, in response to a reasoned request from Elanco showing
        good cause, waive, modify or substitute, in exceptional circumstances, one or more of
        the undertakings in these Commitments. This request shall be accompanied by a report
        from the Monitoring Trustee, who shall, at the same time, send a non-confidential copy
        of the report to Elanco. The request shall not have the effect of suspending the
        application of the undertaking and, in particular, of suspending the expiry of any time
        period in which the undertaking has to be complied with.
        SECTION G.       ENTRY INTO FORCE
49.     The Commitments shall take effect upon the date of adoption of the Decision.
(Signed)
duly authorised for and on behalf of
Elanco Animal Health Inc.
duly authorised for and on behalf of
Bayer AG
                                                  18
 ---pagebreak---                                             SCHEDULE 1
1.      The Anticoccidials Divestment Business consists of the worldwide rights, title and
        interests in (including the right to develop, improve, manufacture and commercialise
        worldwide) the products marketed under the brand Vecoxan (“Vecoxan”) and a private
        label version of Vecoxan currently sold in the UK, Cocci-Drench.1
2.      The Anticoccidials Divestment Business as operated to date is not a stand-alone
        business, rather it is integrated into a wider operational and commercial organisation; it
        will therefore be separated from Elanco’s current operations as described below at
        paragraph 3 of this Schedule. As regards its legal and functional structure:
        (i)      The Anticoccidials Divestment Business forms part of Elanco’s production
                 animal Ruminants & Swine business segment, which also encompasses
                 vaccines, antibiotics, implants and other parasiticides targeting ruminants and
                 swine species. The Anticoccidials Divestment Business covers the entirety of
                 Elanco’s anticoccidials product line for cattle and sheep. Please refer to the
                 structure chart provided as Annex 1 for further detail.
        (ii)     […]. Specifically, the EEA/UK supply chain is as follows:
                 (a)      The API, diclazuril microfine, is manufactured by […]. The API is stored
                          […]. The API is then shipped to […].
                 (b)      […].
        (iii)    The sales, technical and marketing Personnel for the Anticoccidials Divestment
                 Business are located in […].
        (iv)     In the EEA/UK, Vecoxan is distributed by […].
3.      In accordance with Section B, paragraph 6.1 of these Commitments, subject to third
        party consent where relevant and to the extent in Elanco’s ownership, control or
        possession at Closing, the Anticoccidials Divestment Business includes, but is not
        limited to, the following on a worldwide basis:
        (i)      All Contracts exclusively or primarily related to Vecoxan, and the rights and
                 benefits of the portion of Contracts which are material or necessary to, but not
                 exclusively or primarily used in, the Anticoccidials Divestment Business or the
                 manufacture of Vecoxan (being ‘shared contracts’), including, but not limited to,
                 the contracts defined and listed in Annex 2. Elanco undertakes to use Best
                 Efforts to obtain all necessary third-party consents where applicable. To the
                 extent any such third-party consent could not be obtained, or any contract could
1  For the avoidance of doubts, the Anticoccidials Divestment Business includes (a) all products in any
   dosage, strength or formulation containing diclazuril as the sole active pharmaceutical ingredient to
   the extent being sold by or on behalf of Elanco for the treatment or prevention of coccidial infections
   in lambs, calves and other ruminants and (b) pipeline products containing diclazuril as the sole active
   pharmaceutical ingredient to the extent such product has been developed or is being developed by
   Elanco for the treatment or prevention of coccidial infections in lambs, calves and other ruminants.
 ---pagebreak---       not be otherwise transferred, the Elanco will, as appropriate, either: (i) assist the
      Purchaser and the relevant third party to put in place arrangements to transfer
      any work product and work in progress, and support the Purchaser to put in
      place alternative arrangements; or (ii) enter into back-to-back agreements with
      the Purchaser under the same terms and conditions as the relevant contract for
      a transitional period of […] and up to the duration of the existing relevant
      contract (if longer than […]).
(ii)  All inventory related to Anticoccidials Divestment Business (to the extent that it
      has not been sold to a third party), as well as all rights to market and sell such
      inventory including but not limited to:
      (a)      Vecoxan in finished packaged form (together with any product
               packaging materials) labelled and held for sale for the treatment or
               prevention of coccidial infections in lambs, calves and other ruminants;
               and
      (b)      Bulk API used or held for use exclusively or primarily in the manufacture
               of Vecoxan for sale by the Anticoccidials Divestment Business.
(iii) Product registrations for Vecoxan listed at Annex 3, and all other product
      registrations to the extent exclusively or primarily relating to Vecoxan for use in
      the treatment or prevention of coccidial infections in lambs, calves and other
      ruminants.
(iv)  All documentation comprising the product registrations in Annex 3 and, to the
      extent exclusively or primarily related to Vecoxan for use in the treatment or
      prevention of coccidial infections in lambs, calves and other ruminants:
      (a)      Correspondence and reports           submitted    to   or  received    from
               governmental authorities;
      (b)      Other dossiers or compilations necessary to obtain or maintain any of
               the product registrations in Annex 3;
      (c)      Literature safety reports and documents relating to good manufacturing
               practices or issues, animal clinical trials, animal research, including
               laboratory and target animal research and all veterinary master files
               contained or referenced to in the product registrations in Annex 3;
      (d)      Environmental and safety documentation; and
      (e)      Data referenced in any documentation and materials referred to above
               or necessary to commercialise and develop Vecoxan or any pipeline
               transferred as part of the divestment business,
      but in all cases except where explicitly excluded, and excluding all intellectual
      property rights of any third party unless they are necessary for the functioning of
      the Anticoccidials Divestment Business (in which instance, Elanco shall use
                                           20
 ---pagebreak---        Best Efforts to work with the Purchaser to reach an agreement with the entity
       that is able to grant a licence).
(v)    All books and records, including customer records, relating exclusively or
       primarily to the Anticoccidials Divestment Business in such form as maintained
       by Elanco (except where explicitly excluded).
(vi)   All existing advertising, promotional and media materials, sales training
       materials, customer lists, other marketing data and materials and trade show
       materials and videos in such form as maintained by Elanco to the extent they
       are exclusively or primarily used or held for exclusive or primary use in the
       Anticoccidials Divestment Business (except where explicitly excluded).
(vii)  All intellectual property rights exclusively or primarily related to the
       Anticoccidials Divestment Business, including, but not limited to, the intellectual
       property rights listed at Annex 4, which, broadly, comprise:
       (a)      Product-specific know-how and registered or unregistered intellectual
                property that is identified or identifiable in tangible form that is or has
                been used for or held for use by or on behalf of Elanco exclusively or
                primarily for or exclusively in connection with the manufacturing of
                Vecoxan for the treatment or prevention of coccidial infections in lambs,
                calves and other ruminants, or the maintenance of any product
                registration being transferred;
       (b)      The trademark Vecoxan, as registered in certain territories; for the
                avoidance of doubts, the Purchaser will have all rights to market and
                sell the inventory transferred as part of the Anticoccidials Divestment
                Business;
       (c)      Any copyrights or know-how owned by Elanco that comprise or are
                contained or embodied in any of the product promotional materials
                being transferred; and
       (d)      An exclusive, perpetual, irrevocable, royalty-free, worldwide sub-
                licensable and transferable licence to with respect to necessary
                registered and unregistered intellectual property and know-how used or
                held for use by or on behalf of Elanco for or in connection with the
                conduct of the Anticoccidials Divestment Business or the manufacturing
                of Vecoxan (as applicable and further specified in Annex 4).
(viii) Details of customers of the Anticoccidials Divestment Business, including, but
       not limited to, the customer details listed at Annex 5.
(ix)   Arrangements for the supply of services by Elanco to the Purchaser for a
       transitional period […] following Closing, […], to ensure the smooth transfer of
       the Anticoccidials Business (including, inter alia, quality release and quality
       control testing, regulatory activities support, pharmacovigilance activities
       support and assistance in connection with the sale of Vecoxan in the EEA/UK).
                                            21
 ---pagebreak--- 4. All the Assets, which are necessary to, but not exclusively or primarily related to, the
   viability and competitiveness of the Anticoccidials Divestment Business and also relate
   to products/businesses retained by Elanco, shall also be transferred to the Purchaser
   (at the option of the Purchaser) but only to the extent they relate to the Anticoccidials
   Divestment Business.
5. In the event that materials to be transferred contain information that is confidential to the
   Parties’ retained businesses and not relevant to the Anticoccidials Divestment Business,
   the information shall be redacted as appropriate.
6. The Anticoccidials Divestment Business shall not include any right, title or interest in or
   to any of the assets of the Parties or their Affiliated Undertakings other than those
   specified in paragraphs 6.1 and 7 of the Commitments and paragraphs 3 and 4 of this
   Schedule and, for the avoidance of doubt, will not include (inter alia):
   (i)       Any right to manufacture, market or sell any other product of the Parties other
             than Vecoxan for use in the treatment or prevention of coccidial infections in
             lambs and calves or any licence to use any asset of the Parties in connection
             with any product other than Vecoxan.
   (ii)      Any asset that is not an Asset, and any asset that does not relate to the
             manufacture, marketing and sale of Vecoxan.
   (iii)     The Parties’ names (specifically, Elanco, Bayer or Bayer Animal Health), or any
             trading name of the Parties, together with all variations thereof and all
             trademarks, service marks, domain names, trade names, corporate names,
             logos and other identifiers of source containing, incorporating or associated with
             any of the foregoing.
   (iv)      Personnel, except where (at the option of the Purchaser) reasonably considered
             necessary to maintain the viability, marketability and competitiveness of the
             Divestment Business(es) as further set out in paragraph 9 of these
             Commitments).
   (v)       Real property and tangible personal property of Elanco.
   (vi)      Any shared Contracts retained by Elanco.
   (vii)     Human resources and any other employee books and records (subject to
             paragraph 9 of the Commitments).
   (viii)    Items to the extent applicable law prohibits their transfer.
   (ix)      […].
7. If there is any asset or personnel which is not covered by paragraph 3 of this Schedule
   but which is both used (exclusively or not) in the Anticoccidials Divestment Business
   and necessary for the continued viability and competitiveness of the Anticoccidials
   Divestment Business, that asset or an adequate substitute will be offered to potential
   Purchaser.
                                                 22
 ---pagebreak---                                            SCHEDULE 2
1. The Otitis Divestment Business consists of the worldwide rights, title and interests in
   (including the right to develop, improve, manufacture and commercialise in at worldwide
   level) Osurnia ear gel (“Osurnia”), […] (as defined below).
2. The Otitis Divestment Business as operated to date is not a stand-alone business,
   rather it is integrated into a wider operational and commercial organisation; it will
   therefore be separated from Elanco’s current operations as described below at
   paragraph 3 of this Schedule. As regards its legal and functional structure:
   (i)      The Otitis Divestment Business forms part of Elanco’s companion animal
            therapeutics business segment, which also encompasses pain, osteoarthritis,
            cardiovascular and dermatological products targeting cats and dogs. The Otitis
            Divestment Business is part of Elanco’s wider otitis product line which also
            includes Surolan, a daily dose product applied by the pet owner for otitis
            externa in felines and canines. Please refer to the structure chart provided as
            Annex 6 for further detail.
   (ii)     The manufacturing process is as follows:
            (a)      The three APIs are manufactured by, and purchased from, […].
            (b)      […].
            (c)      […].
   (iii)    The EEA/UK (a) sales, technical and marketing and (b) manufacturing and
            quality Personnel for the Otitis Divestment Business are located in […].
   (iv)     […].
3. In accordance with Section B, paragraph 6.2 of these Commitments, subject to third
   party consent where relevant and to the extent in Elanco’s ownership, control or
   possession at Closing, the Otitis Divestment Business includes but is not limited to, the
   following on a worldwide basis:
   (i)      All Contracts exclusively or primarily related to Osurnia, […], and the rights and
            benefits of the portion of Contracts which are material and necessary to, but not
            exclusively used in, the Otitis Divestment Business or manufacture of Osurnia
            (being ‘shared contracts’), including, but not limited to, the contracts listed in
            Annex 7. Elanco undertakes to use Best Efforts to obtain all necessary third-
            party consents where applicable. To the extent any such third-party consent
            could not be obtained, or any contract could not be otherwise transferred,
            Elanco will, as appropriate, either: (i) assist the Purchaser and the relevant third
            party to put in place arrangements to transfer any work product and work in
            progress, and support the Purchaser to put in place alternative arrangements;
            or (ii) enter into back-to-back agreements with the Purchaser under the same
            terms and conditions as the relevant contract for a transitional period of […] and
            up to the duration of the existing relevant contract (if longer than […]).
                                                 23
 ---pagebreak---        (ii)    According to the Purchaser’s needs, rebate, promotional and other similar
               programs related to the Otitis Divestment Business.
       (iii)   All inventory of (to the extent that it has not been sold to a third party) including
               all rights to market and sell such inventory
               (a)       Osurnia in finished packaged form (together with any product packaging
                         materials thereon) labelled and held for sale for the treatment of otitis
                         externa complicated by susceptible strains of yeast in dogs;
               (b)       Bulk API, work-in-progress, excipients, labelling materials and
                         packaging materials held for use exclusively or primarily in the
                         manufacture of Osurnia, […] for sale in the relevant fields;2 and
               (c)       Samples of Osurnia, […] in finished packaged form labelled and held for
                         use in the relevant fields.
       (iv)    The manufacturing equipment listed in Annex 8.
       (v)     The product registrations for Osurnia as listed in Annex 9.
       (vi)    All documentation comprising the product registrations in Annex 9, and to the
               extent exclusively or primarily related to Osurnia, […] and the relevant fields for
               the products and necessary to, or otherwise limiting the ability to, exploit those
               products in the relevant fields at Closing:
               (a)       Correspondence and reports              submitted    to  or    received     from
                         governmental authorities;
               (b)       Other dossiers or compilations necessary to obtain or maintain any
                         product registrations in Annex 9 with regard to any of Osurnia, […];
               (c)       Literature safety reports and documents relating to good manufacturing
                         practices or issues, animal clinical trials, animal research, including
                         laboratory and target animal research and all veterinary master files
                         contained or referenced in the product registrations in Annex 9 with
                         regard to each of Osurnia, […]; and
               (d)       Data (including clinical and pre-clinical data) referenced in any of the
                         documentation and materials referred to above or necessary to develop
                         and commercialise Osurnia, […],
               but in all cases except where explicitly excluded and excluding all intellectual
               property rights of any third party (in which instance, Elanco shall use Best
               Efforts to work with the Purchaser to reach an agreement with the entity that is
               able to grant a licence).
2 In the case of: (i) Osurnia, the treatment of otitis externa complicated by susceptible strains of yeast
  in dogs; […], together being “the relevant fields” for the Otitis Divestment Business.
                                                        24
 ---pagebreak--- (vii)  All books and records, including customer records, relating exclusively or
       primarily to the manufacture of Osurnia, […] for exploitation in the relevant fields
       or the product business in such form as maintained by Elanco to the extent
       necessary and used to manufacture or exploit Osurnia, […] in the relevant fields
       as manufactured or exploited by or on behalf of Elanco at Closing (but
       excluding any assets explicitly excluded and all intellectual property rights of
       any third party).
