CELEX: 31993M0285
Language: en
Date: 1993-07-05 00:00:00
Title: COMMISSION DECISION of 05.07.1993 declaring a concentration to be compatible with the common market (Case No IV/M.285 - PASTEUR-MERIEUX / MERCK) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)

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31993M0285

COMMISSION DECISION of 05.07.1993 declaring a concentration to be compatible with the common market (Case No IV/M.285 - PASTEUR-MERIEUX / MERCK) according to Council Regulation (EEC) No 4064/89 (Only the English text is authentic)  

Official Journal C 188 , 10/07/1993 P. 0000

 COMMISSION DECISION of 05.07.1993 declaring a concentration to  be compatible with the common market (Case No IV/M.285 -   PASTEUR-MERIEUX / MERCK) 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)(a) DECISION Registered with advice of delivery To the notifying party Dear Sirs, Subject : <tab> Case No. IV/M.285 - Pasteur-Mérieux/Merck  <tab>  <ind> Your notification pursuant to Article 4 of  Council Regulation No. 4064/89  1. <ind> On 04.06.1993, Merck & Co. Inc. (Merck) and Pasteur- Mérieux Sérums et Vaccins (PMsv) notified to the Commission an  operation under which they will organise their existing  activities in the human vaccine business within a territory  defined as being the EEC and EFTA in a jointly controlled  company (the JV).  I. <ind> THE PARTIES  2. <ind> PMsv is a subsidiary of Institut Mérieux SA, which is  in turn a subsidiary of Rhône-Poulenc, a publicly owned French  group of chemical and pharmaceutical companies active  worldwide.  PMsv is a specialist manufacturer of human and  animal vaccine products, blood proteins and other related  biological products.  It has its R&D and production facilities  centered in France, but distributes on a worldwide basis  through its sales subsidiaries in the US, Canada, South America  and Asia.  In addition, it is an important supplier to  developing countries and international agencies such as WHO and  UNICEF.  3. <ind> Merck is a major US company active worldwide in  pharmaceuticals.  As to vaccines, Merck is only active in the  development, production and distribution of human vaccines  mainly in the US.  It also distributes vaccines in Europe and,  to a minor extent, in Australia, East Asia and some Far Eastern  countries.  II. <ind> THE OPERATION  4. <ind> According to the JV Master Agreement (MA) "the  business of the Joint Venture will be to facilitate the  research of, oversee the development of, register, arrange for  the manufacture of,  distribute, market and sell vaccines,  immunoglobulines, diagnostics and sera and such additional  products as the partners may from time to time determine".  Its  scope will be limited to Western Europe. A priority of the JV  shall be the development of new multivalent products (page 8,  MA).  5. <ind> Prior to the operation, PMsv has mainly R&D,  production and distribution of human vaccines located in the  JV's territory, whereas Merck distributes vaccines in Europe  mainly through third parties.  As a result of the operation,  PMsv will transfer to the JV the whole branch of its human  vaccine business including goodwill, product registration  rights, trademarks and tangible distribution assets related to  this branch of activity.  It will further license or sublicense  to the JV the patents and know-how relating to the existing and  future vaccine products.  6. <ind> The JV will not assume the liabilities pertaining to  this branch of activities (§4 of PMsv Transfer Agreement).   Furthermore, transfer of product registration will be subject  to the possibility of parallel or co-registration to permit  PMsv (or Merck) to continue to manufacture these products for  sale to the JV or outside the Territory.  7. <ind> For its part, Merck will transfer to the JV exclusive  ownership of the product registrations in the Territory's  various states with regard to existing or future vaccine  products.  The transfer will be subject to the condition of co- registration mentioned above.  Merck will sub-license to the JV  other product rights, patents and know-how in respect of  existing and future products for use in the Territory.  8. <ind> The parties will remain active in the same product  markets outside the Territory dedicated to the JV.  They will  continue to develop, produce and sell existing JV and non-JV  vaccine products outside the Territory.  With regard to  multivalent products funded by the JV, each parent will be  granted a non-exclusive worldwide licence to use related  patents and know-how outside (and in case of dissolution of the  JV, inside) the Territory.  9. <ind> Merck and PMsv will remain active as distinct  operators in the rest of the world, although according to the  parties there is only a limited geographical overlap between  their activities:  PMsv has traditionally had extensive  activities in the Third World through international  organisation bids, while Merck is only active on a State by  State basis in a number countries (mainly Australia and East  Asia).  On the one hand, there is a certain geographical  overlap in the parties' current activities (in particular East  Asia and Far Eastern countries).  On the other hand, the  parties are already jointly active through another JV  established in the USA which  coordinates the R&D activities as  regards new paediatric multivalent products and will market  those products within North America.  