The decision is conditional upon the divestment of a number of assets, including the great majority of Allergan Generics' business in the UK and Ireland. The Commission had concerns that the merged entity would have faced insufficient competition from the remaining players for a number of generic pharmaceuticals, as well as regarding the overall generics business in the UK, Ireland and Iceland. The commitments offered by the companies address these concerns.
Commissioner Margrethe Vestager, in charge of competition policy, commented: "Effective competition between generic pharmaceutical manufacturers is essential to drive down prices for patients and healthcare systems. I am glad we have found a solution that allows this takeover to proceed, while ensuring that competition will continue in all European countries."
The Commission's investigation
The transaction leads to the combination of two key competitors in the manufacturing, marketing and sale of generics across the European Economic Area (EEA). The Commission investigation focused on the following areas:
- the large number of generic molecules, both currently marketed and in the development pipeline, in all EEA countries where the parties' activities overlap
- the vertical relationships between the parties resulting from their offerings of active pharmaceutical ingredients
- the vertical relationships between the parties resulting from their out-licensing businesses.
The Commission also assessed whether the combination of the parties' generics activities would affect competition in some EEA countries beyond the markets for individual molecules.
Following a thorough market investigation, the Commission indeed found that competition concerns arose for a number of marketed generic molecules and generic molecules in development pipeline in 24 EEA countries, due to horizontal overlaps or vertical relationships (related to out-licensing) between the parties. On the other hand, the Commission did not identify any competition concerns as regards vertical relationships resulting from the parties' offerings of active pharmaceutical ingredients.
The Commission also found that in Iceland, Ireland and the United Kingdom, where the merging parties are the two largest generics suppliers, the remaining players would have been unable to compete effectively with the merged entity due to the prevalent distribution models and the structure of the national generics market. In particular:
- in Iceland, Allergan Generics has historically been the dominant generics supplier, a position that was being challenged by Teva's offering, sold by its wholesaler Lyfis
- in Ireland, Teva and Allergan Generics are recent entrants that shortly afterwards became market leaders, successfully challenging the established generics players, in particular through aggressive pricing
- in the United Kingdom, Teva and Allergan Generics are the only two generics manufacturers with a portfolio of generics broad enough to be able to sell directly to pharmacies (without going through a wholesaler), offering competitive discount schemes and a level of service valued by customers
In view of these market features, the Commission concluded that the elimination of one of the merging parties would harm competition for the sale of generics in these countries, with a risk of price increases and loss of quality of service and supply.
In order to address the Commission's competition concerns, the two companies offered a comprehensive remedies package includingthe divestment of:
- each of the marketed molecules and molecules in development pipeline giving rise to competition concerns in 24 EEA countries
- Teva's portfolio of marketed molecules and molecules in development pipeline in Iceland
- the great majority of Allergan Generics marketed generics activities and generics activities in development pipeline in Ireland and the United Kingdom, covering all the main steps in the manufacture, supply and distribution of these products (including Allergan Generics' manufacturing plant in Barnstaple, UK, where most of the generics it sells in Ireland and the UK are manufactured).
Following an extensive market test, the Commission found that the commitments address the competition concerns identified and concluded that the proposed transaction, as modified by the commitments, would raise no competition concerns. The decision is conditional upon full compliance with the commitments.
The transaction was notified to the Commission on 21 January 2016.
Companies and products
Allergan Generics includes the global generic pharmaceuticals business of Allergan (formerly known as Actavis), an international pharmaceutical company headquartered in Ireland. This business includes the US and international generics commercial units, third-party supplier Medis, global generics manufacturing operations, the global generics R&D unit, the international over-the-counter commercial unit (excluding eye care products) and some established international brands.
Teva is a global pharmaceutical company headquartered in Israel, involved in the development, production and marketing of generic and proprietary pharmaceutical products, as well as biopharmaceuticals and active pharmaceutical ingredients.
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). This deadline is extended to 35 working days in case remedies are submitted by the parties, such as in this case.