Following its decision not to refer the anticipated joint venture between GlaxoSmithKline plc ("Glaxo") and Pfizer Inc ("Pfizer") to the Competition Commission on 9 July 2009, the OFT has published the full text of its decision.
The proposed transaction will see Glaxo and Pfizer pool the entirety of their businesses for HIV treatment into a joint venture company ("JV") (with Glaxo having a controlling interest and Pfizer a material influence). The JV will focus solely on the research, development and commercialisation of HIV treatments - giving it a share of supply of between 20% and 30% by value in the HIV market, and triggering review under the Enterprise Act.
In assessing the proposed merger, the OFT considered the appropriate frame of reference: it considered fragmenting the market for those HIV drugs that were already marketed and those that were still in the pipeline, but, as the deal raised no serious competition concerns either way, the OFT did not conclude on this point.
Adopting its previous approach to pharmaceutical products, the OFT found that any market for pipeline HIV products could be at least EEA-wide in scope, but that the market for marketed products would be national, given the wide differences in relation to regulatory frameworks, pricing mechanisms, purchasing policies and marketing strategies across Member States.
The OFT concluded that any overlap between the parties, regardless of how the market was defined, was too small to raise any competition concerns, and the presence of strong competitors in both the marketed and pipeline markets would be a sufficient restraint on the JV. The OFT also considered that the JV would not be able (and would not have the incentive) to foreclose its rivals by, for example, bundling their products, as few HIV patients take a combination of drugs produced by the parties.
Finally, the OFT considered the likelihood of tacit or explicit collusion in the market. Given the transaction's impact on the overall market structure is very small, and taking into account features of the pharmaceutical industry, such as that manufacturers are awarded statutory monopolies for being the first to develop an innovative drug, the OFT considered that it was inherently difficult for parties to align their behaviour and incentives to those of their rivals. Accordingly, the merger was cleared.
The parties state that the joint venture is to have a degree of independence form its parents and it is hoped will accelerate drug development for the treatment of HIV. It remains to be seen whether ultimately the JV will become fully independent and whether this type of relatively innovative, focussed collaboration will be followed by others in this or in other sectors. The approval comes as Glaxo announced a waiver of certain patent restrictions to allow generic drug manufacturers to copy its HIV treatments for sale in the world's poorest countries.
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