Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE  
Europese Commissie, DG COMP MERG ER REGISTRY, 1049 Brussel,  BELGIË 
 
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu . 
 EUROPEAN COMMISSION 
 
 
 
  
Brussels, 21.4.2017 
C(2017) 2802 final 
 
PUBLIC VERSION 
 
 To the notifying party:  
Subject: Case  M.8362 - Lonza Group / Capsugel 
Commission decision pursuant to Article 6(1)(b) of Council 
Regulation No 139/20041 and Article 57 of the Agreement on the 
European Economic Area2 
Dear Sir/Madam, 
(1) On 17 March 2017, the European Commi ssion received a notification of a 
proposed concentration pursuant to Artic le 4 of Council Regulation (EC) No 
139/20043 by which Lonza Group AG ("Lonza" , Switzerland) acquires within the 
meaning of Article 3(1)(b) of the Merg er Regulation control of the whole of 
Capsugel SA ("Capsugel", Luxembourg) by way of purchase of shares (the 
Transaction)4. Lonza and Capsugel are collectivel y referred to as "the Parties". 
                                                 
1  OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty 
on the Functioning of the European Union ('TFEU') has introduced certain changes, such as the 
replacement of 'Community' by 'Union' and 'c ommon market' by 'internal market'. The 
terminology of the TFEU will be used throughout this decision. 
2   OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement'). 
3       OJ L 24, 29.1.2004, p. 1 (the "Merger Regulation"). 
4   Publication in the Official Journal of the European Union No C 96, 28.3.2017, p. 6. In the published version of this decision, some 
information has been omitted pursuant to Article 
17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and 
other confidential information. The omissions are 
shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a 
general description. 
2 I. THE PARTIES AND THE OPERATION  
(2) Lonza is a company active in the supply of various services from research to final 
product manufacturing in the pharmaceutical, health care and life science industries 
worldwide. It is also active in the manufacture and development of active 
ingredients for use in the agricultura l sector, surface protection in various 
industries, and water treatment. 
(3) Capsugel designs, develops and manufactur es a range of dosage forms for the 
pharmaceutical and nutrition industries. Ca psugel’s products include oral dosage 
delivery products, including hard gelatine, soft gelatine, liqui d and alternative 
polymer capsules. 
(4) On 14 December 2016, the Parties concl uded a stock purchase agreement for 
Lonza to acquire 100% of Capsugel's shares. 
(5) In the light of the above, the Transact ion constitutes a concentration within the 
meaning of Article 3(1)(b) of the Merger Regulation. 
II. EU DIMENSION 
(6) The undertakings concerned have a comb ined aggregate worldwide turnover of 
more than EUR 2 500 million5  (Lonza: EUR 3 562 million, Capsugel: EUR 907 
million) and a combined aggregate turnover of more than EUR 100 million in each of at least three Member States (Fra nce (Lonza: EUR […] million, Capsugel: EUR 
[…] million), Germany (Lonza: EUR [… ] million, Capsugel: EUR […] million), 
United Kingdom (Lonza: EU R […] million, Capsugel: EUR […] million). Each of 
them has an aggregate turnover of more than EUR 25 million in each of at least 
three of the Member States included above (France, Germany, United Kingdom) 
and has an EU-wide turnover in exce ss of EUR 100 million (Lonza: EUR […] 
million, Capsugel: EUR […] million), but they do not achieve more than two-thirds 
of their aggregate EU-wid e turnover within one and the same Member State. 
(7) The notified operation therefore has an EU  dimension under Article 1(3) of the 
Merger Regulation. 
III. C
OMPETITIVE ASSESSMENT  
A. INTRODUCTION  
(8) Through the proposed acquisition, Lonza's obj ective is to expa nd its offering and 
open up new market opportunities in the pharmaceutical and health and nutrition 
industries. 
(9) The Parties' products are largely complementary. 
(10) Lonza is active in contr act manufacturing of active pharmaceutical ingredients 
(APIs) for pharmaceutical customers, and manufactures and sells a few APIs on a 
                                                 
