Serum institute Life Sciences Private Limited, Biocon biologics limited & Covidshield Technologies Private Limited. — Combination C-2022/03/912

Notice under Section 6(2) of the Competition Act, 2002 jointly filed by Serum Institute Life Sciences Private Limited, Biocon Biologics Limited and Covidshield Technologies 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 02.03.2022, the Competition Commission of India (Commission) received a notice under sub-section (2) of Section 6 of the Competition Act, 2002 (Act), jointly filed by Serum Institute Life Sciences Private Limited (Acquirer/SILS), Covidshield Technologies Private Limited (CTPL) and Biocon Biologics Limited (Target/BBL). [Hereinafter, the Acquirer (including CTPL) and the Target are collectively referred to as “Parties”].

Combination Registration No. C-2022/03/912

2. The notice is filed pursuant to, inter alia, (i) the Merger Cooperation Agreement executed between the Parties on 16.09.2021 (Merger Cooperation Agreement); (ii) the Scheme of Merger executed between CTPL, the Target and their respective shareholders and creditors as per the provision of Sections 230 to 232 of the Companies Act, 2013 and other applicable laws and filed before the relevant NCLTs (Schemes); (iii) the Shareholders Agreement (SHA) dated 16.09.2021; and (iv) the Commitment and Supply Agreement dated 16.09.2021 (Supply Agreement).

3. The Proposed Combination envisages a merger by absorption of CTPL, a wholly owned subsidiary of the Acquirer, into the Target, in consideration of which, the Acquirer will acquire approximately 15% equity shareholding on a fully diluted basis in the Target in accordance with Schemes, the Merger Cooperation Agreement and the subsequent Supply Agreement (Proposed Combination). The provisions of the Supply Agreement ensure that the Acquirer (either by itself or through its affiliates) for each year of the term of the Supply Agreement, reserves and/or makes available 100 million doses of vaccines (in the aggregate, and not of each vaccine separately) developed and manufactured at the manufacturing facility of the Acquirer or Serum Institute of India Private Limited (SII) for the Target.

4. In terms of Regulation 14 of Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations), the Commission, vide communication dated 22.03.2022, sought certain information(s)/clarification(s), inter alia, relating to the activities of the Parties; the response to the same was received on 05.04.2022. As the response received was incomplete in certain respects, therefore, in continuation to the letter dated 22.03.2022, another communication dated 08.04.2022 was sent. The response to the same was received on 26.04.2022. Certain further clarification(s)/information(s) were also provided on 10.05.2022.

Description of Parties

5. The Acquirer is a subsidiary of SII and forms a part of the Serum Group, which includes the ultimate controlling entity of the Acquirer, i.e., Poonawalla Investments and Combination Registration No. C-2022/03/912

Industries Private Limited, and all such downstream affiliates belonging to the group of this ultimate controlling entity. It is stated in the notice that the Acquirer was established as a company for further development and commercialization of vaccines and therapies against COVID-19 in India, with plans to further develop vaccines against other infectious diseases. The Acquirer undertakes commercialization of vaccines for COVID- 19, including all the commercialization and marketing activities of the Serum Group in relation to “COVISHIELD” in India, as well as other vector borne diseases.

6. CTPL, incorporated in India, is a wholly owned subsidiary of the Acquirer, i.e., SILS, that will be merged with the Target. It has been submitted that neither is CTPL currently engaged in any activity nor does it have any manufacturing facility of its own. CTPL has been appointed by the Acquirer as its non-exclusive distributor to market, sell, distribute and commercialize only the Licensed Identified Vaccines1 being manufactured and/or distributed by the Acquirer and/or its affiliates pursuant to a supply agreement entered into between CTPL and the Acquirer on 17.08.2021. Post the Proposed Transaction, all commercialization rights and obligations, i.e., all rights emanating from the non-exclusive distribution arrangement re the Licensed Identified Vaccines, including the entitlement to get supply of minimum annual quantity of vaccines, i.e., 100 million doses shall be transferred to the Target.

