The European Commission has found the proposed acquisition of the oncology business of GlaxoSmithKline plc. ("GSK") of the United Kingdom by Novartis of Switzerland to be in line with the EU Merger Regulation. Both companies are active globally in the development, distribution and marketing of pharmaceutical products. The decision is conditional upon the divestment of two of Novartis' cancer treatments: LGX818, a B-Raf inhibitor, and MEK162, a MEK inhibitor. B-Raf inhibitors and MEK inhibitors are therapies that block cell proliferation, responsible for tumour growth and progression. They can be used to treat a number of different cancers. The Commission had concerns that the transaction would have reduced competition and innovation for these products. The commitments address these concerns.
The transaction is part of a 3-part inter-conditional deal: in a separately notified case (M.7276), GSK announced its intention to acquire Novartis' global human vaccines business except for the influenza vaccines business, and to combine GSK's and Novartis' global consumer health business in a new venture, over which GSK will be exercising sole control. In a separate decision taken today, the Commission has also approved those parts of the deal (see IP/15/3841).
The Commission had two concerns with the transaction as originally notified, namely:
- that it would have reduced from 3 to 2 the number of companies developing and marketing both B-Raf and a MEK inhibitors for skin cancer;
- that it would have reduced innovation, with the likely abandonment of Novartis' broad clinical trial program for LGX818 and MEK16. These treatments are currently being trialled for a number of other cancers.
In the short term, B-Raf and MEK inhibitors are expected to become the standard of care for the treatment of skin cancer, in particular when used in combination. These two products, if ultimately successful, are expected to reach peak sales of several hundreds of millions EUR in the next few years in the European Economic Area (EEA). The Commission's investigation indicated that the proposed transaction would lessen competition in skin cancer treatments, leading to a duopoly between the merged entity and Roche in the area.
The Commission also assessed the transaction's specific impact on innovation, by taking into account the expected role of both products in the treatment of a number of other cancers such as ovarian, colorectal or lung cancer. The Commission's assessment revealed that the merger would not only have led to the abandonment of Novartis' current efforts to launch its LGX818/MEK162 combination treatment for skin cancer, but also to the abandonment of the broader LGX818 and MEK162 clinical trial program.
In order to prevent a negative impact on competition and to protect innovation, Novartis committed to return its rights over MEK162 to its owner and licensor Array BioPharma Inc. ("Array") and to divest LGX818 to Array. These post-closing commitments are conditional upon the Commission's approval of a binding partnership agreement between Array and a suitable healthcare company. This will ensure the worldwide development of LGX818 and MEK162 as well as the commercialisation of these inhibitors in the EEA.
The Commission found that these commitments address the identified competition concerns. The Commission therefore concluded that the proposed transaction, as modified by the commitments, would not raise competition concerns. The decision is conditional upon full compliance with the commitments.
The Commission maintained close cooperation with a number of competition authorities, including the United States, Canada and Australia, which are also examining the proposed transaction.
The transaction was notified to the Commission on 28 November 2014.
Companies and products
Novartis is a Swiss healthcare company, active globally in the development, distribution and marketing of medical products. Its main areas of activity cover pharmaceuticals, eye care, generics, consumers health and vaccines.
GSK is a British healthcare company, active in three main areas: pharmaceuticals, vaccines and consumer healthcare. GSK develops, distributes and markets globally medical products including respiratory, oncology, vaccines, HIV, and consumer health medicines.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).