A proposed transaction between two multinational pharmaceutical
and consumer healthcare product companies, GlaxoSmithKline (GSK)
and Novartis was recently given the go-ahead by
the Competition Bureau. The proposed transaction was announced on
April 22, 2014 as a three-part, inter-conditional transaction,
which involved the creation of a joint venture between GSK and
Novartis for their over-the-counter (OTC) and consumer healthcare
products. GSK would also acquire Novartis' global vaccine
business, while Novartis would acquire GSK's portfolio of
oncology products. Undertakings given by GSK to EU and US
competition agencies dispelled the Bureau's concerns that some
aspects of the transaction could lessen competition.
Although only the OTC joint venture was notifiable under Part IX
of the Competition Act, the Bureau conducted a full
analysis on all three parts of the proposed transaction. The
analysis focused on whether the proposed transaction was likely to
increase prices in the relevant markets or decease another
dimension of competition, such as innovation.
On the OTC joint venture, the Bureau found that while both
companies offer products used to treat similar ailments, they are
not close substitutes. There are other products on the market that
are closer competitors to the ones offered by either GSK or
Novartis. For the vaccine acquisition, the Bureau also found that
the vaccine products offered by the two companies are not
substitutes for one other given their significant price
differences. Based on this finding, the Bureau concluded
that the vaccine acquisition would unlikely result in a
substantial lessening or prevention of competition in Canada.
As for the oncology acquisition, the Bureau considered each
company's products that are currently available on
the market, and products that are in research and development. Both
companies are currently developing a type of therapy aimed to treat
a particular sub-group of metastatic melanoma patients. Aside from
GSK and Novartis, there is only one other competitor who is
developing a similar product. Based the framework set out by the
Supreme Court in Tervita Corp v Canada (Commissioner of
Competition), the Bureau concluded that the proposed
transaction would likely have a substantial effect on competition
due to a loss of innovation, since "but for" the
transaction, Novartis would have continued to develop the therapy.
Because of the acquisition, Novartis will probably abandon its
therapy development as the product is further away from
reaching the market than GSK's product.
The Bureau also examined the global remedies in order to
determine whether the proposed transaction warrants the
Bureau's intervention. In Europe, GSK has committed to the
European Commission to sell one of its global vaccines businesses
to a buyer to be determined post-closing of the vaccine
acquisition. In the US, Novartis has reached a consent agreement with
the Federal Trade Commission (FTC) relating to the oncology
acquisition, under which Novartis is required to sell some of its
assets to a third-party pharmaceutical company, Array BioPharama.
This arrangement effectively alleviated the Bureau's concerns
regarding the oncology acquisition.
The Bureau issued a No Action Letter to the parties on February
23, 2015. A No Action Letter indicates that the Commissioner of
Competition does not intend to make an application to challenge the
transaction at this time, but can still do so within one year
following the close of the proposed transaction, pursuant to s. 97
of the Competition Act.
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