Sekhmet Pharmaventures Private Limited and Optimus Drugs Private Limited — Combination C-2022/06/943

Notice under Section 6(2) of the Competition Act, 2002 jointly given by Sekhmet Pharmaventures Private Limited and Optimus Drugs Private Limited

CORAM:

Mr. Ashok Kumar Gupta Chairperson

Ms. Sangeeta Verma Member

Mr. Bhagwant Singh Bishnoi Member Order under Section 31(1) of the Competition Act, 2002

1. On 22 June 2022, the Competition Commission of India (Commission) received a Notice under Section 6(2) of the Competition Act, 2002 (Act), jointly given by Sekhmet Pharmaventures Private Limited (Sekhmet) and Optimus Drugs Private Limited (ODPL). The Notice was filed pursuant to the execution of (i) Share Subscription and Share Purchase Agreement (SSPA) dated 10 May 2022, executed between ODPL, Optimus Pharma Private Limited (OPPL), Optimus Life Sciences Private Limited (OLSPL), Sekhmet, Mr. Srinivasa Reddy Desireddy and Ms. Triveni Reddy Desireddy; (ii) Share Purchase Agreement (SPA) dated 10 May 2022, executed between Sekhmet, ODPL and Unichem Laboratories Limited (Unichem); and (iii) Shareholders’ Agreement (SHA) dated 10 May 2022, executed inter alia between Sekhmet, ODPL, OPPL, OLSPL, Optimus Pharma Corporation, Srinivasa Reddy Desireddy HUF and Mr. Srinivasa Reddy Desireddy (hereinafter ODPL, OPPL and OLSPL are collectively referred to as the ‘Targets’ and Sekhmet and Targets are collectively referred to as the ‘Parties’).

2. The proposed combination involves: (i) purchase by Sekhmet of equity shares representing 33.63% of the share capital of ODPL on a fully diluted basis from certain existing shareholders of ODPL; (ii) subscription to equity shares and compulsorily convertible preference shares (CCPS) representing 35.14% of the share capital of ODPL on a fully diluted basis and 46.59% of the compulsorily convertible preference share capital of ODPL respectively; (iii) acquisition by ODPL of 100% of the shareholding in: (a) OPPL (except redeemable non-convertible preference shares of OPPL which are already held by ODPL); and (b) OLSPL; and (iv) purchase of such number of ODPL’s equity shares that represent 19.99% of its share capital on a fully diluted basis from Unichem (Proposed Combination). Following the consummation of the Proposed Combination, (a) Sekhmet will hold 71.79% of the equity share capital of ODPL; and 46.59% of the compulsorily and mandatorily convertible preference share capital of ODPL; and (b) ODPL will hold 100% of the share capital of OPPL and OLSPL. There are certain other transactions envisaged by the Parties and pursuant to the same and pursuant to conversion of all CCPS, Sekhmet’s shareholding in ODPL will be between 65% - 74% and the shareholding held by the promoters in ODPL will be between 26% - 35%.

3. Sekhmet is held by Gamot API Pte. Ltd. (Gamot)1, which is an investment vehicle majority owned by PAGAC III Investment Holding (Singapore) Sub-Fund 2 of PAGAC III Investment Holding (Singapore VCC) (PAGAC), which is ultimately held by PAG (previously known as PAG Holdings Ltd.)2. PAG is a leading alternative investment firm focused on APAC, with a combination of three core strategies – credit & markets, private equity and real assets. Sekhmet is engaged in providing management services to its subsidiary Anjan Drugs Private Limited (Anjan). Anjan is engaged in the manufacture

1 96.69% of the shareholding (on a fully diluted basis) in Sekhmet is held by Gamot. 2 As submitted, PAGAC is the majority shareholder of Gamot, whereas Durja Investments Limited (Durja) and Stevia Private Limited (Stevia) are the other shareholders of Gamot and hold a minority stake in Gamot. Additionally, PAGAC. Durja and Stevia have the the right to appoint directors to the board of Gamot, including all its direct and indirect subsidiaries. Durja is presently held by Samara Capital Partners Fund III Limited (Samara Fund III) which along with its affiliated funds and group companies form part of Samara Capital Group and Stevia is held by CX Investment Management Limited.

and sale of Active Pharmaceutical Ingredients (APIs) and pharmaceutical intermediates in India and abroad.