(viii) All existing advertising, promotional and media materials, sales training
       materials, customer lists, other marketing data and materials and trade show
       materials and videos, in such form as maintained by Elanco, to the extent
       exclusively or primarily used or held for exclusive and primary use in the
       product business, and necessary to exploit (but not manufacture) Osurnia, […]
       in the relevant fields as exploited by Elanco as of Closing (but excluding any
       assets explicitly excluded and all intellectual property rights of any third party).
(ix)   All intellectual property rights exclusively or primarily relating to the Otitis
       Divestment Business including, but not limited to, the intellectual property rights
       listed at Annex 10 which broadly comprise:
       (a)      Product-specific know-how and registered or unregistered intellectual
                property that is identified or identifiable in tangible form that is owned by
                Elanco and is used by or on behalf of Elanco exclusively or primarily for
                or exclusively in connection with the manufacturing of Osurnia, […] for
                the exploitation in the relevant fields, or the maintenance of any product
                registration being transferred;
       (b)      The copyrights set out in Annex 10;
       (c)      Registered domain names for Osurnia, as registered in certain
                territories;
       (d)      The trademark Osurnia; for the avoidance of doubts, the Purchaser will
                have all rights to market and sell the inventory transferred as part of the
                Otitis Divestment Business; and
       (e)      A non-exclusive, perpetual, irrevocable, royalty-free and licence with
                respect to necessary registered and unregistered copyright and know-
                how owned or controlled by Elanco as of Closing and used by or on
                behalf of Elanco in connection with the exploitation or manufacturing of
                Osurnia, […] for exploitation in the relevant fields or the maintain of any
                project registration being transferred (as applicable and further specified
                in Annex 10).
(x)    All rights to claims, demands, causes of action or litigation set out in Annex 11.
(xi)   Arrangements for the supply of services by Elanco to the Purchaser for a
       transitional period of […] following Closing, […], to ensure the smooth transfer
       of the Otitis Business (including, inter alia, qualified person release services,
       quality control of batch release testing and stability services, pharmacovigilance
                                             25
 ---pagebreak---             activities support in line with a separate pharmacovigilance agreement,
            regulatory affairs support for the ongoing product registration applications in
            certain territories, regulatory chemistry manufacturing and control activities to
            support certain ongoing technology transfers, preparation of renewals for
            marketing authorisations, and in the jurisdictions where Elanco is not the holder
            of record, provide the Purchaser with support to transfer product registrations to
            the Purchaser).
4. All the Assets, which are necessary to, but not exclusively or primarily related to, the
   viability and competitiveness of the Otitis Divestment Business and also relate to
   products/businesses retained by Elanco, shall also be transferred to the Purchaser (at
   the option of the Purchaser) but only to the extent they relate to the Otitis Divestment
   Business.
5. In the event that materials to be transferred contain information that is confidential to the
   Parties’ retained businesses and not relevant to the Otitis Divestment Business, the
   information shall be redacted as appropriate.
6. The Otitis Divestment Business shall not include any right, title or interest in or to any of
   the assets of the Parties or their Affiliated Undertakings other than those specified in
   paragraphs 6.2 and 7 of the Commitments and paragraphs 3 and 4 of this Schedule
   and, for the avoidance of doubt, will not include (inter alia):
   (i)      Any right to manufacture, market or sell any other product of the Parties other
            than Osurnia or any licence to use any asset of Elanco in connection with any
            product other than Osurnia, […].
   (ii)     Any asset that is not an Asset and any asset that does not relate to the
            development, manufacture, marketing and sale of Osurnia, […].
   (iii)    The Parties’ names (specifically, Elanco, Bayer or Bayer Animal Health), or any
            trading name of the Parties, together with all variations thereof and all
            trademarks, service marks, domain names, trade names, corporate names,
            logos and other identifiers of source containing, incorporating or associated with
            any of the foregoing.
   (iv)     Personnel, except where (at the option of the Purchaser) reasonably considered
            necessary to maintain the viability, marketability and competitiveness of the
            Divestment Business(es) as further set out in paragraph 9 of these
            Commitments).
   (v)      Real property and tangible personal property of Elanco.
   (vi)     All manufacturing-related assets of Elanco (other than as listed in Annex 8).
   (vii)    Any shared Contracts to be retained by Elanco.
   (viii)   Trade secrets unrelated to the Otitis Divestment Business.
                                                26
 ---pagebreak---    (ix)     Human resources and any other employee books and records (subject to
            paragraph 9 of the Commitments).
   (x)      Items to the extent applicable law prohibits their transfer.
7. If there is any asset or personnel which is not covered by paragraph 3 of this Schedule
   but which is both used (exclusively or not) in the Otitis Divestment Business and
   necessary for the continued viability and competitiveness of the Otitis Divestment
   Business, that asset or an adequate substitute will be offered to potential purchasers.
                                               27
 ---pagebreak---                                                  SCHEDULE 3
1.     The Parasiticides Divestment Business comprises the Endoparasiticides Assets and the
       Endectocide Assets as described at Parts 1 and 2 of this Schedule 3.
       PART 1:
2.     The Endoparasiticides Assets consist of the EEA/UK-wide rights, title and interests in
       the BAH canine and feline endoparasiticide products marketed under the following
       brands, […] and all associated assets (including the right to develop, improve,
       manufacture and commercialise in the EEA/UK):
       (i)      Drontal (Cat), which is indicated for the treatment of gastrointestinal
                roundworms, hookworm and tapeworm in cats, and is administered orally as a
                tablet.3 Its active ingredients are praziquantel and pyrantel;
       (ii)     Drontal Plus (Dog), which is indicated for the treatment of roundworms,
                hookworms, whipworms and tapeworms in dogs, and is administered orally as
                chewable or non-chewable and flavoured or non-flavoured tablets in a bone-
                shaped form.4 Its active ingredients are febantel, pyrantel and praziquantel;
       (iii)    Drontal Puppy/Welpan (Dog), which is indicated for the treatment of
                roundworm, hookworm and whipworm in puppies and young dogs up to one
                year of age. It is administered orally as a solution. Its active ingredients are
                pyrantel and febantel;
       (iv)     Droncit Injectable (Cat and Dog) / Spot On (Cat) / Tablet (Cat and Dog): Droncit
                Tablet, which are used for the treatment of tapeworm in cats and dogs, and is
                administered orally as a tablet. Droncit spot-on is used in cats only and Droncit
                injection is available for cats and dogs. All Droncit versions have praziquantel as
                their active ingredient;
       (v)      Profender Spot-on (Cat), which is indicated for treatment of mixed parasitic
                infections caused by roundworm, tapeworm, and lungworm in cats. It is
                administered as a spot-on treatment,5 Profender’s active ingredients are
                emodepside and praziquantel;
3  Including the following products: (i) Drontal Tablet Cat 4kg; and (ii) Drontal Tablet Cat 6kg.
4  Including the following products: (i) Drontal Plus Tasty Tablet Dog 10kg; (ii) Drontal Plus Tablet
   Dog 10kg; and (iii) Drontal Plus Flavor Tablet Dog 10kg; and (iv) Drontal Plus Tasty Tablet Dog
   35kg; (v) Drontal Plus Tablet Dog 35kg; and (vi) Drontal Plus Flavour Tablet 35kg.
5  Including the following products: (i) Profender Spot-on 0.35ml Cat > 0.5-2.5kg; (ii) Profender Spot-
   on 0.7ml Cat >2.5-5kg (iii) Profender Spot-on 1.12ml Cat > 5.0-8.0kg; and (iv) Profender Spot-on
   14.0ml Cat.
                                                      28
 ---pagebreak---         (vi)     Profender Tablet (Dog), which is indicated for treatment of mixed parasitic
                 infections caused by roundworm, and tapeworm in dogs. It is administered
                 orally as a tablet6 and has emodepside and praziquantel as active ingredients;
        (vii)    Dronspot (Cat), which is indicated for treatment of mixed parasitic infections in
                 cats caused by roundworms and tapeworms. It is administered as a spot-on
                 treatment and has emodepside and praziquantel as active ingredients;
        (viii)   Procox (Dog), which is an oral suspension that indicated for the treatment of
                 mixed parasitic infections caused by roundworms and coccidia in dogs, and is
                 primarily used in puppies with coccidia. It is administered orally as a suspension
                 for dogs only and has emodepside and toltrazuril as its active ingredients;
        (ix)     All second brands and private label versions of the above-mentioned products;7
        (x)      […]
        (xi)     […], as more fully outlined in Annex 12.
        (together, the “Drontal/Profender Family”).
3.      The Endoparasiticides Assets as operated to date are not currently run as a stand-alone
        business, rather are integrated into a wider operational and commercial organisation;
        they will therefore be separated from BAH’s current operations as described below at
        paragraph 4 of this Schedule. As regards its legal and functional structure:
        (i)      The Endoparasiticides Assets is the EEA/UK product line within BAH’s
                 companion animal endoparasiticides business, which encompasses the
                 Drontal/Profender Family products (for sale in EEA/UK). Please refer to the
                 structure chart provided as Annex 13 for further detail.
        (ii)     The manufacture of finished products intended for sale in the EEA/UK is
                 conducted […].
                 (a)      Specifically, for the Drontal products8 (including private label versions):
                          (I)     Praziquantel (for Drontal tablets, Drontal Plus and Droncit) was
                                  until recently supplied by […], but BAH has now terminated that
                                  contract and is in the process of switching supplier to […].
                          (II)    Pyrantel (for Drontal, Drontal Plus, and Welpan) is supplied by
                                  […].
6  Including the following products: Profender Tablet Dog 3kg; and (ii) Profender Tablet Dog 10kg;
   and (iii) Profender Tablet Dog 30kg.
7  […].
8  This includes Drontal, Drontal Plus, Droncit and Drontal Puppy/Welpan. Drontal and Drontal Plus
   are also sold as second brands under the brand name Mansonil (in the Netherlands).
                                                      29
 ---pagebreak---                          (III)    Febantel is supplied by […].
                         (IV)     The artificial flavouring used in Drontal tablets is supplied by
                                  […].
                (b)      For the Profender products:9
                         (I)      BAH has licensed emodepside (for Profender and Procox) for
                                  use in the animal health field from Bayer AG. The pre-cursor
                                  “PF1022A” of emodepside (for Profender and Procox) is
                                  currently produced […]. Emodepside is neither patent protected
                                  by Bayer AG, nor […].
                         (II)     Toltrazuril (for Procox) is produced by […].
                         (III)    Praziquantel (for Profender) is sourced in the same way as for
                                  the Drontal products.
       (iii)    BAH conducts the production, fill and packaging of the finished products
                intended for sale in the EEA/UK […].
       (iv)     The Personnel for the Endoparasiticides Assets are based […].
       (v)      The Endoparasiticides Assets includes […]:
                (a)      […]; and
                (b)      […].
       (vi)     In the EEA/UK, the Drontal/Profender Family is distributed […].
4.     In accordance with Section B, paragraph 6.3 of these Commitments, subject to third
       party consent where relevant and to the extent in Elanco/BAH’s ownership, control or
       possession at Closing, the Endoparasiticides Assets includes, but is not limited to, the
       following on an EEA/UK-wide basis (as Elanco/BAH will continue to market the
       Drontal/Profender Family products ex-EEA/UK):
       (i)      All Contracts exclusively or primarily related to the Drontal/Profender Family for
                exploitation in the EEA/UK, and the rights and benefits of the relevant portion of
                Contracts which are material and/or necessary to, but not exclusively or
                primarily related to, the Endoparasiticides Assets (being ‘shared contracts’),
                including, but not limited to, the contracts listed in Annex 14. The Parties
                undertake to use Best Efforts to obtain all necessary third-party consents where
                applicable. To the extent any such third-party consent could not be obtained, or
                any contract could not be otherwise transferred, the Parties will, as appropriate,
                either: (i) assist the Purchaser and the relevant third party to put in place
                arrangements to transfer any work product and work in progress, and support
9  This includes Profender Tablet, Profender Spot-on, Dronspot and Procox.
                                                      30
 ---pagebreak---       the Purchaser to put in place alternative arrangements; or (ii) enter into back-to-
      back agreements with the Purchaser under the same terms and conditions as
      the relevant contract for a transitional period of at least […]) and up to the
      duration of the existing relevant contract (if longer than […]).
(ii)  Elanco/BAH commit to use their commercially reasonable efforts to procure that
      Purchaser shall have the rights to acquire emodepside directly from […].
(iii) All rebates, promotional          and   other   similar  programs    related  to  the
      Endoparasiticides Assets.
(iv)  All inventory (to the extent that it has not been sold to a third party) of
      Drontal/Profender Family products including inventory in finished packaged
      form labelled and held for sale in the EEA/UK and all forms of non-saleable
      inventory intended for the sale of Drontal/Profender Family products in the
      EEA/UK (e.g. blister cards with tablets, bulk tablets, printed packaging
      materials, API). For the avoidance of doubts, the purchaser will have all rights to
      market and sell the inventory transferred as part of the divestment business;
(v)   All relevant regulatory files and product registrations which Elanco/BAH owns or
      has the right to own (as applicable) that are used by or on behalf of Elanco/BAH
      for, or exclusively or primarily in connection with, the Endoparasiticides Assets
      including, but not limited to, the regulatory files and product registrations listed
      at Annex 15.
(vi)  All documentation related exclusively or primarily to the Endoparasiticides
      Assets, including inter alia:
      (a)      Documentation comprising the product registrations as listed at Annex
               15; and
      (b)      To the extent exclusively or primarily related to the Drontal/Profender
               Family products in the EEA/UK and/or necessary to (or limiting the
               ability to) exploit these products in the EEA/UK:
               (I)       Correspondence and reports submitted to or received from
                         governmental authorities;
               (II)      Other dossiers or compilations necessary to obtain or maintain
                         any product registrations to be transferred with regard to such
                         products;
               (III)     Literature safety reports and documents relating to good
                         manufacturing practices or issues, animal clinical trials, animal
                         research, including laboratory and target animal research and
                         all veterinary master files contained or referenced in the product
                         registrations to be transferred with regard to such products; and
               (IV)      Data (including clinical and pre-clinical data) referenced in any
                         of the documentation and materials referred to above, or
                                            31
 ---pagebreak---                          necessary to commercialise or develop any product or pipeline
                         included in the Endoparasiticides Assets.
       but in all cases except where explicitly excluded, and excluding all intellectual
       property rights of any third party (in which instance, Elanco shall use Best
       Efforts to work with the Purchaser to reach an agreement with the entity that is
       able to grant a licence).
(vii)  All books and records relating exclusively or primarily to the Endoparasiticides
       Assets, in such form as maintained and to the extent necessary and used to
       develop, manufacture or exploit the Drontal/Profender Family products in the
       EEA/UK.
(viii) All customer lists, customer          orders   and    customers    records    of  the
       Endoparasiticides Assets.
(ix)   All existing advertising, promotional and media materials, sales training
       materials, other marketing data and materials, trade show materials and videos
       to the extent exclusively or primarily used or held for exclusive or primary use in
       the Endoparasiticides Assets.
