COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case Number: 58/AM/May00
In the matter between
GLAXO WELLCOME plc First Applicant
SMITHKLINE BEECHAM plc Second Applicant
And
THE COMPETITION COMMISSION Respondent
REASONS FOR THE TRIBUNAL’S DECISION
_____________________________________________________________________
Approval
1. On 28 July 2000 the Competition Tribunal issued an order approving the
intermediate merger between Glaxo Wellcome plc and Smithkline Beecham
plc with conditions. The conditions for the approval of the merger appear
below.
2. The Commission had prohibited the merger because it was concerned that the
merger would result in the merging parties having high market shares in two
therapeutic categories. The merging parties agreed to out license products in
each of the therapeutic categories identified by the Commission in order to
lessen the competition concerns of the Commission. Consequently the
Commission and the merging parties brought to us a consent order reflecting
their agreement.
3. During the hearing we expressed concern that the merger was likely to lessen
or prevent competition in another (third) therapeutic category. The merging
parties agreed to out license one of the drugs in this category as well.
4. The above undertakings by the merging parties addressed our competition
concerns as well as those of the Commission. The conditions we have set for
the approval of the merger reflect the undertakings made by the merging
parties in the consent order submitted to us prior to and during the hearing.
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The merger transaction
5. This is an international merger of equals between Glaxo Wellcome plc and
SmithKline Beecham plc. This merger is to be effected by way of a scheme of
arrangement in terms of section 245 of the United Kingdom Companies Act of
1985. The two merging firms are registered in England and Wales with
subsidiaries operating around the world.
6. In terms of the merger agreement both firms would be acquired by a new
company called Glaxo SmithKline plc.
7. The European Commission conditionally approved this merger in May 2000;
our decision is largely based on the decision of the European Commission.
Evaluating the merger
8. SmithKline Beecham is mainly involved in the research, development,
manufacture and marketing of pharmaceuticals, vaccines, overthecounter
medicines and health products. In terms of the information the parties have
provided to us about 32 per cent of SmithKline Beecham’s international
turnover derives from nonpharmaceutical activities.
9. Glaxo Wellcome’s business is in the research, development, manufacture and
marketing of pharmaceutical products. In terms of the information supplied to
us by the parties Glaxo Wellcome does virtually no other business outside of
pharmaceuticals products.
10. Since both parties are involved in the research, development, manufacture and
marketing of pharmaceutical products, the merger will result in overlaps in a
number of therapeutic categories for human pharmaceuticals.
The relevant products market
11. The relevant product market is the market for the research, development,
manufacture and marketing of specific categories of pharmaceutical products.
As a general rule of thumb we define this market by reference to the
Anatomical Therapeutic Chemical Classification (ATC) level 3 devised by the
European Pharmaceutical Marketing Research Association. This is the
European Pharmaceutical Marketing Research Association. This is the
classification commonly used by competition authorities around the world,
especially the European Commission, in defining markets for pharmaceutical
products. The ATC classification is a hierarchical classification with 16
categories. Each category has four levels, the first level is the most general and
the fourth level is the most specific. In the third level (ATC 3) products are
classified into therapeutic categories in terms of their intended use. Each
therapeutic category constitutes a market. 1
1 This technique is not always foolproof as certain products within the same ATC3 category are not
always substitutes for one another, i.e., the market could be construed more narrowly than ATC3.
Conversely, a product may also compete with a product in another ATC3 category. For purposes of this
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The relevant geographic market
12. This is a merger between multinational pharmaceutical companies whose
subsidiaries manufacture and supply their products worldwide. The approach
of the European Commission is that the geographic market for pharmaceutical
products is national in scope; this is the approach they followed in their
definition of the relevant geographic market when this merger came before
them. The European Commission’s view is that the sale of pharmaceutical
products is influenced by the administrative procedures or purchasing policies
in force in each Member State. Prices of products are directly or indirectly
influenced by the State in some countries, the prices for products may
therefore differ from one Member State to another. Brand and packsize
strategies and distribution systems also differ between Member States.
13. The same considerations apply to the South African market. In any event this
observation is common cause between the Commission and the merging
parties and requires no further consideration.
Impact on competition
14. As appears below the combined market share of the merging parties’ products
will be very high postmerger in three therapeutic categories. The therapeutic
categories in question are antivirals (excluding antiHIV) (J5B), topical anti
biotics (D6A) and antiemetics (A4A). The new company would hold market
shares of 85,6 percent, 65,3 percent and 38,2 percent in these markets,
respectively. Table 1 below shows the market share of the merging parties
before and after the merger in these therapeutic categories:
ANTIVIRALS
(EXCLUDING
HIV) (J5B)
TOPICAL
ANTIBIOTICS
(D6A)
ANTI
EMETICS
(A4A)
SMITHKLINE
BEECHAM’S
SHARE
Famciclovir 17,5% Bactroban 55% Granisteron
(“Kytril”) 5,2%
GLAXO
WELLCOME’S
SHARE
Zelitrex 40,2%
Zovirax 27,8%
Polysporin 5%
Cicatrin 4,3%
Neosporin 0,5%
Zelitrex 40,2%
Zovirax 27,8%
Polysporin 5%
Cicatrin 4,3%
Neosporin 0,5%
Zofran 22,4%
Valoid 10,6%
POSTMERGER
MARKET
SHARE
85,6% 65,3
%
38,2%
Table 1.
15. For this reason, the merging parties have voluntarily agreed to out license
decision it has not been necessary for us to consider this issue.
