CELEX: 32015M7872
Language: en
Date: 2015-12-18 00:00:00
Title: Commission Decision of 18/12/2015 declaring a concentration to be compatible with the common market (Case No COMP/M.7872 - NOVARTIS / GSK (OFATUMUMAB OUTOIMMUNE INDICATIONS)) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

|[pic]                             |EUROPEAN COMMISSION                                                                                      |

Brussels, 18.12.2015
C(2015) 9710 final

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                                        |To the notifying party:                                                |                                                                       |

Dear Sir/Madam,

Subject:    Case M.7872 – Novartis / GlaxoSmithKline (ofatumumab autoimmune indications)
Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004[1] and Article 57 of the Agreement  on  the  European  Economic
Area[2]

    0. On 18 November 2015, the European Commission received notification of a proposed  concentration  pursuant  to  Article  4  of  the  Merger
       Regulation by which Novartis AG ("Novartis" or the "Notifying Party", Switzerland), acquires within the meaning of Article 3(1)(b) of  the
       Merger Regulation control of the autoimmune indications of the pharmaceutical substance ofatumumab (the "Target") from GlaxoSmithKline plc
       ("GSK", United Kingdom) by way of purchase of assets, hereinafter "the Transaction".

    0. Novartis and the Target are referred to as "the Parties".

THE PARTIES

    0. Novartis is a Swiss healthcare company, active globally in the development, distribution and marketing of medical products. Its main areas
       of activity cover pharmaceuticals, eye care and generics.

    0. The Target comprises the rights to the auto-immune indications of ofatumumab (an  anti-CD20  monoclonal  antibody),  which  are  still  in
       development. For one auto-immune indication in particular (pemphigus vulgaris), ofatumumab is currently in phase III trials.

THE OPERATION AND CONCENTRATION

1 The Oncology Transaction

    0. Ofatumumab is  an anti-CD20 monoclonal antibody developed both for auto-immune and oncology indications.[3] Novartis acquired the oncology
       indications of ofatumumab from GSK[4] as part of a broader, initial, transaction, which  was  authorised  by  the  Commission  subject  to
       commitments with the Decsion of 28 January 2015 in Case M.7275 – Novartis / GlaxoSmithKline Oncology Business, and closed on 2 March  2015
       (the "Oncology Transaction").

2 The Transaction

    0. GSK had retained the auto-immune indications business of ofatumumab, through a […].[5] Under the terms of the Implementation and  Transfer
       Agreement entered into between Novartis and GSK on 21 August 2015 (the "ITA"), Novartis will acquire from GSK the  ofatumumab  auto-immune
       indications business. The consideration for this business will be paid in a staggered form: Novartis will pay US$ 300 million at  closing.
       An additional US$ 200 million will be payable when Novartis starts the Phase III study for the use of ofatumumab  in  multiple  sclerosis.
       Novartis has also agreed to make additional payments of up to US$ 764* million to GSK in the future, if certain pre-determined  milestones
       are achieved. Novartis has also agreed to pay to GSK royalties of up to 12% on any future  net  sales  of  the  drug  in  the  auto-immune
       indications.

    0. The Target business is composed of the rights to develop, manufacture, promote and market  ofatumumab  for  auto-immune  indications,  and
       tangible assets, such as biological materials and cells, product inventory, Investigational New Drug Applications granted by the  US  Food
       and Drug Administration, clinical trial data, as well as supply contracts.[6]

3 Notifiable concentration

    0. The Notifying Party has expressed the view that the Transaction does not constitute a concentration,  because  it  does  not  involve  the
       acquisition of an undertaking or part of an undertaking, for the purposes of the Merger Regulation. Novartis has in particular stated that
       the transaction involves the acquisition of rights for development or pipeline indications of which the future development  and  potential
       market entry is inherently uncertain and, even in the best case scenario, very far off in the future. Novartis asserts that  it  does  not
       anticipate to launch ofatumumab for multiple sclerosis before […]. The Notifying Party concluded that, at this stage, it is  not  possible
       to attribute any market turnover to these intangible assets that are being acquired and, consequently, the Transaction does not constitute
       a concentration for purposes of Article 3(1) of the Merger Regulation.