7. The Target is a subsidiary of Biocon Limited, which is the ultimate holding entity. The Target has no subsidiaries, joint ventures or associate companies in India. It has R&D centers in Bengaluru and Chennai, with manufacturing facilities in Bengaluru and Malaysia for monoclonal antibodies, recombinant proteins and insulins. The Target offers treatment for chronic and acute diseases such as diabetes, oncology, nephrology, cancer and autoimmune diseases. Within India, the Target has a Branded Formulation India business which is responsible for direct B2C sales. It commercializes insulin globally from its Indian facility. The Target is also a fully integrated global biosimilar organization having a research pipeline of biosimilar molecules across diabetes, oncology, immunology and other non-communicable diseases, which include

1 A non-exclusive list of vaccines provided in the Supply Agreement that are either developed or under various stages of development by the Serum Group. These vaccines have been licensed from various developers across the globe, and the Serum Group has the licence to manufacture these vaccines.

Combination Registration No. C-2022/03/912 monoclonal antibodies for cancer and autoimmune diseases, insulin and insulin analogs for diabetes and conjugated recombinant proteins.

Horizontal Overlaps

8. Broadly, the Parties are engaged in the pharmaceutical sector. It is stated in the notice that the scope of the Proposed Combination primarily pertains to the supply of the Licensed Identified Vaccines to the Target by the Acquirer. It is submitted that, since the Acquirer is solely present in the sector for the development or commercialization of vaccines for COVID-19 and other vector borne diseases and does not have any operations that may overlap with the activities of the Target, as such, there are no direct horizontal overlaps between the activities of the Acquirer and the Target in India.

9. With respect to horizontal overlaps between the activities of the Serum Group and the Target, it is submitted in the notice that both the Serum Group and the Target manufacture Erythropoietin injection. Further, the Target also markets Darbepoetin Alfa injections (contract manufactured by third party on a principal-to-principal basis), which the Serum Group neither manufactures nor markets. It is stated in the notice that, from an end use perspective, both the recombinant human erythropoietin injection and Darbepoetin Alfa injection can be said to be part of a broader market for the manufacture and supply of Erythropoiesis Stimulating Agents (ESA), as both Recombinant Human Erythropoietin and Darbepoetin Alfa are ESAs and used for the treatment of anaemia with chronic kidney disease and symptomatic anaemia in adult cancer patients with non-myeloid malignancies receiving chemotherapy; however, Erythropoietin and Darbepoetin Alfa can be differentiated based on the frequency of administration. Based on the foregoing, the Parties have submitted that the relevant market may be defined narrowly as “Market for manufacture and supply of recombinant human erythropoietin injection in India.” (Relevant Market 1) and broadly as “Market for manufacture and supply of erythropoiesis stimulating agents (ESA) including recombinant human erythropoietin injection and darbepoetin alfa injection in India” (Alternate Relevant Market 1).

Combination Registration No. C-2022/03/912

10. Furthermore, a horizontal overlap is identified in respect of Terlipressin, which is sold by both the Serum Group as well as the Target. It is stated in the notice that neither the Serum Group nor the Target are engaged in manufacturing of Terlipressin, but it is manufactured by a third party under contract manufacturing on a principal-to-principal basis. In relation to this overlap, the Parties have submitted that the relevant market may be defined as “Market for supply of Terlipressin in India” (Relevant Market 2).

Vertical Relationship

11. With respect to the vertical relationship, it is submitted that, while there are no vertical overlaps, there is an existing supply relationship between the Serum Group2 and the Target, i.e., Existing arrangement for supply of glass containers by the Serum Group to the Target for storing liquid injectables (Existing Supply Relationship). It is stated that this existing supply relationship is not a vertical overlap as the Acquirer and/or the Serum Group are not engaged at different stages of the supply chain vis-à-vis the Target. The glass containers supplied by the Serum Group are not an input for the liquid injectables manufactured and/or supplied by the Target and are only used for the storage of such liquid injectables.