III. <ind> COMMUNITY DIMENSION  10. <ind> Merck and Rhône-Poulenc have a combined aggregate  worldwide turnover exceeding 5,000 million ECU.  Both companies  have a Community-wide turnover in excess of 250 million ECU but  do not  achieve more than two-thirds of its turnover in one and  the same Member States.  IV. <ind> CONCENTRATION  11. <ind> After examination of the notification, the Commission  has come to the conclusion that the notified operation is not a  concentration within the meaning of Article 3(2) sub-paragraph  2 2 of Council Regulation No. 4064/89 (the Merger Regulation).   It therefore does not fall within the scope of application of  the Merger Regulation.   <ind> (a) <ind> Joint control  12. <ind> The JV will be set up in the form of a "Société en  nom collectif" (SNC) under the French law in which the parties  will each hold an equal ownership interest. The SNC assembly of  partners will be composed of two voting members, one appointed  by Merck and one appointed by PMsv.  The SNC will be managed by  a "Gérant" in the form of a French "Société Anonyme à  Directoire et Conseil de Surveillance" (SA) in which each  parents will have an equal shareholding. The parents will be  equally represented in both the Directoire and the Conseil de  Surveillance.  Any decision has to be taken by unanimous  approval of the members in both boards.  The JV Master  Agreement provides for a special procedure in cases of deadlock  which does not give any preponderance to either party.   <ind> As a result, the JV will be jointly controlled by the  parties.   <ind> (b) <ind> JV performing on a lasting basis all the  functions of an  <ind>  <ind> autonomous economic entity  13. <ind> The Joint Venture through which the parties will  jointly develop, manufacture and market human vaccine and  related products adapted to the specific needs and requirements  of Western European countries will not perform on a lasting  basis all functions of an autonomic economic entity.  This  results from an overall assessment of the following elements:   <ind> (i) <ind> R&D  14. <ind> The parties will not transfer their vaccine related  R&D activities to the JV.   <ind> The parties' R&D activities are organised on a worldwide  basis while the JV's scope is limited to the Territory. It is  argued that it would be impossible to isolate specific teams  working only on specific tasks either between the vaccines and  other products (like animal vaccines and blood products), or  within the human vaccines (between the monovalent and the  multivalent vaccines).  For these reasons they have found it  impossible to physically isolate their R&D activities by  reference to the JV's scope of action.  15. <ind> In addition, it is stressed by PMsv that their blood  products and vaccines R&D department does not involve more than  50 top level research workers. Thus, it is stated that a  transfer of some of  these officials would be an uneconomical  waste of  rare resources which might jeopardize the overall  research activity, while the JV would not be provided with the  necessary quality and quantity of research workers.   16. <ind> The JV will have access to the parties' R&D through a  Development Committee created within the Joint Venture.   According to the JV Master Agreement:   <ind> - <ind> the JV's Development Committee will monitor the  parties' ongoing research activity as regards products  currently marketed within the Territory.  The Committee will  recommend further appropriate development activities regarding  the specific European needs.  <ind>  <ind> -As regards product at a late development stage  (the pipeline products) the JV will be provided with all  existing product rights in the Territory subject to retention  by the originating party in order to be able "to manufacture  any such pipeline product solely for sale for use outside the  Territory or for sale to the Joint Venture for use within the  Territory". The Committee will assemble all relevant  information and decide which product will continue to be funded  in the Territory.  If the JV elects to commercialise such a  product, it will fund and direct the post-phase II testing and  post-launch development studies used to support the  registration and marketing of the product in the Territory. [In  the interests of business secrets, confidential details of the  agreements have been omitted.].  <ind> - <ind> As regards product at an early development stage  (the future pipeline products), the JV's Development Committee  will select, fund, and direct those projects which meet the  European market needs, be they monovalent or multivalent, in  the same way as for the pipeline products.  The JV will be  permitted to obtain the related patents, manufacturing know-how  and registration rights or licenses for these products in the  Territory, subject to the same retention clause mentioned in  the previous sub-paragraph.  17. <ind> Given the specificities of the vaccine sector and the  limited geographic scope of the JV, there might be valid  economical or technical reasons not to transfer the parties R&D  activities to the JV.  Nevertheless, even through the  establishment of the Development Committee, the JV will not  have decisive influence on every stage as regards R&D.   