Competition Bureau statement regarding Pfizer’s acquisition of Hospira

OTTAWA, August 14, 2015 — This statement summarizes the approach taken by the Competition Bureau in its review of the proposed transaction between Pfizer Inc. (Pfizer) and Hospira, Inc. (Hospira) pursuant to a merger agreement announced on February 5, 2015.

The Bureau announced on August 14, 2015 that it had reached a consent agreement with Pfizer, which resolves its competition concerns related to the proposed transaction. Following its review, the Bureau concluded that Pfizer’s acquisition of Hospira would likely have resulted in a substantial lessening or prevention of competition for the supply of four pharmaceutical products in Canada as a result of the elimination of competition between the parties.

In conducting its review, the Bureau cooperated with a number of its international counterparts, including the United States Federal Trade Commission and the European Commission. The Bureau also conducted interviews with numerous stakeholders, including hospital procurement personnel, provincial and private formularies, group purchasing organizations (GPOs), medical professionals and competitors.Footnote 1

Background

Pfizer and Hospira are global providers of pharmaceutical products. The parties’ Canadian product portfolios primarily overlap in the area of prescription pharmaceutical products administered in hospital and healthcare facilities. These facilities are often members of GPOs, which combine purchasing volumes from multiple buyers to obtain price and supply commitments from suppliers. GPOs gather information from their members regarding the types and volumes of medicines required, and then initiate competitive tendering processes. The bids submitted are evaluated based upon various pre‑determined criteria, including price, packaging and labeling. Contracts can be awarded to one or two successful bidders, depending on the GPO’s tendering rules.

Analysis

The Bureau focused on whether the proposed transaction was likely to substantially lessen competition in markets where both parties are current suppliers or, in the case where either Pfizer or Hospira has a product still in research and development (pipeline product), substantially prevent future competition. In its analysis, the Bureau took into consideration, among other factors, the extent to which effective competitors would remain in the relevant markets after the transaction, and the likelihood of entry or expansion by other potential suppliers.

Relevant product and geographic markets

In assessing the relevant product markets at issue, the Bureau considered a number of factors in respect of the parties’ pharmaceutical products, including active ingredients, indications and clinical uses, therapeutic classes as defined by the World Health Organization’s Anatomical Therapeutic Chemical (ATC) classification system, dosage strengths and product formats. The Bureau consulted with numerous stakeholders, including physicians and purchasers of the parties’ pharmaceutical products, to evaluate which of these products should be considered as sufficiently close substitutes for one another.

The Bureau concluded that the parties’ products should generally be considered within the same relevant product market where they are identical at the molecular level (i.e., constitute the same chemical compound) and are supplied in the same format (e.g., injectable or tablet). From a demand‑side perspective, where customers procure pharmaceutical products by means of competitive tenders, each particular molecule, dosage strength and format required are tendered separately. Even in cases of an exact molecule-level match between two products, healthcare professionals will take into account the route of administration most suitable for a patient when making prescribing decisions. Oral, sublingual, topical or injectable routes of administration each have associated advantages and disadvantages with implications for the effectiveness of the drug therapy. Additionally, the Bureau found that injectable products are most often administered in a hospital or infusion clinic environment under the direct supervision of medical personnel, while oral tablets are generally prescribed for a patient’s use after being discharged from the hospital and are distributed through retail pharmacies. Accordingly, the Bureau determined that for the purposes of evaluating the parties’ overlapping products, oral tablet and sterile injectable formats of a particular molecule would likely not be within the same relevant product market.

Consistent with the Bureau’s past merger reviews in the pharmaceutical industry, the relevant geographic market for pharmaceutical products is Canada. Regulatory barriers imposed by Health Canada limit the entry of pharmaceutical products from outside of Canada, and are particularly rigorous for prescription pharmaceutical products.

Effective remaining competition

For each product category in which the Bureau determined that the parties’ products are in the same relevant product market, the Bureau considered whether there are sufficient alternatives to products of the merging parties that constitute effective remaining competition, such that a substantial lessening or prevention of competition is unlikely. The Bureau concluded, based on specific information gathered from its market investigation, that where the proposed transaction would cause there to be an insufficient number of effective post-merger competitors in a given relevant market, and where there was no indication of a new supplier well positioned to enter that market in the near future, there would likely be a substantial lessening or prevention of competition in the sale of that product. Market contacts consistently stated that the entrance of a second and third competitor into a market frequently resulted in lower prices, and, additionally, provided greater supply security, which was of special importance in the case of sterile injectable products where supply disruptions have been a concern in recent years.

Currently marketed products

The Bureau identified three molecules currently supplied by both parties where the loss of competition resulting from the proposed transaction would lead to fewer than three effective post-merger competitors in Canada for a given format: cytarabine, epirubicin and methotrexate. The sterile injectable cytarabine is an antimetabolite used in the treatment of various types of blood cancers. The sterile injectable epirubicin is an anthracycline antitumour antibiotic used to produce regression in a variety of cancerous tumour types. Methotrexate, which was the only oral tablet format overlap between the parties, is indicated for the treatment of certain cancers as well as severe psoriasis and arthritis.

For these products, the Bureau then considered the likelihood that sufficient and timely entry would occur post-merger to constrain an exercise of market power by the merged entity. It was ultimately determined that such entry in the near term was improbable in light of the significant regulatory processes, logistical challenges and sunk costs for new entrants and that, accordingly, a substantial lessening of competition was likely with respect to the supply of each of these three molecules in their relevant formats in Canada.

Pipeline products

In its analysis of overlaps involving the parties’ pipeline products, the Bureau’s review focused on the sterile injectable voriconazole, which is an antifungal used to treat serious, invasive fungal infections. In this category, Pfizer’s brand-name product VFEND faces competition from Sandoz, which recently introduced a genericized product into the market. According to the Bureau’s market investigation, the next injectable likely to enter this market would have been Hospira’s pipeline product. The Bureau concluded it was likely that, but for the proposed transaction, Hospira would have continued its efforts to commercialize and market injectable voriconazole in Canada, and would have done so in a timely manner. The Bureau additionally found no evidence of a potentially competing product likely to enter the Canadian market in time to replace the competition that would have been provided by Hospira’s product. Accordingly, the Bureau concluded that the proposed transaction would likely result in a substantial prevention of competition in this market.

Remedy and conclusion

Pfizer has entered into a registered consent agreement with the Bureau, the terms of which require Pfizer to sell the Canadian assets relating to its marketed injectable cytarabine, injectable epirubicin and oral tablet methotrexate products and Hospira’s pipeline injectable voriconazole product. Pursuant to the consent agreement, these products must be sold to one or more approved buyers to be determined after the closing of the proposed transaction. As a result, the Bureau is confident that the implementation of the consent agreement will adequately resolve its concerns.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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