CELEX: 31993M0323
Language: en
Date: 1993-04-29 00:00:00
Title: COMMISSION DECISION of 29.04.1993 declaring a concentration to be compatible with the common market (Case No IV/M.323 - PROCORDIA / ERBAMONT) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31993M0323

COMMISSION DECISION of 29.04.1993 declaring a concentration to be compatible with the common market (Case No IV/M.323 - PROCORDIA / ERBAMONT) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 128 , 08/05/1993 P. 0000

 COMMISSION DECISION of 29.04.1993 declaring a concentration to  be compatible with the common market (Case No IV/M.323 -  PROCORDIA / ERBAMONT) according to Council Regulation (EEC) No  4064/89  (Only the English text is authentic)  The paper version of the decision is available through the  sales offices of the Office of Official Publications of the  European Communities. PUBLIC VERSION MERGER PROCEDURE ARTICLE 6(1)(b) DECISION Registered with advice of delivery To the notifying party Dear Sirs, Subject: <ind> Case No. IV/M.323 - Procordia/Erbamont  <ind>  <ind> Notification of 23.03.1993 pursuant to Council  Regulation (EEC) No. 4064/89  1. <ind> The above mentioned notification concerns the  acquisition by Procordia AB (a Swedish company active in the  production of pharmaceuticals,  scientific biotechnology  related products and instruments, food, beverages, tobacco and  confectionery products as well as in  the provision of  miscellaneous services unrelated to pharmaceutical operations)  of Montedison by purchasing two companies, Farmitalia Carlo  Erba (FICE) Srl, incorporated in Italy, and Erbamont Inc,  incorporated in Minnesota, USA.  2. <ind> After full examination of the notification the  Commission has come to the conclusion that the notified  operation falls within the scope of Council Regulation No.  4064/89 (Merger Regulation) and does not raise serious doubts  as to its compatibility with the common market.   THE PARTIES AND THE NOTIFIED OPERATION  3. <ind> The Procordia Group has six business areas; however,  only the pharmaceutical area, Kabi Pharmacia, is involved in  the concentration. The whole pharmaceutical sector of  Montedison, represented by the two target companies known as  Erbamont and referred to as such hereafter, will be the object  of a three-step acquisition by Procordia.  However, it should  be noted that EC production and marketing of pharmaceuticals  derive exclusively from Farmitalia Carlo Erba Srl; it seems  then suitable to make reference only to the last mentioned  company activities in discussions of affected markets, market  shares etc.  4. <ind> The first stage of the proposed operation will be the  acquisition of 51% of the whole of Erbamont, that will take  effect immediately after the entry into force of the proposed  operation. In any case the initial stage will already give  Procordia the voting control as well as immediate management  control of both target companies; the minority shareholder, in  fact, will have no more than a minority position in equity and  voting rights, and no further veto or contractual rights are  given to it. Procordia will delegate management responsibility  involved by the sole control to Kabi Pharmacia. Procordia will  have options to increase its ownership in two steps, the first  in January 1994 to 60% and the second in January 1995, in order  to complete the takeover and to give Procordia virtually 100%  of the equity in both target companies.  COMMUNITY DIMENSION  5. <ind> The worldwide turnover in 1991 for Procordia was 5 119  mECU and  for Erbamont 800 mECU.  In the same year Community  turnover was 1 163 mECU for Procordia and 514 mECU for  Erbamont.  Both parties meet the requirement of Article 1(2)(b)  of the Regulation 4064/89, and not more than two-thirds of  their turnover has been achieved in one and the same Member  State. Consequently the proposed concentration has a Community  dimension.  THE CONCENTRATION  6. <ind> The proposed transaction is a concentration within the  meaning of Article 3 (1) (b) of  Regulation 4064/89. In  arriving at this conclusion the following elements were taken  into account:  by purchase of shares Procordia will acquire  from the very beginning sole control of the whole of Erbamont,  previously an independent undertaking.  The Management of Kabi  Pharmacia, the Procordia pharmaceutical area, will be  responsible for any decision concerning Erbamont business plans  and strategic decisions;  Erbamont will have no more powers of  decision after the closing of the deal.  COMPATIBILITY WITH THE COMMON MARKET  7. <ind> The transaction will create a unit that could rank  among Europe's 10 biggest producers of pharmaceutical products  and the world's 20 top pharmaceutical firms, while the actual  position of Kabi Pharmacia is considered to be the 35th in the  world and the 20th in Europe.  In addition to Sweden and Italy,  the group will be strongly represented in USA, Japan and some  of the main Western European countries.  Although the  transaction will also give the new unit a global R&D  capability, it will not have such conglomerate effects as to  lead to the creation of a dominant position.  