Actually, with regard to existing products, the JV (according  to the JV Master Agreement) will only have the possibility to  recommend to the parents to carry on new developments.  With  regard to future products (according to the JV Master  Agreement), although the JV might show interest in a project at  an earlier stage, it will direct and fund those projects only  at the late stage where a commercial decision is to be taken  (post phase two stage).  The Development Committee will, in  fact, select and fund a project (pipeline or future pipeline)  only from the "post-phase two" stage which is the commencement  of large scale safety and efficacy clinical trials.  18. <ind> It results that decisions related to the prior  research and early development stages will remain with each of  the parents.  19. <ind> The parties have stated that the JV might intervene  at an earlier stage thus influencing decisions taken at  research or early  development level.  However, the agreements  provide for no instrument of the JV to impose to the parents  any such decision.  In particular, the Master Agreement does  not foresee any specific compensation or funding scheme for  development costs assumed by one of the parents at such an  early research stage.  It only states the objective to reduce  overlapping efforts in the parents' research.  20. <ind> The retention of decision power as regards early  development stages might not be decisive for new multivalent  vaccines combining already existing antigens, but decision  power at early research stages is decisive for the development  of new antigens. The ability to determine the research and  basic research policy independently concerning these new  antigens (which could lead either to new monovalent vaccines or  be included in  multivalent vaccines) is a mandatory condition  for an independent current and future competitive and  commercial performance of a vaccine producer.  This seems to be  particularly true given the fact that both parents act as  suppliers of vaccine on a worldwide basis and that they will  continue to a considerable extent to develop and produce  vaccines separately for sale outside Europe [Contrary to  Commission Decision IV/M.072 - Sanofi/Sterling Drug.].  It can  therefore be considered that their strategic decisions on R&D  will be guided by their overall business interest, and not only  that of the JV.  21. <ind> Consequently, given the importance of R&D in the  vaccine sector and the continued separate activities of the  parents outside the scope of the JV, the degree of control of  the JV over the parent's R&D cannot be considered as enabling  it to act as an independent player in this sector.   <ind> (ii) <ind> Production  22. <ind> The parties will not transfer their production  facilities to the JV.  Again, this is mainly due to the fact  that the object of the JV is to combine their vaccine  activities only partly (i.e. for Western Europe).  A complete  transferral is excluded mainly because:   <ind> - <ind> they will still use their production facilities  in the Territory for sales outside the Territory;  <ind> - <ind> the plants are dedicated to the production of a  number of different products, manufactured  in campaign,  including animal vaccines and blood products;  <ind> - <ind> it is very difficult to build new plant or  remove existing production to other plants. The parties argue  that vaccines can only be replicated safely in a specific  manufacturing milieu which implies the use of production  method, manpower skills and managerial systems whose transfer  is difficult and could affect product  characteristics.  In  addition, the new plant would have to be qualified by the  relevant regulatory authority what might be very long and  costly. [In the interests of business secrets, confidential  details of the agreements have been omitted.]  23. <ind> As a result, according to the parties, any  fragmentation of manufacturing facilities would be uneconomical  and could prejudice,  or at least significantly delay, the  securing of the necessary authorisation from the various  regulatory authorities.  24. <ind> In order to ensure the necessary JV access to  manufacturing facilities, the parties entered into a number of  agreements :   <ind> - <ind> Both parties will be committed to meet the JV's  requirements of vaccines for its sales activity in the  Territory on the basis of semi-annual production manufacturing  plans established by the JV.  A special procedure is  established as regards exceptional demand or shortfall (pro  rata delivery). The vaccine components to be included in the  JV's multivalent products will be supplied by the parents  subject to the same conditions.  <ind> - <ind> PMsv and, if necessary, Merck  will toll  manufacture the multivalent products containing components from  both parties for a fee covering their costs.  The JV will have  the right to audit the parties costs in order to ensure that  such costs are reasonable and will not adversely affect the  JV's business. Following such audit, the JV may, subject to  certain conditions, decide to procure manufacturing services  from the other party or from any third party.  25. <ind> The Toll Manufacturing and Supply Agreements will not  provide the JV with a sufficient autonomy at production level.   <ind> Firstly, no reservation of capacity which could  contribute to the autonomy of the JV in respect to  manufacturing,will be created to the benefit of the JV.   <ind> Secondly, the economic and contractual framework will  seriously limit the possibility of the JV to exercise an  autonomous sourcing and manufacturing policy.   <ind> The specific requirements related to the manufacturing  of vaccines (i.e. qualification of plants by the regulatory  authorities, complexity of the manufacturing process,  equivalence of the product with the originally registered  product) limit to a significant extent the economical  alternatives for the JV to shift production given the small  number of companies having such production facilities.  In the  notification, the parties themselves state that, from a  financial and technical point of view, the only effective means  of producing antigens for the JV's vaccines would be the  continued use by the JV of the parties previously approved and  well-established facilities.   <ind> According to the Toll Manufacturing  and Supply  Agreements the JV will have the right to audit the costs  charged by each of the parents. The JV may then procure its  supply services from the other parent or a  third party only if  these costs are considered to be unreasonable.  Even in this  case, such a shift would only be permitted to the extent that  these services could be procured on terms which are  substantially more advantageous than those the original  supplying party is willing to match.  26. <ind> Consequently, on a long term basis, the JV will  depend widely for its business on facilities that remain  economically integrated with the parents' businesses. In  addition, the JV's restricted ability  to source elsewhere  makes it more difficult for it to act as an independent buyer  in the market.   <tab> (iii)  <ind> Intangible assets  27. <ind> Neither Merck nor Mérieux will transfer its  respective patents and know-how related to existing products to  the JV.  Access to the intellectual property will be restricted  for confidentiality reasons.  The JV will be granted a licence  until [In the interests of business secrets, the time period of  the licence has been omitted.] which can be terminated [In the  interests of business secrets, confidential details of the  agreements have been omitted].  28. <ind> As to future parents' products selected and funded by  the JV, the latter will obtain patent rights and know-how only  to the extent that it does not prevent the parents from  manufacturing the products for sale to the JV or for sale  outside the Territory.  In any event, the parent engaged in the  relevant development activities will own the intellectual  property rights outside the Territory.  As to JV multivalent  products, each parent will be granted a worldwide licence to  use outside (and in case of dissolution of the JV, inside) the  Territory.  As a result, the whole structure of the agreements  would enable the parties to operate again very quickly as  independent operators in case of mutual dissolution of the JV.   <ind> (iv) <ind> Distribution  29. <ind> PMsv will transfer to the JV the share capital of all  its existing sales subsidiaries active in the Territory. These  subsidiaries including all employees, real property, leaseholds  and distribution facilities will thus be owned and controlled  by the JV.   <ind> Merck will not transfer any tangible asset to the JV   but the latter will continue, where possible, the existing  relationship with Merck's distributors.  [In the interests of  business secrets, confidential details of the agreements have  been omitted].   <ind> Consequently, the JV will take over the current and  future vaccine product distribution in the Territory.  V. <ind> CONCLUSION  30. <ind> The JV will not perform all the functions of an  autonomous economic entity on a lasting basis.  31. <ind> Taking into account the considerations presented  above, and even considering the specificities of the vaccine  market, the  JV will not be in the position to take autonomous  decisions related to some of the key areas in the vaccine  business (i.e. R&D and production). In particular, the JV has  neither physical nor financial control over the early decision  regarding the research and the first development phase of new  antigens which are of a strategic importance for the future  competition in the market. The same applies to new development  on existing product markets by the JV.   Furthermore the JV  would have no realistic possibility to perform an autonomous  sourcing policy given the economic and legal framework set out  under point 15.  In addition, the Joint Venture will, to a  large extent, not own intellectual property rights  related to  the products it distributes.  Finally, the parties' main  operators in the market  perform the full range of the key  activities mentioned  above in the vaccine sector.  32. <ind> Therefore the proposed operation does not constitute  a concentration in the meaning of Article 3(2) of the Merger  Regulation.  33. <ind> Thus, in light of the above, the Commission has  concluded that the notified operation does not fall within the  scope of Council Regulation No. 4064/89.  This decision is  adopted under Article 6, paragraph 1)(a) of the above-mentioned  Regulation.  For the Commission