    0. In this regard, the Commission observes that the Transaction at hand  relates  to  the  acquisition  of  sole  control  of  the  necessary
       intangible[7] and the core tangible assets for the development, manufacture and commercialisation of the resulting pharmaceutical products
       in question. For one auto-immune indication, relapsing remitting multiple sclerosis, the acquired ofatumumab assets have  completed  phase
       II trials […]. But for another auto-immune indication, pemphigus vulgaris, currently the acquired ofatumumab assets are already  in  phase
       III clinical trials.[8] According to an internal assessment of the Notifying Party, based on […], ofatumumab has  a  […]  probability  (at
       […]%) of successful launch.[9]

    0. Moreover, Novartis has agreed to pay to GSK royalties of up to 12% on any future net sales  of  ofatumumab  for  auto-immune  indications.
       This fact suggests that both Novartis and GSK expect that the timely entry of ofatumumab in the  market  for  auto-immune  indications  is
       quite likely, including in particular the pemphigus vulgaris indication for which the drug is already in the advanced  Phase  III  trials.
       Likewise, the fact that Novartis has agreed to pay to GSK US$ 200 million following the start of phase III study in the use of  ofatumumab
       for multiple sclerosis, on top of the US$ 300 million payable at closing, suggests that both undertakings expect that the start  of  these
       phase III trials is quite likely and imminent. This is an additional factor supporting  the  conclusion  that  the  business  acquired  by
       Novartis is reasonably expected to enter the market within a reasonable period of time.

    0. The Commission therefore considers that the acquisition of the ofatumumab assets  in  question  falls  within  the  scope  of  the  Merger
       Regulation because it involves the acquisition of  the intangible and all core tangible assets that are expected to enable the acquirer to
       access the market, and therefore to produce a market turnover, within a reasonable timeframe. Indeed, in  the  context  of  this  kind  of
       industries with important research and development projects, the acquisition of assets that are already in phase III clinical  trials  can
       be reasonably assumed to be capable of generating a turnover in the foreseeable future.[10]

    0. The Transaction thus constitutes the acquisition of part of an undertaking within the meaning of Article 3(1)(b) of the Merger Regulation.

UNION DIMENSION

    0. Since the Transaction is a concentration taking place within a period of  two  years  from  the  Oncology  Transaction  between  the  same
       undertakings, then, pursuant to Article 5(2), second sub-paragraph, of the Merger Regulation, the two transactions should  be  treated  as
       one and the same concentration arising at the date of the last transaction for the purpose of calculating the turnover thresholds.

    0. In this case, the undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million.[11]  Each  of  them
       has an EU-wide turnover in excess of EUR 250 million, but they do not achieve more than two-thirds of  their  aggregate  EU-wide  turnover
       within one and the same Member State. The notified operation therefore has a Union dimension.

MARKET DEFINITION AND COMPETITIVE ASSESSMENT

    0. The Transaction concerns the auto-immune indications of ofatumumab  and  the  relevant  markets  for  treatments  of  certain  auto-immune
       diseases. As regards the markets affected by the Oncology Transaction, the Commission refers to the  assessment  in  the  Decision  of  28
       January 2015 in Case M.7275 – Novartis / GlaxoSmithKline Oncology Business.

    0. The Transaction leads to an overlap with Novartis' activities only in the treatment of multiple sclerosis. There appear to be no  overlaps
       or other competitively relevant relationships as to the other auto-immune indications for which ofatumumab  is  in  clinical  development,
       namely:[12]

        a. pemphigus vulgaris (a chronic autoimmune disease that causes blistering skin lesions and mucosal erosions), for which  ofatumumab  is
           currently in phase III clinical trials;[13]

        b. neuromyelitis optica (a rare inflammatory and demyelinating autoimmune disorder that causes recurrent  attacks  of  optic  neuritis),
           [...].

    0. It should also be noted that GSK terminated the development of ofatumumab for  rheumatoid  arthritis  after  […][14]  and  therefore  this
       indication will not be further discussed in this decision.

1 Market definition for multiple sclerosis ("MS")

1 Product market

    0. Ofatumumab is an anti CD-20 monoclonal antibody for subcutaneous  injection  which  is  currently  developed  for  relapsing-remitting  MS
       ("RRMS").

    0. MS is an autoimmune disease in which the body immune system attacks the nerve fibres in the central  nervous  system  –  degenerating  the
       myelin coating that insulates the nerves and helps the transmission of nerve impulses between the brain and other parts of  the  body.  MS
       affects about 2.5 million people worldwide. As to the treatment architecture, there is no curative therapy  for  MS  but  only  long  term
       disease modifying therapies ("DMT") aimed at reducing the disease activity.