(x)    All intellectual property rights exclusively or primarily relating to the
       Endoparasiticides Assets including but not limited to the intellectual property
       rights listed in Annex 16, which, broadly, comprise:
       (a)       Product-specific know-how used exclusively or primarily for or
                 exclusively or primarily in connection with the development,
                 manufacturing, exploitation or the maintenance of any purchased
                 product registrations of the Drontal/Profender Family products in the
                 EEA/UK (“Purchased Product Know-How”); as well as a non-
                 exclusive, perpetual, irrevocable, and royalty-free licence (covering the
                 exploitation or manufacture of the Drontal/Profender Family of products
                 in the EEA/UK) for know-how and any proprietary information other than
                 Purchaser Product Know-How that are used by Elanco/BAH for or in
                 connection with the manufacturing of the Drontal/Profender Family
                 products or the maintenance of these product registration (“Licensed
                 Product Know-How”);
       (b)       All copyrights used exclusively or primarily for or exclusively or primarily
                 in connection with (i) the manufacturing of the Drontal/Profender Family
                 products for exploitation in the EEA/UK, or (ii) the Endoparasiticides
                 Assets (“Purchased Copyrights”); as well as a non-exclusive,
                 perpetual, irrevocable, and royalty-free licence (covering the
                 exploitation or manufacture of the Drontal/Profender Family products in
                 the EEA/UK) with respect to the copyrights other than Purchased
                 Copyrights that are used for or in connection with the exploitation of the
                 Drontal/Profender Family products in the EEA/UK (“Licensed
                 Copyrights”);
                                            32
 ---pagebreak---        (c)      The domain names for the Drontal/Profender Family products in the
                EEA/UK (“Purchased Domain Names”);
       (d)      All trademarks registered in the EEA/UK and used exclusively or
                primarily for or exclusively or primarily in connection with the
                Endoparasiticides Assets (“Purchased Trademarks”); for the
                avoidance of doubts, the Purchaser will have all rights to market and
                sell the inventory transferred as part of the Endoparasiticides Assets;
       (e)      An exclusive, perpetual, irrevocable, and royalty-free licence, under all
                patents necessary for the exploitation of the Drontal/Profender Family
                products in the EEA/UK; and a non-exclusive, perpetual, irrevocable,
                and royalty-free licence, under all patents necessary for the
                manufacture of the Drontal/Profender Family products (and product
                improvements) in and outside the EEA/UK for exploitation in the
                EEA/UK (together the “Licensed Patents”).
(xi)   All rights to claims, demands, causes of action or litigation set out in Annex 17.
(xii)  All goodwill relating to the Drontal/Profender Family products in the EEA/UK.
(xiii) In order to ensure the smooth transfer of production technology and sales
       activities to the Purchaser, arrangements for:
       (a)      A transitional manufacturing and supply agreement – For a period of
                […], the Purchaser will be able to benefit from manufacturing and
                supply arrangement, […], pursuant to which Elanco/BAH (or a
                subcontractor) will manufacture the Drontal/Profender Family products,
                and will be responsible for procuring the product API and maintaining
                product API inventory sufficient to meet the Purchaser’s forecasts.
                Elanco/BAH will also assist the Purchaser with technology transfer
                including the CMC transfer of the manufacturing process for the
                Drontal/Profender Family products, however not including any
                technology transfer relating to the manufacture of the product API. In
                that regard, Elanco/BAH will provide, free of charge, training for the
                Purchaser’s personnel with regard to all product presentations (i.e.
                pipettes, tablets, non-sterile liquid). Concurrently, under the supervision
                of the Monitoring Trustee, Elanco/BAH and the Purchaser will enter into
                a quality agreement, […], that will detail the roles and responsibilities,
                expectations, timelines, deliverables and quality standards between the
                parties with regards to the manufacture, packaging, quality control,
                quality assurance, testing, release, storage and shipping of the
                Drontal/Profender Family products and Elanco/BAH’s obligations
                relating to the maintenance of records and the rights to inspect the
                premises;
       (b)      A transitional services agreement – For a period of […]), and under the
                supervision of the Monitoring Trustee, Elanco/BAH shall also provide (or
                cause to be provided), […], to the Purchaser a number of services (for
                specified periods which shall not exceed […] following Closing)
                                            33
 ---pagebreak---                      including (inter alia) qualified person release services, quality control of
                     batch release testing services, pharmacovigilance activities support in
                     line with a separate pharmacovigilance agreement, assistance for the
                     transfer of production, regulatory affairs support for the transfer and
                     preparation of renewals of the marketing authorizations for the
                     Drontal/Profender Family products, sales force training (provision of
                     product technical training (including adverse events training), and
                     product-positioning training to sales force, marketing, customer service,
                     veterinary team) and procurement support in setting up point of contact
                     with API suppliers and the other critical suppliers engaged in the
                     manufacturing process for the Drontal/Profender Family products; and
             (c)     A (transitional) distribution compliance agreement – During the
                     transition period, for so long as Elanco/BAH is the holder of any
                     Purchased Product Registrations (on a country by country basis), which
                     shall not exceed […] following Closing, the Purchaser is authorised to
                     distribute the Drontal/ Profender Family products in the EEA/UK.
5. All the Assets, which are necessary to, but not exclusively or primarily related to, the
   viability or competitiveness of the Endoparasiticides Assets and also relate to
   products/businesses retained by the Parties, shall also be transferred to the Purchaser
   (at the option of the Purchaser) but only to the extent they relate to the
   Endoparasiticides Assets.
6. In the event that materials to be transferred to the Purchaser pursuant to the
   Commitments contain information that is confidential to the Elanco/BAH’s retained
   businesses and not relevant to the Endoparasiticides Assets, the information shall be
   redacted as appropriate.
7. BAH shall retain, and Elanco shall acquire at Closing of the Concentration, the
   Drontal/Profender Family outside of the EEA/UK. This shall be effected by means of
   exclusion of any ex-EEA/UK specific rights, title or interests in the Drontal/ Profender
   Family, or any ex-EEA/UK assets relating to the same, in the sale and asset purchase
   agreement, and/or a reverse carve-out of ex-EEA/UK specific rights, from the items
   listed in paragraph 4 of this Schedule.
8. Subject to the provisions in Part 2 of Schedule 3, the Endoparasiticides Assets shall not
   include any right, title or interest in or to any of the assets of the Parties or their Affiliated
   Undertakings other than those specified in paragraphs 6.3 and 7 of the Commitments
   and paragraphs 4 and 5 of this Schedule (including, for clarity, any right, title or interest
   in the Drontal/Profender Family outside of the EEA/UK) and, for the avoidance of doubt,
   will not include (inter alia):
   (i)       Any right to manufacture, market or sell any products of the Parties other than
             the Drontal/Profender Family in the EEA/UK or any licence to use any asset of
             the Parties in connection with any products other than the Drontal/Profender
             Family in the EEA/UK.
                                                   34
 ---pagebreak---        (ii)     Any asset that is not an Asset and any asset that does not relate to the
                manufacture, marketing and sale of the Drontal/Profender Family in the
                EEA/UK.
       (iii)    The Parties’ names (specifically, Elanco, Bayer or Bayer Animal Health), or any
                trading name of the Parties, together with all variations thereof and all
                trademarks, service marks, domain names, trade names, corporate names,
                logos and other identifiers of source containing, incorporating or associated with
                any of the foregoing.
       (iv)     Personnel, except where (at the option of the Purchaser) reasonably considered
                necessary to maintain the viability, marketability and competitiveness of the
                Divestment Business(es) as further set out in paragraph 9 of these
                Commitments).
       (v)      Real property and tangible personal property of Elanco/BAH.
       (vi)     All manufacturing assets of the Parties.
       (vii)    Any rights or interests exclusively or primarily relating to any Drontal/Profender
                Family product outside of the EEA/UK.
       (viii)   Any shared Contract retained by the Parties.
       (ix)     Trade secrets unrelated to the Endoparasiticides Assets.
       (x)      Human resources and any other employee books and records (subject to
                paragraph 9 of these Commitments).
       (xi)     Items to the extent applicable law prohibits their transfer.
9.     If there is any asset or personnel which is not covered by paragraph 4 of this Schedule
       but which is both used (exclusively or not) in the Endoparasiticides Assets and
       necessary for the continued viability and competitiveness of the Endoparasiticides
       Assets, that asset or an adequate substitute will be offered to potential purchasers.
       PART 2:
10.    The Endectocide Assets consist of:
       (i)      […] (the “Full Stage Pipeline Product”).10
11.    The Endectocide Assets as operated to date is not a stand-alone business, rather it is
       integrated into a wider operational and commercial organisation; it will therefore be
       separated from BAH’s current operations as described below at paragraph 12. As
       regards its legal and functional structure:
10  […].
                                                    35
 ---pagebreak---     (i)     The Endectocide Assets forms part of BAH’s companion animal therapeutics
            business segment and part of BAH’s R&D function.
    (ii)    The Full Stage Pipeline Product […].
12. In accordance with Section B of these Commitments, subject to third party consent
    where relevant and to the extent in the Parties’ ownership, control or possession at
    Closing, the Endectocide Assets includes, but is not limited to, the following on a
    worldwide basis:
    (i)     All rights, title and interests in the Full Stage Pipeline Product (including the
            right to conduct the ongoing clinical trials (listed inter alia in Annex [18]) and to
            develop, improve, manufacture and commercialise) for use in the Field.
    (ii)    All Contracts exclusively or primarily related to the Full Stage Pipeline Products,
            and the benefit of the portion of Contracts which are material or necessary to,
            but not exclusively or primarily related to the Full Stage Pipeline Product,
            including but not limited to, the Contracts listed in Annex [19]. The Parties
            undertake to use Best Efforts to obtain all necessary third-party consents where
            applicable. To the extent any such third-party consent could not be obtained, or
            any contract could not be otherwise transferred, the Parties will, as appropriate,
            either: (i) assist the Purchaser and the relevant third party to put in place
            arrangements to transfer any work product and work in progress, and support
            the Purchaser to put in place alternative arrangements; or (ii) enter into back-to-
            back agreements with the Purchaser under the same terms and conditions as
            the relevant contract for a transitional period of […] and up to the duration of the
            existing relevant contract (if longer than […]).
    (iii)   Elanco/BAH commit to use their commercially reasonable efforts to procure that
            the Purchaser shall have the rights to acquire emodepside directly from […].
    (iv)    All inventory of (to the extent that it has not been sold to a third party) including,
            but not limited to, the inventory listed at Annex 20:
            (a)      Full Stage Pipeline Product in finished form (together with any product
                     packaging materials and any samples) labelled and held for use by the
                     Endectocide Assets; and
            (b)      bulk API, work-in-progress, excipients, labelling materials and
                     packaging materials used or held for use exclusively or primarily in the
                     manufacture of Full Stage Pipeline Product for use by the Endectocide
                     Assets.
    (v)     All licences, permits, authorisations and registrations (“Regulatory Approvals”)
            for the Full Stage Pipeline Product, and all other product registrations or
            regulatory approvals to the extent exclusively or primarily relating to the Full
            Stage Pipeline Product for use in the Field.
                                                  36
 ---pagebreak--- (vi)   All documentation comprising any Regulatory Approvals, and to the extent
       exclusively or primarily related to the Full Stage Pipeline Product for use in the
       Field:
       (a)       correspondence and reports submitted to or received from relevant
                 regulatory authorities relating to the research, development,
                 manufacture, testing, storage, import, export, use, labelling, distribution,
                 sale, offer for sale, commercialisation, licensing, advertising, marketing
                 and promotion (“exploitation”) of the Full Stage Pipeline Product;
       (b)       other dossiers or compilations necessary to obtain or maintain any of
                 the product registrations and Regulatory Approvals;
       (c)       literature safety reports and documents relating to good manufacturing
                 practices or issues, animal clinical trials, animal research, including
                 laboratory and target animal research and all veterinary master files
                 contained or referenced to in the product registrations and Regulatory
                 Approvals;
       (d)       environmental and safety documentation; and
       (e)       data that resulted from any of BAH’s research or development activities
                 related to the Full Stage Pipeline Product, or data referenced in any
                 documentation and materials referred to above,
       but in all cases except where explicitly excluded and excluding all intellectual
       property rights of any third party unless they are necessary for the functioning of
       the Endectocide Assets (in which instance, Elanco shall use Best Efforts to work
       with the Purchaser to reach an agreement with the entity that is able to grant a
       licence).
(vii)  All relevant reports, databases and analysis (including all technical, clinical and
       marketing files, protocols, clinical data and studies, reports, plans, books and
       records) relating exclusively or primarily to the Endectocide Assets in such form
       as maintained by BAH (except where explicitly excluded).
(viii) All existing marketing materials, plans and forecasts which are specific to the
       Full Stage Pipeline Product in such form as maintained by BAH to the extent
       they are exclusively or primarily related to the Endectocide Assets (except
       where explicitly excluded).
(ix)   All intellectual property rights, to the extent exclusively or primarily relating to
       the Full Stage Pipeline Product for use in the Field, including, but not limited to,
       the intellectual property rights listed at Annex 21 which, broadly, comprise:
       (a)       The patents exclusively or primarily relating to the Full Stage Pipeline
                 Product for use in the Field, which include […]
       (b)       Worldwide licenses to the patents shared with the Drontal/Profender
                 family and relating to the Full Stage Pipeline Product, for use in the
                                             37
 ---pagebreak---                       development, manufacture or sale of the Full Stage Pipeline Product,
                      which are: […];
             (c)      the proposed trademarks relating to the brands […];
             (d)      product-specific know-how that is identified or identifiable in tangible
                      form that is or has been used for or held for use by or on behalf of BAH
                      exclusively for or exclusively in connection with the Full Stage Pipeline
                      Product for use in the Field;
             (e)      any copyrights or know-how owned by BAH that comprise or are
                      contained or embodied in any of the marketing materials, plans and
                      forecasts being transferred; and
             (f)      an exclusive, perpetual, irrevocable, royalty-free sub-licensable and
                      transferable licence with respect to necessary unregistered intellectual
                      property and know-how used or held for use by or on behalf of BAH for
                      or in connection with the conduct of the Endectocide Assets or the
                      development, manufacture or sale of the Full Stage Pipeline Product.
    (x)      The Key Personnel listed at Annex 22.
    (xi)     The obligation for Elanco/BAH to use Best Efforts to: (a) complete the Full
             Stage Pipeline Product related ongoing studies in a timely manner; (b) inform
             the Purchaser of any information or communication exchanged with the EMA in
             relation to the Full Stage Pipeline Product; and (c) provide the Purchaser with
             monthly reports on development process of the Full Stage Pipeline Product.
    (xii)    The obligation for Elanco/BAH to use Best Efforts (a) to file before Closing all
             then-available studies and claims consistent with the summary of product
             characteristics of the Full Stage Pipeline Product with the EMA and (b) to obtain
             the targeted product profile claims of the Full Stage Pipeline Product.
    (xiii)   The benefit of transitional arrangements to ensure the smooth transfer of the
             Endectocide Assets and to enable the continuity of the clinical trials, including
             an R&D and regulatory transitional service agreement, transitional
             manufacturing and supply services, and a technology transfer (including know-
             how) to the Purchaser, to ensure the viability and competitiveness of the
             Endectocide Assets for a transitional period of […] following Closing […].
13. All the Assets, which are necessary to, but not exclusively or primarily related to, the
    viability and competitiveness of the Endectocide Assets and also relate to the
    products/businesses retained by the Parties, shall also be transferred or licensed to the
    Purchaser but only to the extent that they relate to the Endectocide Assets (at the option
    of the Purchaser). In the event that materials to be transferred contain information that
    is confidential to the Parties’ retained businesses and not relevant to the Endectocide
    Assets, the information shall be redacted as appropriate.