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products in each category to lessen the competition concerns of the Tribunal
and the Commission. In terms of this agreement SmithKline Beecham has
undertaken to out license Granisteron (trade name Kytril), in the antiemetics
category and Famciclovir in the antivirals category; Glaxo Wellcome has
undertaken to out license Polysporin, Cicatrin and Neosporin in the topical
antibiotics category.
16. Incidentally, the European Commission also found that the merger would
negatively affect competition in the same areas that we have identified and
approved the merger subject to the parties out licensing some of the products
in the identified areas to reduce their market share postmerger.
17. The undertaking by the parties to out license some of their products means that
in those therapeutic categories where the merger would otherwise raise
competition concerns the merged entity will inherit the market share of one of
the merging firms only. That way the merger does not increase the merging
parties’ market share in those therapeutic categories.
18. We therefore approve this merger on condition that the merging parties will
out license products in the identified therapeutic categories as follows:
ANTIEMETICS (A4A)
Granisetron a pharmaceutical product manufactured by or for
SmithKline Beecham for antiemetic use in the Republic of South
Africa under the brand name Kytril.
TOPICAL ANTIBIOTICS (D6A)
Polysporin a pharmaceutical product manufactured by or for Glaxo
Wellcome in topical ointment form and sold in the Republic of South
Africa for use in the treatment of superficial skin lesions and other
infected wounds and burns.
Cicatrin a pharmaceutical product manufactured by or for Glaxo
Wellcome in powder and ointment form sold in the Republic of South
Africa for use in the prevention of superficial infections in minor
Africa for use in the prevention of superficial infections in minor
abrasions, burns and cuts.
Neosporin a pharmaceutical product manufactured by or for Glaxo
Wellcome in topical ointment form and sold in the Republic of South
Africa for use in the treatment and prevention of infected wounds,
burns or skin grafts.
ANTIVIRALS (EXCLUDING ANTIHIV) (J5B)
Famciclovir a pharmaceutical product manufactured by or for
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SmithKline Beecham in oral form and sold in the Republic of South
Africa for use in treatment of genital herpes and herpes zoster
infections under the brand name Famvir.
19. Drafts of the terms of these license conditions which meet our approval are
attached to this decision as Appendixes “A”, “B” and “C”.
Public interest considerations
20. On the day of the hearing we received a submission regarding the merger from
the Aids Law Project which acts as the legal representatives of the Treatment
Action Campaign (TAC). The TAC is a voluntary organization that campaigns
for affordable healthcare in the country, particularly for people living with
HIV/AIDS. They requested that we approve the merger on condition that the
merging parties allow generic competition for all medicines needed for the
treatment of opportunistic infections in HIV/AIDS and antiretrovirals for
HIV. The TAC claimed that the merging parties dominated the market in the
above medicines and identified a number of products manufactured or
imported by the merging parties. The TAC complained about high prices of
drugs used for the treatment of patients with HIV/AIDS. They claimed that if
the merger is allowed to go through without the proposed condition relating to
generic products the merging firms could charge excessive prices that would
make it difficult for most HIV/AIDS patients to afford treatment.
21. The TAC submitted to us that this merger will give the parties a monopoly in
the market for the production of HIV antiretrovirals (J5C) and drugs used for
the treatment of opportunistic infections associated with HIV/AIDS.
Regarding the latter the TAC submitted a list of drugs manufactured by Glaxo
Wellcome and SmithKline Beecham. The TAC did not however classify the
products into therapeutic categories to determine overlaps resulting from the
merger.
products into therapeutic categories to determine overlaps resulting from the
merger.
22. We requested the Commission to investigate the concerns raised by the TAC.
23. The Commission found that Glaxo Wellcome produces a number of HIV anti
retrovirals, but no evidence that SmithKline Beecham also produces drugs
falling under this therapeutic category. The Commission concluded therefore
that there was no product overlap in this therapeutic category and
recommended that we not impose another condition on the merging parties
relating to this therapeutic category.
24. With regard to drugs used for the treatment of opportunistic infections
associated with HIV/AIDS the Commission also recommended that no further
condition be imposed on the merging parties. Using the ATC3 classification
the Commission found that the only overlap in the drugs listed by the TAC
was in relation to drugs falling under the therapeutic category A4A (anti
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emetics)2. The drugs in this therapeutic category are used for the prevention
and relief of nausea and vomiting by both patients with HIV/AIDS and those
who do not have the disease. Since the merging parties had already undertaken
to out license Granisteron (“Kytril”) the Commission found that the overlap in
this therapeutic category raised no competition concerns.
25. The Commission, however, noted the concerns of the TAC and undertook to
liaise with them to consider whether to launch an investigation pursuant to the
TAC’s submission.
26. We are sympathetic to the cause of the TAC. However, in the absence of
proof of product overlaps in the HIV treatment category in this merger we
agree with the recommendations of the Commission. We find no basis to
impose a further condition on the merging parties pursuant to the submission
by the TAC.
27. With regard to the effect of the merger on employment, there is not enough
information at this stage for us to make a finding. Decisions relating to how
the restructuring necessitated by the merger will be effected have not been
finalised. The information given to us by the parties suggests that the merger
will result in some job losses as the two firms consolidate their operations.
According to the parties this will affect mostly whitecollar workers who are
highly skilled and experienced who can easily find alternative employment.
The parties also indicated that they would provide support to all affected
employees to help them secure other employment. We note that the South
African Chemical Workers Union, which represents most of the merging
parties’ employees was notified of the merger and did not file any submissions
with the Commission or with us.
_______________ 28 July 2000
N.M. Manoim Date
Concurring: D.H. Lewis; U. Bhoola
2 The drugs manufactured by the merging parties falling in this therapeutic category appear in Table 1
above.
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