12. Further, with respect to the Existing Supply Relationship, the Acquirer has submitted that the Target purchases glass containers of different types, i.e., glass vials, glass ampoules, glass pre-filled syringes and glass cartridges, from various suppliers as packaging material, including from Schott Kaisha Private Limited (Schott), an affiliate of the Acquirer. It is explained that, in the past few years, the Target has procured only glass vials from Schott to be used for packaging of its product glargine. There are no other glass containers/products, i.e., apart from vials, including ampoules, pre-filled syringes and cartridges that have been supplied under the Existing Supply Relationship by Schott to the Target. It is clarified that Schott has been the sole supplier for vials for glargine to the Target in the past few years. Therefore, the Existing Supply Relationship is limited to the supply of vials by Schott to the Target for the packaging of glargine.

2 Through Schott Kaisha Private Limited, a joint venture jointly controlled by the Serum Group and Schott AG.

Combination Registration No. C-2022/03/912

13. It is clarified by the Acquirer that the vials being supplied under the Existing Supply Relationship by Schott are currently used by the Target solely for glargine and that the other glass containers, i.e., the ampoules, pre-filled syringes and cartridges can be potentially used by the Target for storing insulin, bevacizumab and trastuzumab that it manufactures. These remaining types of glass containers, viz., ampoules, pre-filled syringes and cartridges can also be sourced by the Target from Schott, making it a potential supply relationship. However, it is clarified that the said vials, ampoules, pre-filled syringes and cartridges, cannot be used for any other liquid injectables that the Target manufactures at present.

14. With respect to the Existing Supply Relationship, whereby the Acquirer through Schott supplies glass vials to the Target which purchases them to store and supply the glargine it manufactures, the Parties, for the purposes of assessment, have identified the relevant markets for the Serum Group and the Target as “Upstream market for supply of vials in India” and “Downstream market for manufacture of Glargine in India”, respectively (Existing Supply Relationship). Further, since the Serum Group through Schott is engaged in the supply of glass ampoules, pre-filled syringes and cartridges, and the Target, which is present in the market for manufacturing and supplying of insulin, bevacizumab and trastuzumab in India, can potentially purchase such products for storing insulin, bevacizumab and trastuzumab, the relevant markets for the Serum Group and the Target have been identified for the purposes of assessment of this Potential Supply Relationship as “Upstream market for supply of ampoules, pre-filled syringes and cartridges in India” and “Downstream market for manufacture of insulin, bevacizumab and trastuzumab in India”, respectively (Potential Supply Relationship – I).

15. The Acquirer has submitted that there is also a potential supply arrangement with respect to the proposed supply of the Licensed Identified Vaccines by the Acquirer, i.e., SILS to the Target, i.e., BBL. The relevant markets for the Serum Group and the Target have been identified for this potential supply arrangement as “Upstream market for supply of vaccines used for immunization against COVID-19 in India” and Combination Registration No. C-2022/03/912 “Downstream market for distribution of vaccines used for immunization against COVID-19”, respectively (Potential Supply Relationship – II).

16. The Commission decided to assess the Proposed Combination in the segments identified by the Parties. However, the exact delineation of the relevant market is being left open, as the material available on record does not suggest that the Proposed Combination is likely to cause any competition concern in India.

Assessment of the Proposed Combination

17. Based on the submissions of the Parties regarding the horizontal overlaps between the Parties, it is noted that the combined market share of the Serum Group and the Target in the Relevant Market 1 and the Alternate Relevant Market 1 is in the range of [0-5] % and [5-10]%, respectively, with miniscule incremental market share. Moreover, there is a presence of other players such as Wockhardt Limited, Zydus Cadila Biologics, Emcure Pharmaceuticals Limited, Intas Pharmaceuticals Limited, etc., in these relevant markets. Further, in Relevant Market 2, the combined market share of the Serum Group and the Target, as well as the incremental share, is miniscule. Moreover, there is a presence of other players such as Samarth Life Sciences Pvt. Ltd., Wockhardt, Sun Pharmaceuticals, etc., in this relevant market also.

