G. D. Searle and Co.: Aspartame

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In 1965, G.D. Searle & Co. discovered Aspartame. By 1986, NutraSweet, the operating entity set up by Searle to build the aspartame business. In 1983, the contracted price was around $85-$90 per Ib. Although this represented a substantial premium over saccharin which cost around $3 per Ib and even sugar about 25 cents per Ib, aspartame replaced all the U.S. soft drink use of saccharin within two years of its introduction. NutraSweet obtained a patent extension of 5 and half years in the American market, to 1992. In Canada and Europe the patent would end by 1987, what would probably invite new competitors. In 1985, two years before expiration of NutraSweet's patents in Europe, the Holland Sweetener Co. (HSC) was formed in Maastricht, Holland, as a joint venture between DSM, a Dutch chemical group and Tosoh Corporation, a Japanese chemical company. Tosoh had a patented process for producing aspartame that utilized a natural catalyst to combine the two aspartame ingredients. HSC's intentions were to serve the European and Canadian markets as a second source to major customers, like Coke and Pepsi. NutraSweet will likely to initiate a price competition. After HSC's entry into the European market, NutraSweet reduced its prices to around $30 per lb. NutraSweet's action would prevent HSC from rapidly reaching scale and learning. The arguments for initiating such a price competition is: When visiting prospects before entering the market, HSC discovered that NutraSweet had signed Pepsi and Coke to exclusive multi-year contracts with specific clauses that HSC considered anti-competitive. HSC filed a complaint against those clauses with the European Commission, signaling NutraSweet that it would fight for the large customers in the soft drink industry. In the beginning of 1987, NutraSweet agreed to amend its contracts with Coke and Pepsi to allow them to accept bids for up to 50% of their needs. Coke and Pepsi used the two suppliers against each other.
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