    0. In previous decisions in which the Commission analysed the market for MS,[15] it concluded that it was not  necessary  to  decide  whether
       different attributes of DMT for MS (such as efficacy, side effects, route and frequency of administration) constitute relevant  parameters
       for defining product markets. Also, the Commission did not consider a possible sub-segmentation by types of MS, such as RRMS.

Notifying Party's views

    0. The Notifying Party submits that there are three forms of MS, reflecting the way that the disease evolves over time:

         i. RRMS, the most common form of MS, affecting around 85% of MS patients.  It  is  characterised  by  clear  episodes  of  inflammatory
            activity (relapses) alternated with periods in which the illness appears to fade or even disappear (remittances);

        ii. secondary-progressive MS ("SPMS"), which is developed subsequently by two-thirds of RRMS patients and characterised by a progressive
            worsening of the conditions; and

       iii. primary-progressive MS ("PPMS"), which only occurs for 10-15% of MS patients and characterised by a steadily worsening disease state
            from the outset, with no RRMS initial phase.

    0. Within RRMS treatments, the Notifying Party submits that there are broadly three types of DMTs reflecting similar efficacy/safety profiles
       with different routes of administration:

         i. injectable therapies, which provide for moderate efficacy and have a good long-term safety profile (for example mild side effects);

        ii. oral therapies, which offer improved efficacy but also lead to increased serious side effects and have  been  available  to  patient
            only over the last 5 years;

       iii. monoclonal antibodies, which also deliver further improved efficacy but have significant increased risks of side effects.[16]

    0. According to the Notifying Party, these types of therapies would broadly reflect lines of treatment for RRMS, injectables being the  first
       line of treatment, followed by oral therapies and finally by monoclonal antibodies (if necessary).

The Commission's assessment

    0. The market investigation broadly indicated that a distinction may be drawn by type of MS, distinguishing the relapsing-remitting form from
       progressive forms of MS (SPMS and PPMS). Indeed, a majority of responding practitioners in the field  ("Key  Opinion  Leaders"  or  "KOL")
       considered that RRMS has specific clinical manifestations (clear relapses and periods of remission) and treatment architecture, with  DMTs
       having beneficial effects essentially on RRMS. However, some KOLs highlighted that, as to clinical manifestations, there may be an overlap
       between RRMS and early stages of SPMS and, as to treatment, anti-inflammatory drugs used for RRMS may have little  effect  on  progressive
       MS.[17]

    0. The market investigation also broadly  confirmed  that  DMTs  for  RRMS  can  be  classified  according  to  their  modes  of  action  and
       efficacy/safety profiles. Interferon-based drugs (which are mostly injectables) are generally considered as less efficient but safer  than
       oral therapies and monoclonal antibodies, and tend to be used as first line of treatment. Monoclonal antibodies,  namely  natalizumab  and
       alemtuzumab, are generally referred as high-efficacy drugs, used as second- or  third-lines  of  treatment,  after  injectables  and  oral
       therapies.

    0. However, whilst if the pipeline monoclonal antibodies ofatumumab and ocrelizumab[18]  are  usually  referred  to  as  high-efficacy  drugs
       competing with the other monoclonal antibodies, respondants also highlighted that their safety  profile  could  be  better  than  existing
       treatments, thus opening the possibility to use them as earlier lines of treatment for RRMS, similarly to oral  therapies  or  interferon-
       based drugs.[19]

    0. As to the possible distinction by galenic form (such as injectable, oral and infusion), the market  investigation  revealed  that  galenic
       form has little effect on the treatment decision. While patients may prefer oral  therapies  as  compared  to  injectables  for  instance,
       products in the same galenic form would not necessarily belong to the  same  market  because  of  their  different  modes  of  action  and
       efficacy/safety profiles.[20]

    0. For the purpose of this case, it is not necessary to conclude on the exact product market definition, since, irrespective of  the  product
       market definition, the Transaction is unlikely to give rise to serious doubts as to its compatibility with the internal market for MS.

2 Geographic market

    0. In line with the findings of the Commission in past decisions regarding finished dose pharmaceuticals, the Notifying  Party  submits  that
       the market for MS treatment is national in scope for marketed products[21] and at least EEA-wide in scope for pipeline products.[22]

    0. For the purpose of this case, it is not necessary to conclude on the exact geographic market definition, since,  irrespective  of  whether
       the market is defined at national or EEA level, the Transaction is unlikely to give rise to serious doubts as to  its  compatibility  with
       the internal market for MS.

