Affected market: Medical products
The OFT’s decision on reference under section 22(1) given on 3 August 2006. Full text of decision published 17 August 2006.
Please note that square brackets indicate figures or text which have been deleted at the request of the parties for reasons of commercial confidentiality.
Coloplast A/S (Coloplast) is a Danish company active in the development, manufacture and marketing of disposable medical products. In the UK, Coloplast distributes continence, ostomy, wound and breast care products.
The target is the urology business of Mentor Corporation (Mentor) excluding Mentor's UK male external catheter (MEC) business. (see [Note 1]) The target, referred to as the ‘Urology Business’, develops, manufactures and supplies a range of medical devices and surgical products that provide solutions for a broad range of urological problems. The Urology Business’ UK turnover in the year ending 31 March 2006 was around £[ ] million.
Coloplast completed the acquisition of the Urology Business on 2 June 2006 and the statutory deadline expires on 1 October 2006. The OFT's administrative deadline expires on 3 August 2006.
As a result of this transaction Coloplast and the Urology Business have ceased to be distinct. The share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met in respect of the supply of intermittent catheters supplied through the community channel, where the parties' combined UK share of supply will be [more than 25] per cent. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.
In June 2002, the Competition Commission (CC) cleared, subject to structural and behavioural remedies (the CC Remedies), the acquisition by Coloplast of SSL International (the CC 2002 Report). (see [Note 2]) The CC found there to be a substantial lessening of competition in respect of MECs in the hospitals segment, and following that report the Secretary of State for Trade & Industry imposed remedies: (i) preventing Coloplast from renewing its agreement to supply Mentor's MEC products, which it did under a distribution agreement that expires in 2007, and (ii) an interim price cap on the supply of MECs to hospitals until that time. Coloplast has told us that this transaction, together with the sale of Mentor's MEC business to Rochester Medical Corporation, bring about an early termination of the distribution agreement between Coloplast and Mentor.
RELEVANT FRAME OF REFERENCE
The parties overlap in the development, manufacture and supply of certain disposable urology products used in the field of continence and ostomy care. These products provide solutions for a broad range of urological problems. The overlaps are in each of three incontinence care products (intermittent catheters, Foley catheters and urine drainage bags) and each of two ostomy products (ostomy bags and ostomy accessories). (see [Note 3])
Demand side substitutability between any of the above products is low.
The CC 2002 Report, which was concerned with similar product areas,
concluded that ‘at any point in time, the clinical assessment would
almost always lead to the choice of one product type in preference to
others, and [the] patient would rarely switch to an alternative
product except in response to a change in his or her condition.’ (see
[Note 4]) In addition, the CC also concluded that ‘low price
sensitivity militates against switching.’ (see [Note 5]) This
suggests that functionality and clinical factors are the main
determinants of demand, not price. Evidence received on this issue from
third parties during the assessment of this merger is consistent with
that view. Supply side substitutability is limited as it can take a
period of years for new products to be developed and listed on the Drug
Tariff. (see [Note 6])
We have assessed the following product scopes: intermittent and Foley catheters, urine drainage bags, ostomy bags and ostomy accessories (in particular, ostomy belts). We considered whether these product scopes should be even narrower taking into account of differences between types of products (for example closed and open ostomy bags). We concluded that for the purpose of this assessment such further distinction is not necessary because it does not alter the competition assessment.
The CC 2002 Report also distinguished between the two principal distribution channels in the NHS: supply to patients in hospital and supply to patients in the community. The parties submit that these ought not to be considered as separate market segments. No firm conclusion is necessary on this point because no competition concerns arise in either segment.
The CC 2002 Report concluded that the geographic scope was the UK, given the distinct regulatory framework for medical products in the UK and the fact that there was little evidence of parallel imports. Third party enquiries in this case indicate that this is the appropriate definition in this case. We considered whether a narrower scope would be appropriate, given that there are separate health administrations within the four different countries of the UK. We consulted with the relevant authorities in England, Wales, Scotland and Northern Ireland and concluded that, as the arrangements are very similar, it is not necessary to narrow the geographic scope any further.
