EU Clears the Way for Drug Company

The European Commission approved a $36-billion union between Swiss drug makers Sandoz and Ciba-Geigy with only minor amendments.

The commission, the executive agency of the European Union, gave the green light for the creation of Novartis after the two companies agreed to license out the production of methoprene, an ingredient used to make animal flea-control products.

Novartis will be the world’s second-largest drug company after Glaxo Wellcome, with annual sales of $22 billion and market capitalization of about $80 billion. U.S. regulatory officials must also approve Novartis. A decision is expected by November.

The companies also said they are ready “to use their influence” to guarantee competition in gene therapy. That means non-exclusive licenses could be granted for some future patents for products used to treat brain and other tumors, the commission said in a statement.

The approval was widely expected after the EU’s advisory committee, made up of antitrust officials from each of the 15 EU nations, voted to clear Novartis at a closed meeting July 2.

The creation of Novartis involves a stock swap that will leave Sandoz shareholders with 55% of the new company’s equity, while Ciba investors will get 45%.

“Novartis will continue to face competition in all areas from a number of major competitors,” the commission said, citing rivals Glaxo Wellcome and Bayer.

Granting companies production licenses for methoprene is a minor modification, said Birgit Kulhoff, an analyst at Union Bank of Switzerland, before the ruling. Because it is not Program, Ciba’s fastest-growing flea-control product, the loss shouldn’t be big.

“They can expect some small losses,” Kulhoff said. “What’s important is that Program stays and that everything goes smoothly with pharmaceuticals.”

In animal health, Novartis will control about 40% of the EU market. It will also be strong in the markets for blood pressure and bone disease treatments, the commission said.

The EU’s investigation also looked at crop protection, where Novartis is set to be twice as large as its next competitor. It will control more than half of some markets in seed-treatment and fungicides, especially in France.

Though Switzerland isn’t an EU member, the commission reserves the right to investigate any merger where combined EU sales exceed $324 million $314 million and worldwide sales exceed $5 billion.

EU Competition Commissioner Karel Van Miert said in an interview July 4 that Ciba and Sandoz had been “particularly cooperative” during the commission’s inquiry. That kind of cooperation, he said, was not always evident in EU antitrust investigations.