14. The Parties also undertake to respond promptly (to the best of their abilities) to any
    questions from the Purchaser of the Endectocide Assets.
                                                 38
 ---pagebreak--- 15. Subject to the provisions of Part 1 of Schedule 3, the Endectocide Assets shall not
    include any right, title or interest in or to any of the assets of the Parties or their Affiliated
    Undertakings other than those specified in paragraph 12 of this Schedule and, for the
    avoidance of doubt, will not include, (inter alia):
    (i)       Any right to develop, manufacture, market or sell any product of the Parties
              other than the Full Stage Pipeline Product for use in the Field.
    (ii)      Any asset that is not an Asset, and any asset that does not relate to the
              development, manufacture, marketing and sale of the Full Stage Pipeline
              Product.
    (iii)     The Parties’ names (specifically, Elanco, Bayer or Bayer Animal Health), or any
              trading name of the Parties, together with all variations thereof and all
              trademarks, service marks, domain names, trade names, corporate names,
              logos and other identifiers of source containing, incorporating or associated with
              any of the foregoing.
    (iv)      Subject to the Commitments with regard to Personnel and Key Personnel in
              paragraphs 6 and 9, employees, real property and tangible personal property of
              the Parties.
    (v)       Any shared Contracts retained by the Parties.
    (vi)      Trade Secrets unrelated to the Endectocide Assets.
    (vii)     Human resources and any other employee books and records (subject to
              paragraphs 6 and 9 of these Commitments).
    (viii)    Items to the extent applicable law prohibit their transfer.
16. If there is any asset or personnel which is not covered by paragraph 12 of this Schedule
    but which is both used (exclusively or not) in the Endectocide Assets and necessary for
    the continued viability and competitiveness of the Endectocide Assets, that asset or an
    adequate substitute will be offered to the Purchaser.
                                                    39
 ---pagebreak---  ---pagebreak---                      Case M.9554 – Elanco / Bayer Animal Health
       ADDITIONAL COMMITMENTS TO THE EUROPEAN COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No 139/2004 (the “Merger Regulation”),
Elanco Animal Health Inc. (“Elanco”) and Bayer AG (together with its affiliates referred to as
“Bayer”) (the “Parties”, each a “Party”) hereby enter into the following Additional Commitments
(the “Additional Commitments”) vis-à-vis the European Commission (the “Commission”) with
a view to rendering Elanco’s acquisition of Bayer’s animal health business (“Bayer Animal
Health” or “BAH”) (the “Concentration”) compatible with the internal market and the functioning
of the EEA Agreement. The Additional Commitments bind Bayer only in so far as necessary with
regards to actions that must be taken by Bayer with regards to the ESP Divestment Business
(as defined below).
This text shall be interpreted in light of the Commission’s decision pursuant to Article 6(1)(b) of
the Merger Regulation to declare the Concentration compatible with the internal market and the
functioning of the EEA Agreement (the “Decision”), in the general framework of European
Union law, in particular in light of the Merger Regulation, and by reference to the Commission
Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under
Commission Regulation (EC) No 802/2004 (the “Remedies Notice”).
        SECTION A.        DEFINITIONS
1.      For the purpose of the Additional Commitments, the following terms shall have the
        following meaning:
        Affiliated Undertakings: undertakings controlled by the Parties and/or by the ultimate
        parents of the Parties, whereby the notion of control shall be interpreted pursuant to
        Article 3 of the Merger Regulation and in light of the Commission Consolidated
        Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of
        concentrations between undertakings (the "Consolidated Jurisdictional Notice").
        Alternative Divestment Business: the business as described in further detail in
        Section C of the Additional Commitments and Schedule 2.
        API: active pharmaceutical ingredient(s).
        Assets: the tangible and intangible assets that contribute to the current operation or are
        necessary to ensure the viability and competitiveness of the ESP Divestment Business
        or, if applicable, the Alternative Divestment Business as including but not limited to the
        assets in paragraphs 6 and 14 respectively and described in more detail in the
        Schedules 1 and 2.
        Best Efforts: Best effort obligations shall be interpreted in light of the Commission's
        decision pursuant to Article 6(1)(b) of the Merger Regulation to declare the
        Concentration compatible with the internal market and the functioning of the EEA
        Agreement, the Merger Regulation and the general principles of EU law. Any
        interpretation that may be given to this term under the law of other jurisdictions is not
 ---pagebreak--- relevant solely for the purpose of interpreting and/or implementing the Additional
Commitments.
Closing: the transfer of the legal title to the ESP Divestment Business to the Purchaser
or, if applicable, of the Alternative Divestment Business, to the Purchaser.
Closing Period: the period of […] from the approval of the Purchaser and the terms of
sale by the Commission.
Confidential Information: any business secrets, know-how, commercial information, or
any other information of a proprietary nature that is not in the public domain.
Conflict of Interest: any conflict of interest that impairs the Trustee's objectivity and
independence in discharging its duties under the Additional Commitments.
Contract: any written contract, agreement, lease, sublease, licence, sub-licence or
other legally binding commitment or arrangement.
Divestiture Trustee: one or more natural or legal person(s) who is/are approved by the
Commission and appointed by Elanco and who has/have received from Elanco the
exclusive trustee mandate to sell the Alternative Divestment Business to a Purchaser at
no minimum price.
Elanco Pipeline Products: means the pipeline products as described in further detail in
Schedule 2.
Effective Date: the date of adoption of the Decision.
ESP Divestment Business: the business as described in further detail in Section B of
the Additional Commitments and Schedule 1.
Fast-Track Dispute Resolution Procedure: the procedure provided for in Section G
below and in Annex 2.7.
Field: means animal health.
First Divestiture Period: the period of […] from the Effective Date.
Hold Separate Manager: the person appointed by Elanco or Bayer (as relevant) for the
ESP Divestment Business or, if applicable, the Alternative Divestment Business, to
manage the day-to-day business under the supervision of the Monitoring Trustee.
Key Personnel: all personnel necessary to maintain the viability and competitiveness of
the ESP Divestment Business, as listed in Schedule 1.
Licensor: as described in further detail in Schedule 1.
Licensor Agreement: as described in further detail in Schedule 1.
                                              2
 ---pagebreak---    Monitoring Trustee: one or more natural or legal person(s) who is/are approved by the
   Commission and appointed by Elanco, and who has/have the duty to monitor the
   Parties’ compliance with the conditions and obligations attached to the Decision.
   Overlapping Retained Business: any business to be retained by Elanco or BAH that is
   related to canine and/or feline isoxazoline or isoxazoline-like parasiticides.
   Personnel: all staff currently employed by the ESP Divestment Business or, if
   applicable, the Alternative Divestment Business, including staff seconded to the ESP
   Divestment Business or, if applicable, the Alternative Divestment Business and shared
   personnel.
   Purchaser: the entity approved by the Commission as the acquirer of the ESP
   Divestment Business or, if applicable, the Alternative Divestment Business in
   accordance with the criteria set out in Section D.
   Purchaser Criteria: the criteria laid down in paragraph 21 of these Additional
   Commitments that the Purchaser must fulfil in order to be approved by the Commission.
   Trustee(s): the Monitoring Trustee and/or the Divestiture Trustee as the case may be.
   Trustee Divestiture Period: the period of […] from the end of the First Divestiture
   Period.
   SECTION B.        THE COMMITMENT TO DIVEST AND THE DIVESTMENT BUSINESS
   Commitment to divest
2. In order to maintain effective competition, Elanco commits to divest, or procure the
   divestiture of, the ESP Divestment Business by the end of the First Divestiture Period as
   a going concern to a Purchaser and on terms of sale approved by the Commission in
   accordance with the procedure described in paragraph 22 of these Additional
   Commitments. To carry out the divestiture, Elanco commits to find a Purchaser and to
   enter into a final binding sale and purchase agreement for the sale of the ESP
   Divestment Business by the end of the First Divestiture Period. If Elanco has not
   entered into such an agreement at the end of the First Divestiture Period, Elanco shall
   grant the Divestiture Trustee an exclusive mandate to sell the Alternative Divestment
   Business in accordance with the procedure described in paragraph 34 in the Trustee
   Divestiture Period.
3. Elanco shall be deemed to have complied with these Additional Commitments if:
   (a)      by (i) the end of the First Divestiture Period, Elanco has entered into a final
            binding sale and purchase agreement for the ESP Divestment Business or the
            Alternative Divestment Business (as applicable) or (ii) by the end of the Trustee
            Divestiture Period, the Divestiture Trustee has entered into a final binding sale
            and purchase agreement for the Alternative Divestment Business, provided that
            the Commission approves the proposed Purchaser and the terms of sale as
            being consistent with the Additional Commitments in accordance with the
            procedure described in paragraph 22; and
                                                3
 ---pagebreak---    (b)      the Closing of the sale of the ESP Divestment Business or the Alternative
            Divestment Business (as applicable) to the Purchaser takes place within the
            Closing Period.
4. In the event that the Licensor terminates the Licensor Agreement within a week
   following the acquisition of BAH by Elanco, Elanco shall instead be deemed to have
   complied with these Additional Commitments and, for the avoidance of doubt, shall not
   be required to sell the Alternative Divestment Business. Elanco undertakes to use Best
   Efforts to ensure that the Licensor does not terminate the Licensor Agreement upon the
   acquisition of BAH by Elanco.
5. In order to maintain the structural effect of the Additional Commitments, Elanco shall, for
   a period of 10 years after Closing, (i) not acquire, whether directly or indirectly, the
   possibility of exercising influence (as defined in paragraph 43 of the Remedies Notice,
   footnote 3) over the whole or part of the ESP Divestment Business and (ii) not market
   generic versions of the divestment products, unless, following the submission of a
   reasoned request from Elanco showing good cause and accompanied by a report from
   the Monitoring Trustee (as provided in paragraph 48 of these Additional Commitments),
   the Commission finds that the structure of the market has changed to such an extent
   that the absence of influence over the ESP Divestment Business is no longer necessary
   to render the proposed Concentration compatible with the internal market. For the
   avoidance of doubt, Elanco will still be bound by this obligation even if the Licensor
   terminates the Licensor Agreement.
   Structure and definition of the ESP Divestment Business
6. The ESP Divestment Business, as described in more detail in Schedule 1, includes all
   assets that contribute to the current operation or are necessary to ensure the viability
   and competitiveness of the ESP Divestment Business at a worldwide level, in particular:
   (i)      All rights, title and interests to develop, improve, manufacture and
            commercialise (including the right to conduct the ongoing clinical trials for) the
            products concerned for use in the Field;
   (ii)     All contracts related exclusively or primarily to the ESP Divestment Business
            and, according to the Purchaser’s needs, the rights and benefits of the relevant
            portion of contracts that are material and/or necessary to, but not exclusively or
            primarily related to, the ESP Divestment Business to the extent they are
            capable of being assigned;
   (iii)    Elanco undertakes to use Best Efforts to obtain all necessary third party
            consents where applicable;
   (iv)     All Assets;
   (v)      Key Personnel;
   (vi)     All product licences, permits, authorisations and registrations (“regulatory
            approvals”) for the products concerned as, and all other product registrations or
            regulatory approvals to the extent exclusively or primarily relating to the
            products concerned for use in the Field;
   (vii)    All intellectual property and intellectual property rights (including product-
            specific know-how) which are owned, maintained, used and /or controlled by the
                                                 4
 ---pagebreak---               Parties (as applicable) and related to the development, improvement,
              manufacturing and commercialisation of the products concerned for use in the
              Field or for the maintenance of the regulatory approvals being transferred;
    (viii)    All customer orders and customer records of the ESP Divestment Business;
              and
    (ix)      the benefit of transitional arrangements, including an R&D and regulatory
              transitional service agreement, transitional manufacturing and supply services,
              and a technology transfer (including know-how) to the Purchaser, to ensure the
              viability and competitiveness of the ESP Divestment Business for a transitional
              period of […] following Closing […], to ensure the smooth transfer of the ESP
              Divestment Business.
7.  All the Assets, which are necessary to, but not exclusively or primarily related to, the
    viability and competitiveness of the ESP Divestment Business and also relate to the
    products/businesses retained by the Parties, shall also be transferred to the Purchaser
    but only to the extent they related to the ESP Divestment Business (and at the
    Purchaser’s option). In the event that materials to be transferred to the Purchaser
    pursuant to the Additional Commitments contain information that is confidential to
    Elanco/BAH’s retained businesses and not relevant to the ESP Divestment Business,
    the information shall be redacted as appropriate.
8.  For the sake of clarity, the ESP Divestment Business shall not include any physical
    production assets, equipment or manufacturing units owned or operated by the Parties.
    Further, the ESP Divestment Business shall not include any Personnel (save for Key
    Personnel and as provided for at paragraph 9 below).
9.  At the option of the Purchaser, the ESP Divestment Business will include the Personnel
    who would reasonably be considered necessary to maintain the viability, marketability
    and competitiveness of the ESP Divestment Business. The exercise of such option
    shall be supervised by the Monitoring Trustee and subject to applicable local
    employment legislation and employee consent. Should Elanco not agree with the
    request of the Purchaser, the Monitoring Trustee shall prepare a reasoned opinion
    within seven working days and the Commission shall ultimately decide on the merits of
    the Purchaser proposal.
10. The sale of the ESP Divestment Business shall be structured as an asset sale with
    licences and rights of access to certain shared assets. Strict firewall procedures will be
    adopted so as to ensure that any competitively sensitive information related to, or
    arising from, transitional arrangements (for example, product roadmaps) will not be
    shared with, or passed on to, anyone outside the ESP Divestment Business’s
    operations, beyond what is reasonably required for the compliance with obligations
    relating to the transfer of the ESP Divestment Business and supply of transitional
    services.
    SECTION C.          THE ALTERNATIVE DIVESTMENT BUSINESS
11. During the First Divestiture Period, Elanco can choose to divest the Alternative
    Divestment Business instead of the ESP Divestment Business to remove competition
    concerns where the European Commission has found serious doubts as to the
    compatibility of the Transaction with the internal market (the “Alternative Divestiture
    Commitment”). Elanco’s decision to divest the Alternative Divestment Business shall
    be notified to the Monitoring Trustee. To carry out the divestiture, Elanco commits to find
    a Purchaser and enter into a final binding sale and purchase agreement for the sale of
    the Alternative Divestment Business within the First Divestiture Period. To the extent
    that at the end of the First Divestiture Period Elanco has not entered into such an
                                                 5
 ---pagebreak---     agreement, Elanco shall grant the Divestiture Trustee an exclusive mandate to sell the
    Alternative Divestment Business within the Trustee Divestiture Period in accordance
    with the procedure described in paragraph 34 below.
12. Elanco shall be deemed to have complied with the Additional Commitments if the
    conditions set out in paragraph 3 or 4 are met.