It should also be  noted that the Commission, in the analysis of the transaction,  has referred to and taken into account only the production and  the market share of FICE, which is the only unit active in the  EC market.  Relevant product market  8. <ind> In the pharmaceutical sector the definition of the  relevant market should take into account the arbitrariness  naturally involved by the fact that substitutability among  medicines may not only depend on the intrinsic characteristics  of the drugs themselves, but also  their intended use, and  particularly each individual patient's condition.  9. <ind> In defining pharmaceutical product markets the  Commission, in case no. IV/M.072 - Sanofi/Sterling Drug, has  considered the use of the third level ATC classification (which  describes the groups of products having the same therapeutic  application and similar features) as an appropriate market  definition instrument to identify possible competition  problems.  In general the fourth level results are too specific  for the purpose of defining the relevant markets, though it can  be used to descend to narrower categories where appropriate.  10. <ind> With this approach it can be noted that some product  markets are affected by the proposed concentration.  However,  given the basic complementarity of the parties' products, it  does not result in a significant overlap of their activities in  the majority of these product markets.  The distinction,  generally considered as existing in the pharmaceutical  industry, between OTC and ethical products markets is not  relevant in the case being examined, as there are no OTC  product markets affected by the concentration.  Geographic reference market  11. <ind> The European pharmaceutical industry is generally  operating within a very tight legal framework. For this  specific reason the pharmaceutical market should be considered  as still having essentially a national dimension. No drug may  yet be marketed  in any Member State without the previous  approval of the respective national administration, although  centralised evaluation and procedures for mutual recognition of  marketing authorizations exist.  In spite of the considerable  harmonization achieved so far in the Community with regard to  pharmaceutical registration procedures, the evaluation of a  drug and the final decision whether or not to authorize its  marketing remains at present with the competent authorities of  the Member States.  12. <ind> It should be also noted that prices of ethical drugs  are directly or indirectly regulated by national laws in very  different ways including direct price fixing, overall control  of company profits, and special provisions affecting the  reimbursement of the cost of drugs by the national health  insurance systems. Because of the differences in the pricing  and reimbursement mechanism, wide disparities arise in drug  price levels among different Member States.  Affected markets  13. <ind> On the above basis, the affected markets should be  considered national, and can be described as the following:   <tab> - antidiarrhoeals / antibacterials (A 7 A) in Belgium  <tab> - antidiarrhoeals / antibacterials (A 7 A) in Spain  <tab> - oral electrolytes replacement (A 7 D) in Spain  <tab> - anabolic hormones (A 14 A) in Germany  <tab> - other urological preparations (G 4 B) in Ireland  <tab> - broad spectrum penicillins (J 1 A) in Italy  <tab> - alkylating agents (L 1 A) in Spain  <tab> - local anaesthetics (N 1 B) in Italy.   14. <ind> For the first class of products,  antidiarrhoeals/antibacterials,  the affected markets are the  Belgian and Spanish, where the parties are present each with  one product. In a competitive and strongly import-orientated  market with a total value in Belgium of 7 mECU, the parties  will have a market share of around 30% after the concentration,  a share that has shown a tendency to decrease in the last three  years.  On the same market another 18 competitors are present,  some of which have a market share higher than 10%, one having  26%.  In any case, the two products sold respectively by Kabi  Pharmacia and Erbamont have different indications, i.e.  therapeutic properties, and do not appear to be substitutable.   In particular, Solazopyrine, the Kabi Pharmacia product, is  used to treat chronic inflammatory bowel diseases and it is  prescribed by gastro-enterologists, while Gobrorol, the  Erbamont product, is prescribed by general practitioners.  15. <ind> In the Spanish market, with regard to the above  mentioned products, the parties are in a weaker position with a  market share of around 11% (a value of 6 mECU).  In addition  Erbamont will add only a very small market share (0.6%) to the  already existing Kabi Pharmacia market share.  16. <ind> In respect of the oral electrolytes replacement  products, the only affected national market is the Spanish one  where Kabi Pharmacia is present with three different products  that, with a value of about 0.4 mECU, allow it to reach a 18%  market share and Erbamont is present with only one product and  an almost  9% market share.  It is to be noted that the major  competitor, Fisons, has 49% of the market while the global  market share of the new unit will be around 26%, and that the  market is dominated by generics.  