4. The Targets form part of the ‘Optimus’ group, which belongs to Mr. Srinivasa Reddy Desireddy and his family. As stated, the Targets are engaged in the pharmaceutical business specifically in the areas of manufacture and sale of APIs, pharmaceutical intermediates, and Finished Dosage Formulations (FDFs). While ODPL is engaged in the (a) manufacture and sale of APIs and pharmaceutical intermediates in India and abroad; and (b) contract development and manufacturing (CDMO) services for FDFs abroad, OPPL is engaged in the (a) manufacture and sale of FDFs; and (b) CDMO for FDFs and OLSPL is engaged in marketing of FDFs.

5. For the purpose of competition assessment, the broad overlapping activities identified on the basis of information given by the Parties are as under: a. Manufacturing of APIs by Anjan (a Sekhmet subsidiary) and ODPL; and b. CDMO of FDFs by Acme Formulation (a PAG entity) and OPPL.

6. As the aforesaid activities form part of the broader pharmaceuticals sector, before going into competition assessment for the aforesaid activities, it would be appropriate to examine the supply chain in the pharmaceuticals sector. The supply chain in the pharmaceutical sector starts with the manufacture of APIs which are the key/primary molecules used in the making of any drug. Pharmaceutical companies may either manufacture APIs themselves or purchase them. Using APIs, pharmaceutical companies manufacture FDFs, consumed by end-consumers. Recent years have also seen the emergence of global CDMOs. CDMOs are third parties that manufacture APIs and/or FDFs under contract on behalf of pharmaceutical companies, under their brand name.

7. As regards manufacturing of APIs, the only common/substitutable API manufactured by Anjan and ODPL in India is Pregabalin API. However, Pregabalin API has not been commercially launched by Anjan in India till date and is still under development by Anjan. Further, the presence of ODPL in this segment is also insignificant as reflected in negligible value of sales and corresponding market share. Accordingly, regardless of the future commercialisation by Anjan, the Proposed Combination is not likely to result in any change in competition dynamics in this segment.

8. As regards CDMO services, the Commission noted that the overall market for CDMO services can be sub-segmented into: (a) CDMO services for APIs; and (b) CDMO services for FDFs because from a demand-side perspective, the CDMO services for APIs and FDFs address separate needs. Considering that the activities of the Parties overlap only in the market for CDMO services for FDFs, the Commission assessed the Proposed Combination considering the market for CDMO services for FDFs in India.

9. As per the estimates of the Parties, in terms of sales value, the combined market share of the Parties stand at less than 10%. Further, the market is noted to be characterised by presence of competitors such as Akums Drugs, Synokem, MSN Labs etc. which would continue to impose competitive constraints on the Parties.

10. Apart from the aforesaid horizontal overlaps, the Proposed Combination has the effect of creating certain vertical overlaps, which have been examined hereunder.

11. The Commission observed that Acme is engaged in the provision of CDMO services for FDFs (branded generics), OPPL is engaged in the manufacture and sale of FDFs (branded generics) in India and OLSPL sells the FDFs (branded generics) manufactured by OPPL in India. However, this vertical relationship is not likely to confer any ability or incentive on the part of the combined entity to cause foreclosure in any markets considering that the presence of the Parties in both upstream and downstream markets are negligible (less than 10% combined market share) and both upstream and downstream market segments are characterised by presence of other significant competitors.

12. Apart from the above, it was noted that certain APIs manufactured by ODPL can be used as an input for the FDFs presently manufactured by Acme as part of its CDMO business. These 3 APIs are: (i) Montelukast API, (ii) Rifaximin API, and (iii) Mebendazole API.

The Commission observed that the presence of the Parties in upstream markets of Montelukast API and Mebendazole API is insignificant while the Parties may be said to have a significant presence in the market for Rifaximin API. However, the presence in downstream market for CDMO services for FDFs in India is insignificant and further both the upstream and downstream markets are characterised by presence of other significant competitors. Based on the same, the Commission observed that this vertical relationship is not likely to confer any ability or incentive on the part of the combined entity to cause foreclosure in any of the relevant markets.

13. Considering the material on record, including the details provided in the Notice and the assessment of the Proposed Combination based on the factors stated in Section 20(4) of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have any appreciable adverse effect on competition in India. Therefore, the Commission approves the Proposed Combination under Section 31(1) of the Act.

14. The order may be revoked if, at any time, the information provided by the Parties is found to be incorrect.

15. The information provided by the Parties shall be treated as confidential in terms of and subject to the provisions of Section 57 of the Act.

16. The Secretary is directed to communicate to the Parties accordingly.