13. In order to maintain the structural effect of the Additional Commitments, Elanco shall, for
    a period of 10 years after Closing, (i) not acquire, whether directly or indirectly, the
    possibility of exercising influence (as defined in paragraph 43 of the Remedies Notice,
    footnote 3) over the whole or part of the Alternative Divestment Business and (ii) not
    market generic versions of the divestment products, unless, following the submission of
    a reasoned request from Elanco showing good cause and accompanied by a report
    from the Monitoring Trustee (as provided in paragraph 48 of these Additional
    Commitments), the Commission finds that the structure of the market has changed to
    such an extent that the absence of influence over the Alternative Divestment Business
    is no longer necessary to render the proposed Concentration compatible with the
    internal market.
    Structure and definition of the Alternative Divestment Business
14. The Alternative Divestment Business, as described in more detail in Schedule 2,
    includes all assets that contribute to the current operation or are necessary to ensure
    the viability and competitiveness of the Alternative Divestment Business at EEA/UK
    level, in particular:
    (i)       All rights, title and interests to develop, improve, manufacture and
              commercialise (including the right to conduct the ongoing clinical trials for) the
              products concerned for use in the Field;
    (ii)      All contracts related exclusively or primarily to the Alternative Divestment
              Business and, according to the Purchaser’s needs, the rights and benefits of the
              relevant portion of contracts that are material and/or necessary to, but not
              exclusively or primarily related to, the Alternative Divestment Business to the
              extent they are capable of being assigned;
    (iii)     Elanco undertakes to use Best Efforts to obtain all necessary third party
              consents where applicable;
    (iv)      All Assets;
    (v)       All product licences, permits, authorisations and registrations (“regulatory
              approvals”) for the products concerned as, and all other product registrations or
              regulatory approvals to the extent exclusively or primarily relating to the
              products concerned for use in the Field;
    (vi)      All intellectual property and intellectual property rights (including product-
              specific know-how) which are owned, maintained, used and /or controlled by
              Elanco (as applicable) and related to the development, improvement,
              manufacturing and commercialisation of the products concerned for use in the
              Field or for the maintenance of the regulatory approvals being transferred;
    (vii)     All customer orders and customer records of the Alternative Divestment
              Business; and
                                                  6
 ---pagebreak---     (viii)    the benefit of transitional arrangements, including an R&D and regulatory
              transitional service agreement, transitional manufacturing and supply services,
              and a technology transfer (including know-how), a transitional agreement for the
              manufacture and supply of finished products to the Purchaser, to ensure the
              viability and competitiveness of the Alternative Divestment Business for a
              transitional period of […] following Closing […], to ensure the smooth transfer of
              the Alternative Divestment Business.
15. The Alternative Divestment Business includes a perpetual, irrevocable, royalty-free
    exclusive licence for the Purchaser to develop, improve, manufacture and market the
    Elanco Pipeline Products (including the right to sub-license to third parties) in the
    EEA/UK for use in the Field upon completion of clinical development. The clinical
    development of the Elanco Pipeline Products shall be conducted and completed by
    Elanco under the supervision of the Purchaser (to the extent necessary for the
    exploitation of the Elanco Pipeline Products in the Field under the license in the
    EEA/UK) and in accordance with the provisions of Schedule 2. Any of the assets
    outlined in paragraph 14 relating to the Elanco Pipeline Products will be transferred
    upon completion of clinical development, to the extent necessary or useful for the
    development, improvement, manufacture and marketing of the Elanco Pipeline Products
    in the Field under the licence.
16. All the Assets, which are necessary to, but not exclusively or primarily related to, the
    viability and competitiveness of the Alternative Divestment Business and also relate to
    products/businesses retained by the Elanco, shall also be transferred to the Purchaser
    but only to the extent they relate to the Alternative Divestment Business (at the
    Purchaser’s option). In the event that materials to be transferred to the Purchaser
    pursuant to the Additional Commitments contain information that is confidential to the
    Elanco/BAH’s retained businesses and not relevant to the Alternative Divestment
    Business, the information shall be redacted as appropriate.
17. For the sake of clarity, the Alternative Divestment Business shall not include any
    physical production assets, equipment or manufacturing units owned or operated by the
    Parties. Further, the Alternative Divestment Business shall not include any Personnel
    (save as provided for at paragraph 18 below).
18. At the option of the Purchaser, the Alternative Divestment Business will include the
    Personnel who would reasonably be considered necessary to maintain the viability,
    marketability and competitiveness of the Alternative Divestment Business. The exercise
    of such option shall be supervised by the Monitoring Trustee and subject to applicable
    local employment legislation and employee consent. Should Elanco not agree with the
    request of the Purchaser, the Monitoring Trustee shall prepare a reasoned opinion
    within seven working days and the Commission shall ultimately decide on the merits of
    the Purchaser proposal.
19. The sale of the Alternative Divestment Business shall be structured as an asset sale
    with licences and rights of access to certain shared assets. Strict firewall procedures
    will be adopted so as to ensure that any competitively sensitive information related to, or
    arising from, transitional arrangements (for example, product roadmaps) will not be
    shared with, or passed on to, anyone outside the Alternative Divestment Business’s
    operations, beyond what is reasonably required for the compliance with obligations
    relating to the transfer of the Alternative Divestment Business and supply of transitional
    services.
                                                   7
 ---pagebreak---     SECTION D.        RELATED COMMITMENTS
    Preservation of viability, marketability and competitiveness
20. From the Effective Date until Closing, the Parties shall preserve or procure the
    preservation of the economic viability, marketability and competitiveness of the ESP
    Divestment Business, in accordance with good business practice, and shall minimise,
    as far as possible, any risk of loss of competitive potential of the ESP Divestment
    Business. In particular, the Parties undertake:
    (i)      not to carry out any action that might have a significant adverse impact on the
             value, management or competitiveness of the ESP Divestment Business or that
             might alter the nature and scope of activity, the industrial or commercial
             strategy, and/or the investment policy of the ESP Divestment Business;
    (ii)     to make available, or procure to make available, sufficient resources for the
             development of the ESP Divestment Business, on the basis and continuation of
             the existing business plans; and
21. Furthermore, Elanco undertakes to take all reasonable steps, or procure that all
    reasonable steps are being taken, including appropriate incentive schemes (based on
    industry practice), to encourage all Key Personnel to remain with the ESP Divestment
    Business, and not to solicit or move any Personnel to Elanco’s remaining business.
    Where, nevertheless, individual members of the Key Personnel exceptionally leave the
    ESP Divestment Business, Elanco shall provide a reasoned proposal to replace the
    person or persons concerned to the Commission and the Monitoring Trustee. Elanco
    must be able to demonstrate to the Commission that the replacement is well suited to
    carry out the functions exercised by those individual members of the Key Personnel.
    The replacement shall take place under the supervision of the Monitoring Trustee, who
    shall report to the Commission.
    Hold-separate obligations
22. The Parties commit, from the Effective Date until Closing, to procure that the ESP
    Divestment Business is kept separate from the business(es) that the Parties will be
    retaining and, after closing of the Concentration to keep the ESP Divestment Business
    separate from the retained business and to ensure that unless explicitly permitted under
    these Additional Commitments:
    (i)      Management and staff of the retained business have no involvement in the ESP
             Divestment Business; and
    (ii)     Key Personnel and Personnel can be involved in businesses retained by the
             Parties only to the extent that (a) they are bound by the terms of non-disclosure
             agreements or similar arrangements preventing the disclosure of any
             information related to the ESP Divestment Business; (b) they are not involved in
             the Overlapping Retained Business; and (c) their involvement in other
             businesses retained by the Parties is compatible with their required involvement
             in the ESP Divestment Business.
23. Until Closing, the Parties shall assist the Monitoring Trustee in ensuring that the ESP
    Divestment Business is managed as a distinct and saleable entity separate from the
    businesses which they are retaining. Immediately after the adoption of the Decision, the
    Parties shall appoint a Hold Separate Manager(s) for the ESP Divestment Business.
    The Hold Separate Manager shall manage the ESP Divestment Business independently
                                                  8
 ---pagebreak---     and in the best interests of the business with a view to ensuring its continued economic
    viability, marketability and competitiveness and its independence from the businesses
    retained by the Parties. The Hold Separate Manager shall closely cooperate with and
    report to the Monitoring Trustee and, if applicable, the Divestiture Trustee. In case of
    replacement of a Hold Separate Manager, the Parties shall provide a reasoned proposal
    to replace the person or person concerned to the Commission and the Monitoring
    Trustee. The Parties must be able to demonstrate to the Commission that the
    replacement is well suited to carry out the functions exercised by that individual. The
    replacement shall take place under the supervision of the Monitoring Trustee, who shall
    report to the Commission. The Commission may, after having heard the Parties, require
    the Parties to replace a Hold Separate Manager.
    Ring-fencing
24. The Parties shall implement, or procure to implement, all necessary measures to ensure
    that they do not, after the Effective Date, obtain any Confidential Information relating to
    the ESP Divestment Business and that any such Confidential Information obtained by
    the Parties before the Effective Date will be eliminated and not be used by them. In
    particular, the participation of the ESP Divestment Business in any central information
    technology network shall be severed to the extent possible, without compromising the
    viability of the ESP Divestment Business. The Parties may obtain or keep information
    relating to the ESP Divestment Business which is reasonably necessary for the
    divestiture of the ESP Divestment Business or the disclosure of which to the Parties is
    required by law.
    Non-solicitation clause
25. The Parties undertake, subject to customary limitations, not to solicit, and to procure
    that Affiliated Undertakings do not solicit, any Key Personnel or Personnel transferred
    with the ESP Divestment Business or, if applicable, the Alternative Divestment Business
    for a period of […] years after Closing.
    Due diligence
26. In order to enable potential purchasers to carry out reasonable due diligence of the ESP
    Divestment Business and, if applicable, the Alternative Divestment Business, the Parties
    shall, subject to customary confidentiality assurances and dependent on the stage of
    the divestiture process:
    (i)       provide to potential purchasers sufficient information as regards the ESP
              Divestment Business and, if applicable, the Alternative Divestment Business;
    (ii)      provide to potential purchasers sufficient information relating to the Personnel
              and allow them reasonable access to the Personnel to the extent required
              under paragraph 9 above (and, if applicable, under paragraph 18 above).
    Reporting
27. Elanco shall submit written reports in English on potential purchasers of the ESP
    Divestment Business and, if applicable, the Alternative Divestment Business and
    developments in the negotiations with such potential purchasers to the Commission and
    the Monitoring Trustee no later than 10 days after the end of every month following the
    Effective Date (or otherwise at the Commission’s request). Elanco shall submit a list of
    all potential purchasers having expressed interest in acquiring the ESP Divestment
    Business and, if applicable, the Alternative Divestment Business to the Commission at
    each and every stage of the divestiture process, as well as a copy of all the offers made
    by potential purchasers within five days of their receipt.
                                                 9
 ---pagebreak--- 28. Elanco shall inform the Commission and the Monitoring Trustee on the preparation of
    the data room documentation and the due diligence procedure and shall submit a copy
    of any information memorandum to the Commission and the Monitoring Trustee before
    sending such memorandum out to potential purchasers.
    Other
29. The obligations described in paragraphs 12 to 24 above shall also apply to the
    Alternative Divestment Business from the Effective Date until Closing (or some earlier
    time as agreed with the Commission).
30. As soon as Elanco informs the Monitoring Trustee of its decision to divest the
    Alternative Divestment Business pursuant to paragraph 11, the commitments provided
    for in Section D shall no longer apply to the ESP Divestment Business.
    SECTION E.         THE PURCHASER
31. In order to be approved by the Commission, the Purchaser must fulfil the following
    criteria:
    (i)       the Purchaser shall be independent of and unconnected to Elanco and BAH
              and their Affiliated Undertakings (this being assessed having regard to the
              situation following the divestiture);
    (ii)      the Purchaser shall have the financial resources, proven expertise and incentive
              to maintain and develop the ESP Divestment Business or, if applicable, the
              Alternative Divestment Business as a viable and active competitive force in
              competition with the Parties and other competitors;
    (iii)     the acquisition of the ESP Divestment Business, or if applicable, the Alternative
              Divestment Business by the Purchaser must neither be likely to create, in light
              of the information available to the Commission, prima facie competition
              concerns nor give rise to a risk that the implementation of the Additional
              Commitments will be delayed. In particular, the Purchaser must reasonably be
              expected to obtain all necessary approvals from the relevant regulatory
              authorities for the acquisition of the ESP Divestment Business or, if applicable,
              the Alternative Divestment Business; and
    (iv)      the Purchaser shall have:
              (a)      Established capabilities or a track record in the clinical development of
                       animal health products in the EEA/UK, including with regard to having
                       interactions with relevant EEA-wide and national bodies that decide on
                       approval of animal health products;
              (b)      Established capabilities or a track record in the manufacture,
                       commercialisation and distribution of animal health products in the
                       EEA/UK;
              (c)      Sufficient R&D resources and experience to develop the relevant
                       pipeline products included in the scope of the ESP Divestment Business
                       or, if applicable, the Alternative Divestment Business; and
              (d)      Complementary products and expertise relevant to the ESP Divestment
                       Business or, if applicable, the Alternative Divestment Business.
                                                    10
 ---pagebreak--- 32. The final binding sale and purchase agreement (and, if applicable, with respect to the
    Alternative Divestment Business, a licence agreement) (as well as ancillary
    agreements) relating to the divestment of the ESP Divestment Business or, if applicable,
    the Alternative Divestment Business, shall be conditional on the Commission’s approval.
    When Elanco has reached an agreement with a purchaser, it shall submit a fully
    documented and reasoned proposal, including a copy of the final agreement(s), within
    one week to the Commission and the Monitoring Trustee. Elanco must be able to
    demonstrate to the Commission that the Purchaser fulfils the Purchaser Criteria and
    that the ESP Divestment Business or, if applicable, the Alternative Divestment Business
    is being sold in a manner consistent with the Commission's Decision and these
    Additional Commitments. For the approval, the Commission shall verify that the
    purchaser fulfils the Purchaser Criteria and that the ESP Divestment Business or, if
    applicable, the Alternative Divestment Business are being sold in a manner consistent
    with the Additional Commitments including their objective to bring about a lasting
    structural change in the market. The Commission may approve the sale of the ESP
    Divestment Business or, if applicable, the Alternative Divestment Business without one
    or more Assets or any or part of any Personnel, or by substituting one or more Assets or
    parts of any Personnel with one or more different assets or different personnel or
    support, if this does not affect the viability and competitiveness of the ESP Divestment
    Business or, if applicable, the Alternative Divestment Business after the sale, taking
    account of the proposed purchaser.
    SECTION F.        TRUSTEE
    I.       Appointment procedure
33. Elanco shall appoint a Monitoring Trustee to carry out the functions specified in these
    Additional Commitments for a Monitoring Trustee. Elanco commits not to close the
    Concentration before the appointment of a Monitoring Trustee.
34. If Elanco has not entered into a binding sale and purchase agreement regarding the
    ESP Divestment Business or, if applicable, the Alternative Divestment Business one
    month before the end of the First Divestiture Period, or if the Commission has rejected a
    purchaser proposed by Elanco at that time or thereafter, Elanco shall appoint a
    Divestiture Trustee. The appointment of the Divestiture Trustee shall take effect upon
    the commencement of the Trustee Divestiture Period.
35. The Trustee shall:
    (i)      at the time of appointment, be independent of Elanco and its Affiliated
             Undertakings;
    (ii)     possess the necessary qualifications to carry out its mandate, for example
             having sufficient relevant experience as an investment banker or consultant or
             auditor; and
    (iii)    neither have nor become exposed to a Conflict of Interest.