2 Competitive assessment for multiple sclerosis

    0. In its portfolio, Novartis owns the following drugs for the treatment for MS, which are all indicated (or intended to be) for RRMS:

         i. Marketed patented treatments: fingolimod (Gilenya), an oral therapy, and interferon beta-1b (Extavia), an injectable therapy;[23]

        ii. Pipeline treatments: siponimod (BAF312), an oral therapy in phase II clinical trials, and CJM112, a monoclonal antibody  with  phase
            II clinical trials not yet initiated.

    0. In the market for all DMTs for RRMS, Novartis' market share derived from Gilenya and Extavia's sales was below 30%  over  the  last  three
       years in all EU countries where Novartis is active, except for Ireland in 2014 ([30-40]%). Novartis' main competitors are Biogen,  leading
       the market with [20-30]% to [50-60]% market share in the EU countries where Novartis is active,[24] as well  as  Teva,  Merck,  Bayer  and
       Sanofi-Genzyme.

    0. In particular, Biogen has a wide portfolio of marketed drugs for RRMS including an injectable therapy  (interferon  beta-1a,  Avonex),  an
       oral therapy (dimethyl fumarate, Tecfidera) and a monoclonal antibody (natalizumab, Tysabri). On the narrowest possible  segment,  limited
       to monoclonal antibodies, Novartis does not have any marketed or pipeline product (with the exception of CJM112, discussed further below);
       only Sanofi (alemtuzumab) and Biogen (natalizumab) are currently active on this segment.

Notifying Party's view

    0. The Notifying Party considers that the Transaction will  mainly  complement  Novartis'  existing  portfolio  of  pharmaceuticals  for  the
       treatment of RRMS, given that ofatumumab has a different method of action, mode of administration and  overall  safety  profile  than  its
       other marketed and pipeline drugs.

    0. The Notifying Party also submits that numerous competitors, such as Biogen,  Teva  and  Sanofi,  will  remain  post-Transaction  and  that
       numerous compounds are, like ofatumumab, in development. In  particular,  the  Notifying  Party  indicates  that  Roche's  ocrelizumab  is
       estimated to be the first anti-CD20 monoclonal antibody which will be approved in Europe, with an expected launch in 2017.

Commission's assessment

    0. The market investigation revealed that, in the MS field, Novartis will continue to face strong competition from Teva,  Bayer,  Sanofi,  as
       well as from Biogen which currently leads the  market  for  RRMS  treatment  and  has  a  similar  sizeable  portfolio  of  treatments  as
       Novartis.[25]

    0. The market investigation also confirmed that the Transaction will mostly complement Novartis' portfolio,  with  ofatumumab  not  being  in
       close competition with other MS treatments of Novartis.[26] The product within Novartis' portfolio of pharmaceuticals for RRMS which would
       be closest to ofatumumab is its pipeline drug CJM112, an anti-IL17 monoclonal antibody. However, this pipeline  does  not  have  the  same
       mechanism of action as ofatumumab. Moreover, it has […].[27]

    0. More importantly, the market investigation  widely  confimed  that  ofatumumab's  closest  future  competitor  is  Roche's  pipeline  drug
       ocrelizumab which has the same mechanism of action (CD20 inhibitor).[28]

    0. Given Novartis' limited overall market position for RRMS and the evidence  indicating  that  ofatumumab's  closest  future  competitor  is
       Roche's ocrelizumab, the Transaction is unlikely to raise serious doubts as to its compatibility with the internal market for MS.

CONCLUSION

    0. For the above reasons, the European Commission has decided not to oppose the notified operation and to  declare  it  compatible  with  the
       internal market and with the EEA Agreement. This decision is adopted in application of  Article  6(1)(b)  of  the  Merger  Regulation  and
       Article 57 of the EEA Agreement.

For the Commission

(Signed)
Margrethe VESTAGER
Member of the Commission

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[1]   OJ L 24, 29.1.2004, p. 1 ('the Merger Regulation'). With effect from 1 December 2009, the Treaty on the Functioning of the  European  Union
('TFEU') has introduced certain changes, such as the replacement of 'Community'  by  'Union'  and  'common  market'  by  'internal  market'.  The
terminology of the TFEU will be used throughout this decision.

[2]   OJ L 1, 3.1.1994, p.3 ("the EEA Agreement").

[3]   Ofatumumab is already marketed under the brand name Arzerra for oncology applications.

[4]   GSK is a British pharmaceutical company active worldwide in the areas of pharmaceuticals, vaccines and consumer health products.

[5]   See letters from Novartis' external counsel to the case team dated […].

*     should read: US$ 534 million

[6]   More specifically, as per the ITA, tangible assets include […].

