Coloplast advice update

No. ME/00270

A report under section 125(4) of the Fair Trading Act 1973 on the advice of the Director General of Fair Trading given on 6 March 2003, to the Secretary of State for Trade and Industry under section 88(2) of the Act.

Further submission following acceptance of undertakings from Coloplast A/S following the report by the Competition Commission.  

ASSESSMENT

In this submission I report under section 88(2) of the Fair Trading Act 1973 (the Act) on the outcome of the negotiations with Coloplast A/S and Coloplast Ltd (collectively referred to as Coloplast) on the terms of the undertakings you requested that I seek following your acceptance of my previous advice on this matter on 30 January 2003. 

BACKGROUND

The background details to the change of circumstances which led exceptionally to the consideration of a price cap remedy were contained in previous advice of 21 January 2003. The Minister for Competition, Consumers and Markets, Melanie Johnson, announced on 30 January that she had accepted that advice and requested that a change to the terms of the undertakings given by Coloplast on 15 August 2002 be negotiated. More specifically, the Minister asked that the OFT negotiate the terms of a price cap on the sale of Clear Advantage and Conveen Security Plus sheaths to NHS hospitals.

THE UNDERTAKINGS

Coloplast and 4C Health Ltd (a company in which Coloplast has a 40 per cent shareholding) have agreed to give undertakings as set out in the attached annexe (pdf file 38 kb). The undertakings apply to sales of both Clear Advantage and Conveen Security Plus branded sheaths and set a maximum price for sale of these products in the hospital sector. The price cap will apply to sales made after 1 October 2003 (the date of commencement of the next PASA contract) and covers all sales of these products to NHS hospitals in the United Kingdom – a commensurate change in price is to be made by Coloplast for supplies to Scotland, Wales and Northern Ireland which are covered by separate supply arrangements. The price cap will remain in force until the end of the exclusive distribution agreement between Coloplast and the Mentor Corporation on 31 March 2007. The undertakings also contain a provision that this agreement will not be renewed.

The exact levels of the price caps are contained in a side letter for later publication in order to maintain the integrity of the PASA bidding process, given the sensitivity of this price information prior to the completion of the bidding round. The undertakings also contain reporting requirements that allow the prices to be kept under review and for new prices to be prescribed having regard to cost information supplied by Coloplast.

The levels recommended for the price caps on both products are at a higher price than those originally offered by Coloplast. The maximum price levels have been chosen to provide a reduction in price that remedies proportionately the detriment identified by the CC – that the acquisition would result in the cost of non-latex sheaths to NHS hospitals in the UK being higher than would otherwise have been the case. The price cap will result in prices being substantially lower than the current prices listed by PASA, and thus result in significant savings to the NHS (assuming the products continue to be listed by PASA after the bidding round). 

CONCLUSION

The undertakings offered by the parties will ensure that the detriment identified in the CC's report will be remedied in a proportionate manner.  Coloplast and 4C Health Ltd have indicated their consent to the terms of the undertakings and have signed them in advance. This does not in any way prejudge your decision as to whether the undertakings are satisfactory, but will allow prompt publication should you decide to accept them. I therefore recommend that you accept the attached undertakings and that they be published in due course in accordance with section 88(2A) of the Act.

Copies of the signed and dated undertakings along with the side letter are available from the Department for Business, Enterprise and Regulatory Reform (tel 020 7215 5759).

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