36. The Trustee shall be remunerated by Elanco in a way that does not impede the
    independent and effective fulfilment of its mandate.             In particular, where the
    remuneration package of a Divestiture Trustee includes a success premium linked to
    the final sale value of the Alternative Divestment Business, such success premium may
    only be earned if the divestiture takes place within the Trustee Divestiture Period.
                                                  11
 ---pagebreak---     Proposal by Elanco
37. No later than two weeks after the Effective Date, Elanco shall submit the name or
    names of one or more natural or legal persons whom Elanco proposes to appoint as the
    Monitoring Trustee to the Commission for approval. No later than one month before the
    end of the First Divestiture Period or on request by the Commission, Elanco shall submit
    a list of one or more persons whom Elanco proposes to appoint as Divestiture Trustee
    to the Commission for approval. The proposal shall contain sufficient information for the
    Commission to verify that the person or persons proposed as Trustee fulfil the
    requirements set out in paragraph 25 and shall include:
    (i)       the full terms of the proposed mandate, which shall include, for the avoidance of
              doubt, all provisions necessary to enable the Trustee to fulfil its duties under
              these Additional Commitments;
    (ii)      the outline of a work plan which describes how the Trustee intends to carry out
              its assigned tasks; and
    (iii)     an indication whether the proposed Trustee is to act as both Monitoring Trustee
              and Divestiture Trustee or whether different trustees are proposed for the two
              functions.
    Approval or rejection by the Commission
38. The Commission shall have the discretion to approve or reject the proposed Trustee(s)
    and to approve the proposed mandate subject to any modifications it deems necessary
    for the Trustee to fulfil its obligations. If only one name is approved, Elanco shall
    appoint or cause to be appointed the person or persons concerned as Trustee, in
    accordance with the mandate approved by the Commission. If more than one name is
    approved, Elanco shall be free to choose the Trustee to be appointed from among the
    names approved. The Trustee shall be appointed within one week of the Commission’s
    approval, in accordance with the mandate approved by the Commission.
    New proposal by Elanco
39. If all the proposed Trustees are rejected, Elanco shall submit the names of at least two
    more natural or legal persons within one week of being informed of the rejection, in
    accordance with paragraphs 23 and 28 of these Additional Commitments.
    Trustee nominated by the Commission
40. If all further proposed Trustees are rejected by the Commission, the Commission shall
    nominate a Trustee, whom Elanco shall appoint, or cause to be appointed, in
    accordance with a trustee mandate approved by the Commission.
    II.       Functions of the Trustee
41. The Trustee shall assume its specified duties and obligations in order to ensure
    compliance with the Additional Commitments. The Commission may, on its own
    initiative or at the request of the Trustee or Elanco, give any orders or instructions to the
    Trustee in order to ensure compliance with the conditions and obligations attached to
    the Decision.
                                                  12
 ---pagebreak---     Duties and obligations of the Monitoring Trustee
42. The Monitoring Trustee shall:
    (i)     propose in its first report to the Commission a detailed work plan describing how
            it intends to monitor compliance with the obligations and conditions attached to
            the Decision.
    (ii)    oversee, in close co-operation with the Hold Separate Manager, the on-going
            management of the ESP Divestment Business or, if applicable, the Alternative
            Divestment Business, with a view to ensuring its continued economic viability,
            marketability and competitiveness and monitor compliance by the Parties with
            the conditions and obligations attached to the Decision. To that end the
            Monitoring Trustee shall:
            (a)      monitor the preservation of the economic viability, marketability and
                     competitiveness of the ESP Divestment Business or, if applicable, the
                     Alternative Divestment Business, and the keeping separate of ESP
                     Divestment Business or, if applicable, the Alternative Divestment
                     Business from the business retained by the Parties, in accordance with
                     paragraphs 21 and 24 of these Additional Commitments;
            (b)      supervise the management of the ESP Divestment Business or, if
                     applicable, the Alternative Divestment Business as distinct and saleable
                     entities, in accordance with paragraph 22 of these Additional
                     Commitments;
            (c)      with respect to Confidential Information:
                     (I)      determine all necessary measures to ensure that the Parties do
                              not after the Effective Date obtain any Confidential Information
                              relating to the ESP Divestment Business or, if applicable, the
                              Alternative Divestment Business,
                     (II)     in particular, strive for the severing of the ESP Divestment
                              Business’s participation in a central information technology
                              network to the extent possible, without compromising the
                              viability of the ESP Divestment Business or, if applicable, the
                              Alternative Divestment Business, as applicable,
                     (III)    make sure that any Confidential Information relating to the ESP
                              Divestment Business or, if applicable, the Alternative
                              Divestment Business, obtained by the Parties before the
                              Effective Date is eliminated and will not be used by the Parties;
                              and
                     (IV)     decide whether such information may be disclosed to or kept by
                              the Parties as the disclosure is reasonably necessary to allow
                              the Parties to carry out the divestiture or as the disclosure is
                              required by law;
            (d)      monitor the splitting of assets and the allocation of Personnel (to the
                     extent required under paragraph 9) between the ESP Divestment
                                                  13
 ---pagebreak---                  Business or, if applicable, the Alternative Divestment Business, and the
                 Parties or Affiliated Undertakings;
(iii)  propose to the Parties such measures as the Monitoring Trustee considers
       necessary to ensure the Parties’ compliance with the conditions and obligations
       attached to the Decision, in particular the maintenance of the full economic
       viability, marketability or competitiveness of the ESP Divestment Business or, if
       applicable, the Alternative Divestment Business, the holding separate of the
       ESP Divestment Business or, if applicable, the Alternative Divestment Business,
       and the non-disclosure of competitively sensitive information;
(iv)   review and assess potential purchasers as well as the progress of the
       divestiture process and verify that, dependent on the stage of the divestiture
       process:
       (a)       potential purchasers receive sufficient and correct information relating to
                 the ESP Divestment Business or, if applicable, the Alternative
                 Divestment Business, and Personnel (to the extent required under
                 paragraph 9) in particular by reviewing, if available, the data room
                 documentation, the information memorandum and the due diligence
                 process, and
       (b)       potential purchasers are granted reasonable access to Personnel (to
                 the extent required under paragraph 9);
(v)    act as a contact point for any requests by third parties, in particular potential
       purchasers, in relation to the Additional Commitments;
(vi)   provide to the Commission, sending Elanco a non-confidential copy at the same
       time, a written report within 15 days after the end of every month that shall
       cover the operation and management of the ESP Divestment Business or, if
       applicable, the Alternative Divestment Business as well as the splitting of assets
       and the allocation of Personnel (to the extent required under paragraph 18) so
       that the Commission can assess whether the business is held in a manner
       consistent with the Additional Commitments and the progress of the divestiture
       process as well as potential purchasers;
(vii)  promptly report in writing to the Commission, sending Elanco a non-confidential
       copy at the same time, if it concludes on reasonable grounds that the Parties
       are failing to comply with these Additional Commitments;
(viii) within one week after receipt of the documented proposal referred to in
       paragraph 22 of these Additional Commitments, submit to the Commission,
       sending Elanco a non-confidential copy at the same time, a reasoned opinion
       as to the suitability and independence of the proposed purchaser and the
       viability of the ESP Divestment Business or, if applicable, the Alternative
       Divestment Business after the sale and as to whether the ESP Divestment
       Business is sold in a manner consistent with the conditions and obligations
       attached to the Decision, in particular, if relevant, whether the sale of the ESP
       Divestment Business without one or more Assets or none, or not all, of the
       Personnel (to the extent required under paragraph 9) affects the viability of the
                                             14
 ---pagebreak---               ESP Divestment Business or, if applicable, the Alternative Divestment Business
              after the sale, taking account of the proposed purchaser; and
    (ix)      assume the other functions assigned to the Monitoring Trustee under the
              conditions and obligations attached to the Decision.
43. If the Monitoring and Divestiture Trustee are not the same legal or natural persons, the
    Monitoring Trustee and the Divestiture Trustee shall cooperate closely with each other
    during and for the purpose of the preparation of the Trustee Divestiture Period in order
    to facilitate each other's tasks.
    Duties and obligations of the Divestiture Trustee
44. Within the Trustee Divestiture Period, the Divestiture Trustee shall sell at no minimum
    price the Alternative Divestment Business to a purchaser, provided that the Commission
    has approved both the purchaser and the final binding sale and purchase agreement
    (and ancillary agreements) as in line with the Commission's Decision and the Additional
    Commitments in accordance with paragraphs 21 and 22 of these Additional
    Commitments. The Divestiture Trustee shall include in the sale and purchase
    agreement (as well as in any ancillary agreements) such terms and conditions as it
    considers appropriate for an expedient sale in the Trustee Divestiture Period. In
    particular, the Divestiture Trustee may include in the sale and purchase agreement such
    customary representations and warranties and indemnities as are reasonably required
    to effect the sale. The Divestiture Trustee shall protect the legitimate financial interests
    of Elanco, subject to Elanco’s unconditional obligation to divest at no minimum price in
    the Trustee Divestiture Period.
45. In the Trustee Divestiture Period (or otherwise at the Commission’s request), the
    Divestiture Trustee shall provide the Commission with a comprehensive monthly report
    written in English on the progress of the divestiture process. Such reports shall be
    submitted within 15 days after the end of every month with a simultaneous copy to be
    sent to the Monitoring Trustee and a non-confidential copy to be sent to Elanco.
    III.      Duties and obligations of the Parties
46. The Parties shall provide and shall cause their advisors to provide the Trustee with all
    such co-operation, assistance and information as the Trustee may reasonably require to
    perform its tasks. The Trustee shall have full and complete access to any of the Parties’
    or the ESP Divestment Business’ or, if applicable, the Alternative Divestment Business’
    books, records, documents, management or other personnel, facilities, sites and
    technical information necessary for fulfilling its duties under the Additional Commitments
    and the Parties and the ESP Divestment Business’ or, if applicable, the Alternative
    Divestment Business’ shall provide the Trustee upon request with copies of any
    document. The Parties and the ESP Divestment Business or, if applicable, the
    Alternative Divestment Business’ shall make available to the Trustee one or more
    offices on their premises and shall be available for meetings in order to provide the
    Trustee with all information necessary for the performance of its tasks.
47. The Parties shall provide the Monitoring Trustee with all managerial and administrative
    support that it may reasonably request on behalf of the management of the ESP
    Divestment Business or, if applicable, the Alternative Divestment Business. This shall
    include all administrative support functions relating to the ESP Divestment Business or,
    if applicable, the Alternative Divestment Business which are currently carried out at
    headquarters level. Elanco shall provide and shall cause its advisors to provide the
    Monitoring Trustee, on request, with the information submitted to potential purchasers,
    and in particular give the Monitoring Trustee access to the data room documentation
    and all other information granted to potential purchasers in the due diligence procedure.
    Elanco shall inform the Monitoring Trustee on possible purchasers, submit lists of
                                                  15
 ---pagebreak---     potential purchasers at each stage of the selection process, including the offers made
    by potential purchasers at those stages, and keep the Monitoring Trustee informed of all
    developments in the divestiture process.
48. The Parties shall grant or procure Affiliated Undertakings to grant comprehensive
    powers of attorney, duly executed, to the Divestiture Trustee to effect the sale (including
    ancillary agreements), the Closing and all actions and declarations which the Divestiture
    Trustee considers necessary or appropriate to achieve the sale and the Closing,
    including the appointment of advisors to assist with the sale process. Upon request of
    the Divestiture Trustee, the Parties shall cause the documents required for effecting the
    sale and the Closing to be duly executed.
49. Elanco shall indemnify the Trustee and its employees and agents (each an “Indemnified
    Party”) and hold each Indemnified Party harmless against, and hereby agrees that an
    Indemnified Party shall have no liability to Elanco for, any liabilities arising out of the
    performance of the Trustee’s duties under the Additional Commitments, except to the
    extent that such liabilities result from the wilful default, recklessness, gross negligence
    or bad faith of an Indemnified Party.
50. At the expense of Elanco, the Trustee may appoint advisors (in particular for corporate
    finance or legal advice), subject to Elanco’s approval (such approval not to be
    unreasonably withheld or delayed) if the Trustee considers the appointment of such
    advisors necessary or appropriate for the performance of its duties and obligations
    under the mandate, provided that any fees and other expenses incurred by the Trustee
    are reasonable. Should Elanco refuse to approve the advisors proposed by the Trustee
    the Commission may approve the appointment of such advisors instead, after having
    heard Elanco. Only the Trustee shall be entitled to issue instructions to the advisors.
    Paragraph 50 of these Additional Commitments shall apply mutatis mutandis. In the
    Trustee Divestiture Period, the Divestiture Trustee may use advisors who served Elanco
    during the Divestiture Period if the Divestiture Trustee considers this in the best interest
    of an expedient sale.
51. The Parties agree that the Commission may share Confidential Information proprietary
    to the Parties with the Trustee. The Trustee shall not disclose such information and the
    principles contained in Article 17 (1) and (2) of the Merger Regulation apply mutatis
    mutandis.
52. Elanco agrees that the contact details of the Monitoring Trustee are published on the
    website of the Commission's Directorate-General for Competition and they shall inform
    interested third parties, in particular any potential purchasers, of the identity and the
    tasks of the Monitoring Trustee.
53. For a period of 10 years from the Effective Date the Commission may request all
    information from the Parties that is reasonably necessary to monitor the effective
    implementation of these Additional Commitments.
    IV.      Replacement, discharge and reappointment of the Trustee
54. If the Trustee ceases to perform its functions under the Additional Commitments or for
    any other good cause, including the exposure of the Trustee to a Conflict of Interest:
    (i)      the Commission may, after hearing the Trustee and Elanco, require Elanco to
             replace the Trustee; or
    (ii)     Elanco may, with the prior approval of the Commission, replace the Trustee.
55. If the Trustee is removed according to paragraph 44 of these Additional Commitments,
    the Trustee may be required to continue in its function until a new Trustee is in place to
    whom the Trustee has effected a full hand over of all relevant information. The new
                                                 16
 ---pagebreak---         Trustee shall be appointed in accordance with the procedure referred to in paragraphs
        21 to 28 of these Additional Commitments.
56.     Unless removed according to paragraph 44 of these Additional Commitments, the
        Trustee shall cease to act as Trustee only after the Commission has discharged it from
        its duties after all the Additional Commitments with which the Trustee has been
        entrusted have been implemented. However, the Commission may at any time require
        the reappointment of the Monitoring Trustee if it subsequently appears that the relevant
        remedies might not have been fully and properly implemented.
        SECTION G.       DISPUTE RESOLUTION
57.     In the event that Elanco divests the Alternative Divestment Business, the Purchaser
        may avail itself of the Fast-Track Dispute Resolution Procedure described in Annex 2.7
        if it believes that Elanco is failing to comply with these Additional Commitments in
        relation to the development of the Elanco Pipeline Products.
        SECTION H.       THE REVIEW CLAUSE
58.     The Commission may extend the time periods foreseen in the Additional Commitments
        in response to a request from Elanco or, in appropriate cases, on its own initiative.