[7]   As regards the intangible assets comprised in the Transaction, the ITA provides for […].

[8]   Phase III trials are commonly known as "confirmatory" trials, which aim to establish the final benefit-risk profile of the drug in a  well-
characterised target population of relevance for clinical practice. (EMA, Guideline on the evaluation of anticancer medicinal  products  in  man,
page 18.) The patients enrolled in these clinical trials should have the disease that  the  pharmaceutical  company  would  like  to  obtain  the
indication for. Therefore, at the latest at the time of phase III trials, there will be clarity as to the  relevant  pharmaceutical  market  that
will be addressed by the tested drug.

[9]   See Novartis' internal document, […].

[10]  Contrary to Novartis's assertions, the guidance provided by paragraph  24  of  the  Commission  Consolidated  Jurisdictional  Notice  under
Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (OJ C95 of 16.04.2008) does not limit the  Commission's
jurisdiction to concentrations involving target undertakings or parts of  undertakings  with  current  market  turnover.   Paragraph  24  of  the
Commission Consolidated Jurisdictional Notice requires that the acquired part of an undertaking  constitutes  a  clearly  identifiable  business,
which can operate separately from the rest of the disposing undertaking, and  is  capable  of  producing  a  market  turnover.  As  explained  in
paragraph 5 of the Commission Consolidated Jurisdictional Notice, the concepts of an undertaking and a part of an  undertaking  under  Article  3
Merger Regulation are distinct and independent from the notion of undertakings concerned and the rules on the calculation of turnover  set  forth
in Article 5 Merger Regulation.

[11]  Turnover calculated in accordance with Article 5 of the Merger Regulation.

[12]  For completeness, Novartis' subsidiary Sandoz offers a generic version of certain pharmaceuticals that may be prescribed off-label for  the
treatment of pemphigus vulgaris and neuromyelitis optica. However, these generic treatments are competing essentially against the originator  and
other generic versions of the same molecule.

[13]  Novartis had a pipeline compound, VAY736, a monoclonal antibody which completed phase II clinical trials for the treatment of PV.  However,
[…]. See Novartis' internal document, […].

[14]  […].

[15]  See for example cases M.5999 – Sanofi-Zentiva/Genzyme and M.4049 – Novartis/Chiron.

[16]  Two monoclonal antibodies are currently marketed: natalizumab by Biogen and alemtuzumab by Sanofi (both are administered by infusion).

[17]  Minutes of a conference call with a competitor dated 2 December 2015; replies of Key Opinion Leaders to questions 3 and 4 of  questionnaire
Q1 – Multiple sclerosis.

[18]  Ocrelizumab is a anti-CD20 monoclonal antibody currently undergoing a phase III clinical trial. It belongs to Roche.

[19]  Minutes of conference calls with competitors dated 25 November 2015, 26 November 2015, 27 November 2015 and 2  December  2015;  replies  of
    Key Opinion Leaders to questions 6 and 7 of questionnaire Q1 – Multiple sclerosis.

[20]  Replies of Key Opinion Leaders to questions 8 of questionnaire Q1 – Multiple sclerosis.

[21]  See for example cases M.7559 – Pfizer / Hospira, M.7379 – Mylan / Abbott EPD-DM, M.7276 –  GlaxoSmithKline  /  Novartis  Vaccines  Business
    (excl. Influenza) / Novartis Consumer Health Business, M.7275 – Novartis / GlaxoSmithKline Oncology Business and M.5253 –  Sanofi-Aventis  /
    Zentiva.

[22]  See for example cases M.7559 – Pfizer / Hospira, M.7480 – Actavis / Allergan and M.7275 – Novartis / GlaxoSmithKline Oncology Business.

[23]  Novartis also markets in the US glatiramer acetate generic (Glatopa), a generic version of  Teva's  Copaxone  (injectable  treatment),  but
    […].

[24]        In particular, Biogen market share in 2014 was [30-40]% in Ireland, higher than Novartis'.

[25]  Minutes of a conference call with a competitor dated 2 December 2015.

[26]  See, in particular, replies to questions 11, 12, 16 and 17 of questionnaire Q1 – Multiple sclerosis.

[27]  See Novartis' internal document, […].

[28]  Minutes of conference calls with competitors dated 25 November 2015 and 2 December 2015; replies of Key Opinion Leaders to question  13  of
questionnaire Q1 – Multiple sclerosis.

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 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.

                                                                  PUBLIC VERSION

                                                                 MERGER PROCEDURE