17. <ind> The anabolic hormones affected national market is  Germany, a market that has a value of 5 mECU.  Kabi Pharmacia  is present with one product and a market share of around 8%  with a tendency to decrease, while Erbamont has two products on  the market and an increasing market share of around 50%.  Kabi  Pharmacia's product, Anadur, and Erbamont's main product,   Megagrisevit+N, are not fully interchangeable.  Anadur is a  pure anabolic steroid, normally used in hospital care, while  Megagrisevit, a combination of vitamins and anabolic hormones,  is normally prescribed by general practitioners for  outpatients.  The already current trend to reduce the use of  these drugs will most probably lead to a strong decrease of  market volume.  In addition, anabolic hormones are being  withdrawn from the market by several companies (Sterling- Winthrop, Gruenenthal and others).   The parties themselves  have programmed short-term withdrawal of the anabolic hormones  products.   In this market the parties face competition from  both large pharmaceutical firms (Schering with 24% of the  market and Organon with 15%) and up to ten other smaller  competitors including generic distributors such as Gehe and  Eurim-Pharma.  18. <ind> The Irish market of other urological preparations,  used to treat urinary incontinence, is affected by the  concentration.  Erbamont is present with one product (Cystrin)  and a turnover of 0.2 mECU while Kabi Pharmacia sells one  product (Cetiprin) for a total amount of 0.6 mECU. Even if the  total turnover is of minor importance (0.8 mECU) both parties  have a high market share that,  after the concentration, will  lead to the company having an almost 85% market share.   However, there has been a strong decrease (minus 12%) over the  last three years of the parties' market share.   In addition,  several large multinational companies (Smith-Klein Beecham,  Fisons, Syntex and Smith & Nephew) market urological  preparations in neighbouring Member States.  Pharmaceuticals in  these therapeutic groups are old and off-patent, and  competition from generics exists.  Erbamont's Cystrin itself,  for instance, is a generic.  19. <ind> Another market where a minimum overlap can be  registered is the broad spectrum penicillins market in Italy.   The concentration will add the 0.1% market share of Kabi  Pharmacia to the already existing 21.2% market share of  Erbamont.  After taking into account the minimal contribution  of Kabi Pharmacia, it should be noted that on this market there  are 67 similar products being sold by 41 different companies.  20. <ind> Other products relevant to the evaluation of the  concentration are local anaesthetics used in connection with  surgery in Italy.  Both Kabi Pharmacia and Erbamont are present  on the Italian market; Erbamont has a decreasing 0.3 market  share, while Kabi Pharmacia has become a leader in the last  years with a market share of approximately 78%.  This market  has grown strongly over the last three years from the 6 mECU in  1989 to 29 mECU today, but nowadays it presents a decreasing  tendency and it seems to have stabilised.  All current local  anaesthetic products lack patent protection, rendering entry  relatively easy if prices were to increase in this market.  In  addition, Kabi Pharmacia markets its products, Marcaina,  Carbocaina and Xilocaina, under licence from Astra, a  multinational pharmaceutical company.  This arrangement will be  terminated within two years when Astra will take over all  remaining rights and Kabi Pharmacia will retain no business  related to local anaesthetics.  21. <ind> The last affected market, the Spanish market for  treatment of cancer with alkylating agents, is a mature market  with a value of 0.5 mECU where the parties will have, after the  concentration, 28% market share with total sales of 0.1 mECU.   On the same market there exist 14 competitors, one of them with  a 39% market share. COMPETITION ANALYSIS  22. <ind> The examination of the market conditions leads the  Commission to the conclusion that the proposed concentration  does not create or strengthen a dominant position in any of the  reference markets for the above reasons and particularly:   <tab> - <ind> the products of Kabi Pharmacia and Erbamont are  mostly non-substitutable and the two enterprises' activities  are therefore to be considered as mainly complementary;   <tab> - <ind> the affected markets can be divided in two main  categories: some are characterized by the  presence of strong  competitors that have a higher market share than the  concentrating parties and that are in a position to assure the  existence of sufficient competition after the concentration;   in other affected markets, the overlap of the parties'  activities is so   marginal that the transaction cannot lead to  the creation or strengthening of a dominant position;   <tab> - <ind> in some of the affected areas the parties have  been losing market shares and face strong competition from  generic products.  FINAL ASSESSMENT  23. <ind> For the above reasons, the Commission has decided not  to oppose the notified operation and to declare it compatible  with the common market.  This decision is adopted in  application of Article 6(1)(b) of Council Regulation No.  4064/89.  For the Commission