        Where Elanco requests an extension of a time period, it shall submit a reasoned
        request to the Commission no later than one month before the expiry of that period,
        showing good cause. This request shall be accompanied by a report from the
        Monitoring Trustee, who shall, at the same time, send a non-confidential copy of the
        report to Elanco. Only in exceptional circumstances shall Elanco be entitled to request
        an extension within the last month of any period.
59.     The Commission may further, in response to a reasoned request from Elanco showing
        good cause, waive, modify or substitute, in exceptional circumstances, one or more of
        the undertakings in these Additional Commitments. This request shall be accompanied
        by a report from the Monitoring Trustee, who shall, at the same time, send a non-
        confidential copy of the report to Elanco. The request shall not have the effect of
        suspending the application of the undertaking and, in particular, of suspending the
        expiry of any time period in which the undertaking has to be complied with.
        SECTION I.       ENTRY INTO FORCE
60.     The Additional Commitments shall take effect upon the date of adoption of the Decision.
(Signed)
duly authorised for and on behalf of
Elanco Animal Health Inc.
duly authorised for and on behalf of
Bayer AG
                                                   17
 ---pagebreak---                       SCHEDULE 1: The ESP Divestment Business
1. The ESP Divestment Business consists of:
   (i)       The worldwide rights, obligations, title and interest that Elanco will acquire from
             Bayer under the licence agreement dated […] between BAH and […]. (the
             “Licensor” and the “Licensor Agreement”), subject to the Licensor not exercising
             its termination rights under the Licensor Agreement, which relate to the
             following pipeline products based on the […] compound, being developed by
             BAH pursuant to the Licensor Agreement (the “Early Stage Pipeline Products”):
             (a)      […];
             (b)      […]
             (c)      […].
             […].
2. The ESP Divestment Business as operated to date is not a stand-alone business, rather
   it is integrated into a wider operational and commercial organisation; it will therefore be
   separated from BAH’s current operations. As regards its legal and functional structure:
   (i)       The ESP Divestment Business forms part of BAH’s companion animal
             therapeutics business segment and part of BAH’s R&D function.
   (ii)      The Early Stage Pipeline Products’ clinical trials are […].
3. In accordance with Section B of these Additional Commitments, subject to third party
   consent where relevant and to the extent in Elanco’s or BAH’s ownership, control or
   possession at Closing, the ESP Divestment Business includes, but is not limited to, the
   following on a worldwide basis:
   (i)       All rights, title and interests in the Early Stage Pipeline Products (including the
             right to conduct the ongoing clinical trials (listed inter alia in Annex 1.1) and to
             develop, improve, manufacture and commercialise) for use in the Field.
   (ii)      All Contracts exclusively or primarily related to the Early Stage Pipeline
             Products, and the benefit of the portion of Contracts which are material or
             necessary to, but not exclusively or primarily used in, the ESP Divestment
             Business or the manufacture of the Early Stage Pipeline Products, including,
             but not limited to, the Contracts listed in Annex 1.2. The Parties undertake to
             use Best Efforts to obtain all necessary third-party consents where applicable.
             To the extent any such third-party consent could not be obtained, or any
             contract could not be otherwise transferred, the Parties will, as appropriate,
             either: (i) assist the Purchaser and the relevant third party to put in place
             arrangements to transfer any work product and work in progress, and support
             the Purchaser to put in place alternative arrangements; or (ii) enter into back-to-
             back agreements with the Purchaser under the same terms and conditions as
                                                   18
 ---pagebreak---       the relevant contract for a transitional period of at least […] and up to the
      duration of the existing relevant contract (if longer than […]).
(iii) All inventory of (to the extent that it has not been sold to a third party), including,
      but not limited to, the inventory listed at Annex 1.3:
      a)       Early Stage Pipeline Products in finished form (together with any
               product packaging materials and any samples) labelled and held for use
               by the ESP Divestment Business; and
      b)       bulk API, work-in-progress, excipients, labelling materials and
               packaging materials used or held for use exclusively or primarily in the
               manufacture of Early Stage Pipeline Products for use by the ESP
               Divestment Business.
(iv)  All licences, permits, authorisations and registrations (“Regulatory Approvals”)
      for the Early Stage Pipeline Products, and all other product registrations or
      regulatory approvals to the extent exclusively or primarily relating to the Early
      Stage Pipeline Products for use in the Field.
(v)   All documentation comprising any Regulatory Approvals, and to the extent
      exclusively or primarily related to the Early Stage Pipeline Products for use in
      the Field:
      a)       correspondence and reports submitted to or received from relevant
               regulatory authorities relating to the research, development,
               manufacture, testing, storage, import, export, use, labelling, distribution,
               sale, offer for sale, commercialisation, licensing, advertising, marketing
               and promotion (“exploitation”) of the Early Stage Pipeline Products;
      b)       other dossiers or compilations necessary to obtain or maintain any of
               the product registrations and Regulatory Approvals;
      c)       literature safety reports and documents relating to good manufacturing
               practices or issues, animal clinical trials, animal research, including
               laboratory and target animal research and all veterinary master files
               contained or referenced to in the product registrations and Regulatory
               Approvals;
      d)       environmental and safety documentation; and
      e)       data that resulted from any of BAH’s research or development activities
               related to the Early Stage Pipeline Products, or data referenced in any
               documentation and materials referred to above,
      but in all cases except where explicitly excluded and excluding all intellectual
      property rights of any third party unless they are necessary for the functioning of
                                            19
 ---pagebreak---        the ESP Divestment Business (in which instance, Elanco shall use reasonable
       best efforts to work with the Purchaser to reach an agreement with the entity
       that is able to grant a licence).
(vi)   All relevant reports, databases and analysis (including all technical, clinical and
       marketing files, protocols, clinical data and studies, reports, plans, books and
       records) relating exclusively or primarily to the ESP Divestment Business in
       such form as maintained by BAH (except where explicitly excluded).
(vii)  All existing marketing materials, plans and forecasts which are specific to the
       Early Stage Pipeline Products in such form as maintained by BAH to the extent
       they are exclusively or primarily used or held for exclusive or primary use in the
       ESP Divestment Business (except where explicitly excluded).
(viii) All intellectual property rights to the extent exclusively or primarily relating to the
       Early Stage Pipeline Products for use in the Field, including, but not limited to,
       the intellectual property rights listed at Annex 1.4 which, broadly, comprise:
       a)        […], which BAH licenses from […] this under the Licensor Agreement;
       b)        the patent families relating exclusively or primarily to the development
                 of the Early Stage Pipeline Products for their use in the Field which
                 include (inter alia):
                 (I)     […];
                 (II)    […];
                 (III)   […]
                 (IV)    […].
       c)        product-specific know-how that is identified or identifiable in tangible
                 form that is or has been used for or held for use by or on behalf of BAH
                 exclusively or primarily for or exclusively or primarily in connection with
                 the development, improvement, manufacturing and commercialisation
                 of the Early Stage Pipeline Products for use in the Field;
       d)        any copyrights or know-how owned by BAH that comprise or are
                 contained or embodied in any of the marketing materials, plans and
                 forecasts being transferred; and
       e)        an exclusive, perpetual, irrevocable, royalty-free sub-licensable and
                 transferable licence with respect to necessary unregistered intellectual
                 property and know-how used or held for use by or on behalf of BAH for
                 or in connection with the conduct of the ESP Divestment Business or
                                             20
 ---pagebreak---                     the development, improvement, manufacture or commercialisation of
                    the Early Stage Pipeline Products.
   (ix)     The Key Personnel listed at Annex 1.5.
   (x)      The benefit of transitional arrangements to ensure the smooth transfer of the
            ESP Divestment Business and to enable the continuity of the clinical trials,
            including an R&D and regulatory transitional service agreement, transitional
            manufacturing and supply services, and a technology transfer (including know-
            how) to the Purchaser, to ensure the viability and competitiveness of the ESP
            Divestment Business for a transitional period of […] following Closing, […].
4. All the Assets, which are necessary to, but not exclusively or primarily related to, the
   viability and competitiveness of the ESP Divestment Business and also relate to
   products/businesses retained by the Parties, shall also be transferred to the Purchaser
   but only to the extent they relate to the ESP Divestment Business (and at the
   Purchaser’s option). In the event that materials to be transferred to the Purchaser
   pursuant to the Additional Commitments contain information that is confidential to the
   Elanco/BAH’s retained businesses and not relevant to the ESP Divestment Business,
   the information shall be redacted as appropriate.
5. In the event that materials to be transferred contain information that is confidential to the
   Parties’ retained businesses and not relevant to the ESP Divestment Business, the
   information shall be redacted as appropriate.
6. The ESP Divestment Business shall not include any right, title or interest in or to any of
   the assets of the Parties or their Affiliated Undertakings other than those specified in
   paragraph 6 of the Additional Commitments and paragraph 3 of this Schedule and, for
   the avoidance of doubt, will not include, (inter alia):
   (i)      Any right to develop, manufacture, market or sell any other product of the
            Parties other than the Early Stage Pipeline Products for use in the Field.
   (ii)     Any asset that is not an Asset, and any asset that does not relate to the
            development, manufacture, marketing and sale of the Early Stage Pipeline
            Products.
   (iii)    The Parties’ names (specifically, Elanco, Bayer or Bayer Animal Health), or any
            trading name of the Parties, together with all variations thereof and all
            trademarks, service marks, domain names, trade names, corporate names,
            logos and other identifiers of source containing, incorporating or associated with
            any of the foregoing.
   (iv)     Subject to the Additional Commitments with regard to Personnel and Key
            Personnel in paragraphs 6 and 9, employees, real property and tangible
            personal property of the Parties.
   (v)      Any shared Contracts retained by the Parties.
   (vi)     Trade Secrets unrelated to the ESP Divestment Business.
                                                21
 ---pagebreak---    (vii)    Human resources and any other employee books and records (subject to
            paragraphs 6 and 9 of these Additional Commitments).
   (viii)   Items to the extent applicable law prohibit their transfer.
7. If there is any asset or personnel which is not covered by paragraph 3 of this Schedule
   but which is both used (exclusively or not) in the ESP Divestment Business and
   necessary for the continued viability and competitiveness of the ESP Divestment
   Business, that asset or an adequate substitute will be offered to the Purchaser.
                                               22
 ---pagebreak---                    INDEX OF ANNEXES TO SCHEDULE 1
1.1 List of Scientific Studies
1.2 List of Contracts
1.3 List of Inventory
1.4 List of IPR
1.5 List of Key Personnel
                                 23
 ---pagebreak---        Annex 1 .1
List of Scientific Studies
            […]
       Annex 1.2
    List of Contracts
            […]
       Annex 1.3
     List of Inventory
            […]
       Annex 1.4
        List of IPR
            […]
       Annex 1.5
 List of Key Personnel
            […]
                 24
 ---pagebreak---                  SCHEDULE 2: The Alternative Divestment Business
1. The Alternative Divestment Business consists of:
   (i)      the EEA/UK-wide rights, title and interests in (including the right to develop,
            improve, manufacture and commercialise in the EEA/UK) Elanco’s lotilaner oral
            ectoparasiticide (“Credelio”), lotilaner being an ectoparasiticide in the
            isoxazoline chemical class; and
   (ii)     a licence for the EEA/UK rights to improve, manufacture and market the
            following Elanco […] pipeline products upon completion of clinical development,
            which will continue to be developed by Elanco until completion of clinical
            development (together with […] as set out in paragraph 3.1.3.a) below, the
            “Elanco Pipeline Products”):
            a)        […];
            b)        […];
            c)        […]; and
            d)        […].
   (iii)    a licence for the EEA/UK rights to improve, manufacture and market the
            following Elanco […] pipeline product:
            a)       […].
2. The clinical development of the Elanco Pipeline Products will be conducted and
   completed under the supervision of the Purchaser and the Monitoring Trustee (to the
   extent necessary for the exploitation of Elanco Pipeline Products in the Field under the
   license in the EEA/UK) in the following manner:
   (i)      Elanco will devote commercially reasonable efforts (including sufficient
            resources), in particular in terms of budget and personnel, to conclude the
            clinical development of the Elanco Pipeline Products without unnecessary
            delays;
   (ii)     Purchaser will, acting reasonably and in consultation with Elanco, have the final
            say on all decisions related to the clinical development of the Elanco Pipeline
            Products which could materially influence the development and/or market entry
            of the Elanco Pipeline Products in the EEA/UK; and
   (iii)    Any disputes between Elanco and Purchaser in relation to the development of
            the Elanco Pipeline Products shall be handled in accordance with the Fast-
            Track Dispute Resolution Procedure as set out in Annex 2.7.
3. The Alternative Divestment Business as operated to date is not a stand-alone business,
   rather it is integrated into a wider operational and commercial organisation; it will
                                               25
 ---pagebreak---    therefore be separated from Elanco’s current operations. As regards its legal and
   functional structure:
   (i)      The Alternative Divestment Business forms part of Elanco’s companion animal
            disease prevention segment which encompasses parasiticides and vaccine
            products for canines and felines, with the Elanco Pipeline Products forming part
            of Elanco’s R&D function. Please refer to the structure chart provided as Annex
            2.1 for further detail in relation to Credelio.
   (ii)     Credelio has been marketed in the EEA since 2018 and has an established
            production process. The Elanco Pipeline Products’ clinical trials (listed inter alia
            in Annex 2.2) are conducted.
   (iii)    The EEA/UK (a) sales, technical and marketing and (b) manufacturing and
            quality Personnel for the Alternative Divestment Business are located in […].
4. In accordance with Section B, paragraph 6 of these Additional Commitments, subject to
   third party consent where relevant, and to the extent in Elanco’s ownership, control or
   possession at Closing, the Alternative Divestment Business includes, but is not limited
   to, the following on an EEA/UK-wide basis:
   (i)      All rights, title and interest in Credelio (including the right to develop, improve,
            manufacture and commercialise) for use in the Field on an EEA/UK wide basis,
            and a perpetual, irrevocable, royalty-free exclusive licence for the Purchaser to
            improve, market and manufacture the Elanco Pipeline Products (including the
            right to sub-license third parties) in the EEA/UK for use in the Field upon
            completion of clinical development.
   (ii)     All Contracts exclusively or primarily related to Credelio and, upon completion of
            clinical development, the Elanco Pipeline Products, and the benefit of the
            portion of Contracts which are material or necessary to, but not exclusively or
            primarily used in, the Alternative Divestment Business, including, but not limited
            to, the Contracts listed in Annex 2.3. Elanco undertakes to use Best Efforts to
            obtain all necessary third-party consents where applicable. To the extent any
            such third-party consent could not be obtained, or any contract could not be
            otherwise transferred, Elanco will, as appropriate, either: (i) assist the
            Purchaser and the relevant third party to put in place arrangements to transfer
            any work product and work in progress, and support the Purchaser to put in
            place alternative arrangements; or (ii) enter into back-to-back agreements with
            the Purchaser under the same terms and conditions as the relevant contract for
            a transitional period of up to […] and up to the duration of the existing relevant
            contract ([…]).
   (iii)    Inventory (to the extent that it has not been sold to a third party) including but
            not limited to the inventory listed in Annex 2.4 of:
                                                   26
 ---pagebreak---      a)       Credelio in finished form (together with any product packaging materials
              and any samples) labelled and held for use by the Alternative
              Divestment Business; and
     b)       bulk API, work-in-progress, excipients, labelling materials and
              packaging materials used or held for use exclusively or primarily in the
              manufacture of Credelio for use by the Alternative Divestment
              Business.