18. With respect to the vertical relationship between the Parties in respect of the Existing Supply Relationship, it is noted that the market share of Schott in the upstream market for supply of vials in India based on volume is quite significant, and the market share of the Target based on value is in the range of [10-15]%. However, it is noted from the submissions of the Parties that the annual spend of the Target for procuring vials from Schott is miniscule compared to the Target’s total expenditure on packaging material and only around one-third of the Target’s total expenditure on glass vials in FY 2020- 21. Furthermore, in comparison to the total sales of vials made by the Acquirer in FY 2020-21, the total requirement of vials by the Target was negligible. Moreover, there are other players supplying vials in India, such as SGD Pharmaceuticals India Private Limited, Borosil Klasspack Private Limited, Shree Naina Group Packwell Inc., Nipro

Combination Registration No. C-2022/03/912

Tube Glass Limited, etc., and other players manufacturing glargine in India, such as Sanofi India Limited Sanofi India Limited Cipla Limited, Wockhardt Limited, Lupin Limited, etc. In view of the foregoing, it appears that the Existing Supply Relationship is not likely to raise any competition foreclosure concerns in India.

19. In relation to Potential Supply Relationship-I, it is noted from the submissions of the Parties that the market shares of the Acquirer (through Schott) in the upstream market for supply of ampoules, pre-filled syringes and cartridges in India are in the range of [55-60]%, [20-25]% and [25-30]%, respectively, and the market shares of the Target in the downstream market for manufacture of insulin, bevacizumab and trastuzumab are in the range of [5-10]%, [0-5]% and [0-5]%, respectively. Moreover, the upstream markets have the presence of other players, both domestic and international, such as SGD Pharmaceuticals India Private Limited, Borosil Klasspack Private Limited, Shree Naina Group Packwell Inc., Nipro Tube Glass Limited, Becton Dickinson and Company, Weigao and Nuovo Ompi, and in the downstream market there is the presence of other pharmaceutical companies such as Abbott India Limited, Lupin Limited, Wockhardt Limited, Sanofi India Limited, Cadila Pharmaceuticals Limited, Hetero Healthcare Limited, Intas Pharmaceuticals Limited, Reliance Lifesciences Limited, Dr Reddys Pathlabs Private Limited, Mylan Pharmaceuticals Private Limited Emcure Pharmaceuticals Limited and Zydus Cadila Biologics, which are posing competitive constraints to the Parties and also provide scope for customers to source the products from different suppliers.

20. In relation to Potential Supply Relationship-II, it is noted from the submissions of the Parties regarding the upstream market for the supply of vaccines used for immunization against COVID-19 in India that the vaccines being provided under the Supply Agreement to the Target are non-exclusive in nature, and the 100 million doses would amount to less than 10% of the total vaccine doses manufactured by the Serum Group. It is submitted that, out of the 07 Licensed Identified Vaccines, currently, the Serum Group manufactures only 02 vaccines, i.e., (i) AZD1222 SARSCov-2 (COVISHIELD); and (ii) NVX - CoV2373 – SARS-Cov-2 (COVOVAX), and that specifically, in respect to the COVISHIELD vaccine, the Serum Group faces competition from other

Combination Registration No. C-2022/03/912 pharmaceutical companies such as Biological E Limited, Bharat Biotech International Limited, Dr. Reddy’s Labs, Zydus Cadila Biologics, Biological E, Genova Biopharma, Panacea Biotech, Indian Immunologicals Limited, Bharat Serums and Vaccines Private Limited and GlaxoSmithKline Pharmaceuticals Limited. Further, with respect to the downstream market for the distribution of vaccines used for immunization against COVID-19, the Parties have submitted that the Target is not engaged in the manufacturing and/or distribution of vaccines that are used for immunization in India. Moreover, given that the Proposed Transaction is limited to collaboration regarding distribution of vaccines, it appears that this Potential Supply Relationship-II may not result in foreclosure of any of the identified relevant markets.

21. 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

22. This order may stand revoked if, at any time, the information provided by the Parties is found to be incorrect.

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

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