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 at
treating 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 to determine
whether the proposed transaction warranted 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 has 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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The Canadian Competition Bureau issued a template document for use as a form of Consent Agreement, to be filed with the Competition Tribunal to resolve concerns the Bureau may have with proposed mergers.
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