(iv) All licences, permits, authorisations and registrations (“Regulatory Approvals”)
     for Credelio and, upon completion of clinical development, the Elanco Pipeline
     Products (including but not limited to the ones listed at Annex 5), and all other
     product registrations or regulatory approvals to the extent exclusively or
     primarily relating to Credelio for use in the Field or, upon completion of clinical
     development, the Elanco Pipeline Products (as far as is necessary or useful for
     the improvement, manufacture and marketing of the Elanco Pipeline Products in
     the Field).
(v)  All documentation comprising the Regulatory Approvals (including but limited to
     the ones identified in Annex 2.5), and to the extent exclusively or primarily
     related to Credelio for use in the Field and, upon completion of clinical
     development, the Elanco Pipeline Products (as far as is necessary or useful for
     the improvement, manufacture and marketing of the Elanco Pipeline Products in
     the Field):
     a)       correspondence and reports submitted to or received from relevant
              regulatory authorities relating to the research, development,
              manufacture, testing, storage, import, export, use, labelling, distribution,
              sale, offer for sale, commercialisation, licensing, advertising, marketing
              and promotion (“exploitation”) of Credelio or the Elanco Pipeline
              Products;
     b)       other dossiers or compilations necessary to obtain or maintain any of
              the product registrations and regulatory approvals in Annex 2.5;
     c)       literature safety reports and documents relating to good manufacturing
              practices or issues, animal clinical trials, animal research, including
              laboratory and target animal research and all veterinary master files
              contained or referenced to in the product registrations and regulatory
              approvals in Annex 2.5;
     d)       environmental and safety documentation; and
     e)       data that resulted from any of Elanco’s research or development
              activities related to Credelio or the Elanco Pipeline Products, or data
              referenced in any documentation and materials referred to above,
     but in all cases except where explicitly excluded and excluding all intellectual
     property rights of any third party unless they are necessary for the functioning of
                                          27
 ---pagebreak---        the Alternative Divestment Business (in which instance, Elanco shall use
       reasonable best efforts to worh with the Purchaser to reach an agreement with
       the entity that is able to grant a licence).
(vi)   All relevant reports, databases and analysis (including all technical, clinical and
       marketing files, protocols, clinical data and studies, reports, plans, books and
       records) relating exclusively or primarily to Credelio in such form as maintained
       by Elanco (except where explicitly excluded) and, upon completion of clinical
       development, the Elanco Pipeline Products (as far as is necessary or useful for
       the improvement, manufacture and marketing of the Elanco Pipeline Products in
       the Field).
(vii)  All existing marketing materials, plans and forecasts which are specific to
       Credelio and, upon completion of clinical development, the Elanco Pipeline
       Products (as far as is necessary or useful for the improvement, manufacture
       and marketing of the Elanco Pipeline Products in the Field) in such form as
       maintained by Elanco to the extent they are exclusively or primarily used or held
       for exclusive or primary use in the Alternative Divestment Business (except
       where explicitly excluded).
(viii) All intellectual property rights exclusively or primarily relating to Credelio and the
       Elanco Pipeline Products for use in the Field (including but not limited to the
       intellectual property rights listed at Annex 2.6) which, broadly, comprise:
       a)        patents or pending patent applications;
       b)        domain names;
       c)        trademarks;
       d)        product-specific know-how that is identified or identifiable in tangible
                 form that is or has been used for or held for use by or on behalf of
                 Elanco exclusively for or exclusively in connection with the
                 improvement, manufacturing and commercialisation of Credelio for use
                 in the Field or, upon completion of clinical development, the Elanco
                 Pipeline Products (as far as is necessary or useful for the improvement,
                 manufacture and marketing of the Elanco Pipeline Products in the
                 Field);
       e)        any copyrights or know-how owned by Elanco that comprise or are
                 contained or embodied in any of the marketing materials, plans and
                 forecasts being transferred; and
       f)        an exclusive, perpetual, irrevocable, royalty-free sub-licensable and
                 transferable licence with respect to necessary unregistered intellectual
                 property and know-how used or held for use by or on behalf of Elanco
                 for or in connection with the conduct of the Divestment Business or the
                                             28
 ---pagebreak---                       development, improvement, manufacture or commercialisation of
                      Credelio or, upon completion of clinical development, the Elanco
                      Pipeline Products (as far as is necessary or useful for the improvement,
                      manufacture and marketing of the Elanco Pipeline Products in the Field)
                      as applicable).
   (ix)      the benefit of transitional arrangements to ensure the smooth transfer of the
             Alternative Divestment Business and to enable the continuity of the clinical
             trials, including an R&D and regulatory transitional service agreement,
             transitional manufacturing and supply services, and a technology transfer
             (including know-how), a transitional agreement for the manufacture and supply
             of finished products to the Purchaser, to ensure the viability and
             competitiveness of the Alternative Divestment Business for a transitional period
             of […] following Closing […].
5. All the Assets, which are necessary to, but not exclusively or primarily related to, the
   viability and competitiveness of the Alternative Divestment Business and also relate to
   products/businesses retained by the Elanco, shall also be transferred to the Purchaser
   but only to the extent they relate to the Alternative Divestment Business (at the
   Purchaser’s option). In the event that materials to be transferred to the Purchaser
   pursuant to the Additional Commitments contain information that is confidential to the
   Elanco/BAH’s retained businesses and not relevant to the Alternative Divestment
   Business, the information shall be redacted as appropriate.
6. In the event that materials to be transferred contain information that is confidential to the
   Parties’ retained businesses and not relevant to the Alternative Divestment Business,
   the information shall be redacted as appropriate.
7. The Alternative Divestment Business shall not include any right, title or interest in or to
   any of the assets of the Parties or their Affiliated Undertakings other than those
   specified at paragraph 14 of the Additional Commitments and in paragraph 3 of this
   Schedule and, for the avoidance of doubt, will not include (inter alia):
   (i)       Any right to develop, manufacture, market or sell (as applicable) any other
             product of the Parties other than Credelio or the Elanco Pipeline Products for
             use in the Field in the EEA/UK.
   (ii)      Any asset that is not an Asset, and any asset that does not relate to the
             development, manufacture, marketing and sale of Credelio or the Elanco
             Pipeline Products.
   (iii)     The Parties’ names (specifically, Elanco, Bayer or Bayer Animal Health), or any
             trading name of the Parties, together with all variations thereof and all
             trademarks, service marks, domain names, trade names, corporate names,
             logos and other identifiers of source containing, incorporating or associated with
             any of the foregoing.
   (iv)      Subject to the Additional Commitments with regard to Personnel (to the extent
             required under paragraph 18 of these Additional Commitments), employees,
             real property and tangible personal property of Elanco.
                                                 29
 ---pagebreak---    (v)      Any shared Contracts retained by Elanco.
   (vi)     Trade secrets unrelated to the Alternative Divestment Business.
   (vii)    Human resources and any other employee books and records (subject to
            paragraph 18 of these Additional Commitments).
   (viii)   Items to the extent applicable law prohibits their transfer.
8. If there is any asset or personnel which is not covered by paragraph 3 of this Schedule
   but which is both used (exclusively or not) in the Alternative Divestment Business and
   necessary for the continued viability and competitiveness of the Alternative Divestment
   Business, that asset or an adequate substitute will be offered to the Purchaser.
                                               30
 ---pagebreak---                    INDEX OF ANNEXES TO SCHEDULE 2
2.1 Structure Chart for Credelio
2.2 List of Scientific Studies
2.3 List of Contracts
2.4 List of Inventory
2.5 List of Regulatory Approvals
2.6 List of IPR
2.7 Fast-Track Dispute Resolution Procedure
                                   31
 ---pagebreak---          Annex 2.1
Structure Chart for Credelio
               […]
         Annex 2.2
  List of Scientific Studies
               […]
         Annex 2.3
       List of Contracts
               […]
         Annex 2.4
       List of Inventory
               […]
         Annex 2.5
List of Regulatory Approvals
               […]
         Annex 2.6
          List of IPR
               […]
                   32
 ---pagebreak---                                             Annex 2.7
                            Fast-Track Dispute Resolution Procedure
1. Should the Purchaser wish to avail itself of the fast track dispute resolution procedure, it
   shall inform Elanco and the Monitoring Trustee in writing, setting out in detail the reasons
   leading it to believe that Elanco is failing to comply with the requirements of the
   Commitments (the “Request”). Elanco and the Purchaser will use their Best Efforts to
   resolve all differences of opinion and to settle all disputes that may arise through
   cooperation and consultation within a reasonable period of time not exceeding fifteen
   working days (such period being extendable by mutual consent of Elanco and the
   Purchaser) after receipt of the Request (the “Consultation Phase”).
2. Following receipt of the Request, the Monitoring Trustee shall present its own proposal (the
   “Trustee Proposal”) for resolving the dispute within eight working days, specifying in
   writing the action, if any, to be taken by Elanco in order to ensure compliance with the
   Commitments and be prepared, if requested, to facilitate the settlement of the dispute.
3. Should Elanco and the Purchaser fail to resolve their differences of opinion in the
   Consultation Phase, the Purchaser may serve a notice (the “Notice”), in the sense of a
   request for arbitration, to the International Chamber of Commerce (the “Arbitral
   Institution”), with a copy of such Notice and request for arbitration to Elanco and to the
   Monitoring Trustee.
4. The Notice shall set out in detail the dispute, difference or claim (the “Dispute”) and shall
   contain, inter alia, all issues of both fact and law, including any suggestions as to the
   procedure, and all documents relied upon shall be attached (e.g. documents, agreements,
   expert reports and witness statements). The Notice shall also contain a detailed description
   of the suggested action to be undertaken by Elanco and the Trustee Proposal, including a
   comment as to its appropriateness.
5. Elanco shall, within ten working days from receipt of the Notice, submit its answer (the
   “Answer”), which shall provide detailed reasons for its conduct and set out, inter alia, all
   issues of both fact and law, including any suggestions as to the procedure, and all
   documents relied upon (e.g. documents, agreements, expert reports and witness
   statements). The Answer shall, if appropriate, also contain a detailed description of the
   action Elanco proposed to take and the Trustee Proposal (if not already submitted),
   including a comment as to its appropriateness.
   Appointment of the Arbitrators
6. The Arbitral Tribunal shall consist of three persons. The Purchaser and Elanco (the
   “Parties”) shall each nominate an arbitrator in the Notice and the Answer respectively. The
   arbitrators nominated by the Parties shall, within five working days of the nomination of the
   arbitrator in the Answer, nominate the chairman arbitrator, making such nomination known
   to the Parties and the Arbitral Institution which shall forthwith confirm the appointment of all
   three arbitrators.
7. Should a Party fail to nominate an arbitrator, or if the two arbitrators fail to agree on the
   chairman arbitrator, the default appointment(s) shall be made by the Arbitral Institution.
 ---pagebreak--- 8. The three-person arbitral tribunal are herein referred to as the “Arbitral Tribunal”.
    Arbitration Procedure
9. The Dispute shall be finally resolved by arbitration under the ICC Rules of Arbitration, with
    such modifications or adaptions as foreseen herein or necessary under the circumstances
    (the “Rules”). The arbitration shall be conducted in London (United Kingdom) in the English
    language.
10. The procedure shall be a fast-track procedure. For this purpose, the Arbitral Tribunal shall
    shorten all applicable procedural time limits under the Rules as far as admissible and
    appropriate in the circumstances. The Parties shall consent to the use of e-mail for the
    exchange of documents.
11. The Arbitral Tribunal shall, as soon as practical after the confirmation of the Arbitral
    Tribunal, hold an organisational conference to discuss any procedural issues with the
    Parties. Terms of reference shall be drawn up and signed by the Parties and the Arbitral
    Tribunal at the organisational meeting or immediately thereafter and a procedural timetable
    shall be established by the Arbitral Tribunal. An oral hearing shall, as a rule, be established
    within a month of the confirmation of the Arbitral Tribunal.
12. In order to enable the Arbitral Tribunal to reach a decision, it shall be entitled to request
    any relevant information from the Parties, to appoint experts and to examine them at the
    hearing, and to establish facts by all appropriate means. The Arbitral Tribunal is also
    entitled to ask for assistance by the Monitoring Trustee in all stages of the procedure if the
    Parties agree.
13. The Arbitral Tribunal shall not disclose confidential information and shall apply the
    standards attributable to confidential information under the Merger Regulation. The Arbitral
    Tribunal may take the measures necessary for protecting confidential information in
    particular by restricting access to confidential information to the Arbitral Tribunal, the
    Monitoring Trustee, and outside counsel and experts of the Parties.
14. Each Party shall have the burden of proving the facts relied on to support its claim or
    defence.
    Involvement of the Commission
15. The Commission shall be allowed and enabled to participate in all stages of the procedure
    by:
            i.   Receiving all written submissions made by the Parties;
           ii.   Receiving all orders and other documents exchanged by the Arbitral Tribunal
                 with the Parties (including Terms of Reference and procedural timetable);
          iii.   Giving the Commission the opportunity to file amicus curiae briefs; and
          iv.    Being present at the hearing(s) and being allowed to ask questions to the
                 Parties, witnesses and experts.
16. The Arbitral Tribunal shall forward, or order the Parties to the Arbitration to forward, the
    documents mentioned to the Commission without delay.
                                                    34
 ---pagebreak--- 17. In the event of disagreement between the Parties regarding the interpretation of the
    Commitments, the Arbitral Tribunal may seek the Commission’s interpretation of the
    Commitment before finding in favour of either Party and shall be bound by the
    interpretation.
    Decisions of the Arbitral Tribunal
18. The Arbitral Tribunal shall decide the Dispute on the basis of the Commitments and the
    Decision. Issues not covered by the Commitments and the Decision shall be decided (in
    the order as stated) by reference to the Merger Regulation, EU law and general principles
    of law common to the legal orders of the Member States without a requirement to apply a
    particular national system. The Arbitral Tribunal shall take all decisions by majority vote.
19. Upon request of either Party, the Arbitral Tribunal may make a preliminary ruling on the
    Dispute. The preliminary ruling shall be rendered within one month after confirmation of the
    Arbitral Tribunal, shall be applicable immediately and, as a rule, remain in force until a final
    decision is rendered.
20. The Arbitral Tribunal shall, in the preliminary ruling as well as in the final decision, specify
    the action, if any, to be taken by Elanco or an Affiliated Undertaking in order to comply with
    the Commitments. The final decision shall be final and binding on the Parties and shall
    resolve the Dispute submitted to the Arbitral Tribunal. The final decision shall also
    determine the reimbursement of the costs of the successful Party and the allocation of the
    arbitration costs.
21. The final decision shall, as a rule, be rendered within three months after the confirmation of
    the Arbitral Tribunal. The timeframe shall, in any case, be extended by the time the
    Commission takes to submit an interpretation of the Commitments if asked by the Arbitral
    Tribunal.
22. The Parties shall propose a non-confidential version of the final decision, without business
    secrets. The Commission may publish the non-confidential version of the decision.
23. Nothing in the arbitration procedure shall affect the power of the Commission to take
    decisions in relation to the Commitments in accordance with its powers under the Merger
    Regulation.
                                                   35