On February 4, 2009, the European Commission approved Sanofi-Aventis’s acquisition of Czech generics pharmaceutical manufacturer Zentiva. This decision confirmed a change of direction by the Commission in its approach to defining relevant markets for calculating market shares in pharmaceutical merger cases.  

The Commission first signaled this change in approach in its approval decision of the Teva/Barr merger on January 13. In that decision, the Commission focused its approach to definition of the relevant product market on competition between drugs based around the same molecule, rather than the more established approach of identifying relevant affected markets based on drugs in the same Anatomical Therapeutic Chemical (ATC) classifications. The effect of using such an approach is to produce much narrower market definitions and correspondingly high market share figures for overlapping products.  

In Sanofi-Aventis/Zentiva, the Commission’s approval of the deal was conditional on Sanofi-Aventis making some significant divestments of businesses relating to drugs produced by both Sanofi- Aventis and Zentiva. The Commission had examined the impact of the merger on the pharmaceutical markets across Central and Eastern European countries. While it concluded that the effects of the transaction on competition would be moderate and that a sufficient number of competitors would remain in the relevant markets, it identified 15 drugs sold across several countries where it was concerned that the merger would cause prices to rise. Sanofi-Aventis agreed to divest the drugs identified by the Commission in order to obtain clearance of the overall deal.  

Some of the competitive concerns raised by the Commission in Sanofi-Aventis were identified on the basis of the new, molecule-based approach to market definition. It is apparent that the use of common molecules across different products as a basis for market share calculations can lead to data showing higher market shares for merging parties than might be the case when the more established ATC classification-based approach to market definition is used.  

Although the Teva/Barr merger involved two generics manufacturers, the Commission’s decision in the Sanofi-Aventis merger has shown that it is prepared to extend its new approach to market definition to mergers involving both proprietary and generic pharmaceutical companies. Sanofi- Aventis’s experience before the Commission demonstrates that defining the market according to molecule type can lead not only to higher market shares in overlapping areas, but also to more targeted divestments and other remedies. This might allow for divestitures in future cases to become more directly related to the parts of a company about which the Commission has competition concerns.  

This decision is sure to be of interest across the pharmaceutical sector. Mergers such as the recently announced proposal by Pfizer to acquire Wyeth stand to be affected by the Commission’s new market definition approach. The outcome of the Commission’s reviews of future mergers could be affected significantly, with narrower market definitions, higher market shares and potentially more targeted remedies.