For the range of overlap products, both parties have notably lower shares in supplying hospitals than in supplying patients in the community. The merging parties have shares of supply at their highest of about 50 per cent for the supply of ostomy belts and for the supply of urine drainage bags to patients in the community. However, in all product areas, the increments added by the Urology Business are small (less than 5 per cent in all overlapping product areas).
The OFT considers that a competitive constraint will continue to come from competitors with large shares of supply, such Astra Tech and Bard in continence care products, and Dansac and Convatec in ostomy products, and in addition, a number of smaller players, including those of similar size to that of Urology Business, remain present in these markets. Third party inquiries do not suggest that Mentor was a particularly innovative or maverick player in this market, so there is no reason to believe that the Urology Business was imposing a constraint on Coloplast that was disproportionate to its share of supply.
In a number of the product areas the two largest suppliers account for about 80 per cent of supply. This may raise questions of co-ordination. However, irrespective of whether the conditions for co-ordination exist in this case, given the small increment from Urology Business and the presence of a number of remaining similar sized suppliers, the merger would not substantially alter the ability for coordination in this sector.
A concern was raised by third parties that Coloplast, while not acquiring Mentor's MEC business, might nonetheless acquire Mentor's licence to operate a Dispensing Appliance Contractor (DAC), which is a means of supplying patients in their homes. However, the parties have confirmed that Mentor’s DAC licence has not been transferred to Coloplast as a result of the transaction.
Two third parties were concerned that Coloplast could strengthen its position in the MECs segment even without acquiring Mentor’s MEC business. The suggestion made was that Coloplast has retained all Mentor’s current contractual supply arrangements with nursing homes and several Primary Care Trusts. Coloplast has told the OFT that it is only acquiring Mentor’s patient list for the mail order home delivery service conducted through Mentor’s DAC. (see [Note 7]) Coloplast has informed the OFT that it is not acquiring any contractual arrangement with any third party.
The OFT considers that this concern is unfounded, as even if Coloplast were able to switch all Mentor’s former home delivery patients to its own branded MECs, the increment in Coloplast’s share would be small ([less than 5] per cent) on shares of supply in MECs in the UK of less than 25 per cent in either supplying patients in the community channel or both those in the community and hospital channels taken together. In addition, third party enquiries suggest that instituting patient switching between different brands of the same product is difficult because of specific product characteristics.
THIRD PARTY VIEWS
A number of third parties were consulted and concerns expressed are addressed above.
The parties overlap in the supply of several continence care and ostomy products with shares of supply about 50 per cent in certain product areas. However, in all sectors the increments are minor and the OFT considers that the remaining competitors will continue to exert sufficient competitive pressure on the merged entity.
After having assessed the vertical issues raised by third parties, the OFT concluded that these concerns were unfounded due to the very small increment and low level of switching.
Consequently, the OFT does not believe that it is or may the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.
- was acquired by Rochester Medical Corporation under a separate transaction.
- Competition Commission Report on Coloplast A/S and SSL International plc merger. The CC assessed the effect on competition that the merger had in several markets for continence care products including, sheaths (or male external catheters), intermittent catheters, and urobags. See Competition Commission documents.
- These include: ostomy belts, deodorants, skin fillers and protectives (such as barrier creams, pastes, aerosols, lotions, gels and wipes); and skin protectors (such as wafers, blankets, foam pads and washers).
- Competition Commission Report on the acquisition by Coloplast of SSL, June 2002; paragraph 2.36.
- Competition Commission Report on the acquisition by Coloplast of SSL, June 2002; paragraph 2.36.
- The Drug Tariff contains a list of all appliances that can be prescribed in the community on the NHS. It is compiled on behalf of the Department of Health by the NHS Business Services Authority, Prescription Pricing Division.
- Rocheter Medical is acquiring Mentor's DAC licence.