5 Turnover calculated in accordance with Article 5 of the Merger Regulation and the Commission 
Consolidated Jurisdictional Notice (OJ C 95, 16.4.2008, p. 1). 
3 proprietary basis.6 Lonza also manufactures a nd sells health and nutrition 
ingredients which are sold as raw mate rials for health and nutrition customers.7 
(11) Capsugel is primarily active in the producti on and supply of various forms of oral 
dosages in which a drug can be delivered , also called solid oral dosage delivery 
mechanisms (SODDMs). More specifically, Capsugel provides empty and liquid filled hard capsules as well as soft gelatin and alternative polymer capsules. Capsugel also offers ancillary technol ogy solutions services such as dosage 
formulation services and development serv ices for solid oral dosage products.  
(12) The activities of the Parties are located at different stag es of the production process 
of finished drugs, as illustrated by the gr aphic overview of the production chain of 
a pharmaceutical or health and nutrition product used in SODDMs. 
Diagram 1 - Production chain of a pha rmaceutical or health and nutrition 
product used in SODDM
8 
 
(13) As a result, the activities of the Parties do not give rise to any horizontal overlap. 
The transaction leads to de minimis  vertical links in the limited instances where 
Capsugel purchases ingredients to be direct ly integrated into the production of its 
liquid filled capsules. Since the Parties ne vertheless have activities in neighbouring 
markets, the decision will assess the possible conglomerate effects of the Transaction. 
                                                 
6   Lonza's sales of proprietary APIs relate mainly to [name of drug] and [name of drug]. 
7  Lonza's main proprietary nutrition and health  ingredients are: (i) L-Carnitine (Carnipure®); 
(ii) Nicotinates; (iii) a larch bark derived com pound consisting of soluble fibre arabinogalactan 
and bioactive flavonoids (ResistAid®); (iv) Collagen (UC II®); and (v) a combination of zinc 
monomethionine aspartate, magnesium aspartate and vitamin B6 (ZMA®). 
8  Step 5 Encapsulation is a process that only applies to capsules, which are just one type of solid 
oral dosage form. 

4 B. Market definition 
(14) This section defines the relevant market s where Lonza or Capsugel are active, and 
which are vertically re lated or neighbouring. 
(1) Markets where Lonza is active 
i. API contract manufacturing servic es to pharmaceutical companies 
Product market 
(15) In previous decisions, the Commission analysed the market for contract 
manufacturing of finished dose pharmaceu ticals, considering possible segmentation 
by technology and know-how needed to produce different forms of 
pharmaceuticals (e.g. cytotoxic products) or by type of API used, but ultimately left 
the exact definition open.  The Commission ha s not previously assessed the market 
for contract manuf acturing of APIs.  
(16) The Notifying Party submits that the rele vant market for Lonza is contract 
manufacturing of APIs. 
(17) Lonza submits that for the production of APIs, it generally uses basic chemistry 
production methods. Whilst the manufacturin g method will depend on the specific 
API, in general the process involves the purchase of basic chemicals and reagents 
(e.g., acids, bases, reducing agents) and i ndustrial solvents (e.g., acetone, methanol, 
water) which are then chemically pr ocessed, isolated and purified (e.g., 
centrifuged, crystalized, filtered) to produ ce advance intermediates and the final 
API. Lonza adds that it also occasi onally uses microbial  fermentation and 
enzymatic production during the manufacturin g processes, although this is less 
common and normally specific to  a particular process. 
(18) The Notifying Party argues th at it is not necessary to consider a possible 
segmentation by manufacturing method because all technologies to manufacture APIs are standard and readily availabl e. The Notifying Party however considers 
that the precise market de finition can be left open. 
(19) For the purpose of the present case, the product market definition can be left open, 
since irrespective of whether the market is defined as encompassing the contract 
manufacturing of all APIs or is segmented by manufacturing method, the 
Transaction does not raise serious doubts as to its compatibility with the internal 
market. 
Geographic market 
(20) The Notifying Party considers that the re levant geographic market of contract 
manufacturing of APIs is worldwide. 
(21) In its previous decisional practice,9 the Commission consider ed that the geographic 
market for contract manufacturing of fi nished dose pharmaceuticals is at least 
                                                 
9  See e.g. COMP/M.6278 Takeda/Nycomed , paragraph 23; COMP/M.5555 – Novartis / Ebewe , 
paragraph 19; COMP/M.5530 – Glaxo Smith Kline / Stiefel Laboratories , paragraph 43; 
COMP/M.5253 - Sanofi-Aventis/Zentiva , paragraph 191-192. 
5 EEA-wide and likely to be global but ultim ately left the exact geographic scope 
open. The market investigation in this ca se confirmed that contract manufacturing 
of APIs would be at least EEA-wid e in scope and possibly worldwide.10 
(22) For the purpose of the present case, the geographic market definition can be left 
open, since irrespective of wh ether the market for contr act manufacturing of APIs 
and its possible segmentations are EEA-wid e or global, the Transaction does not 
raise serious doubts as to its compat ibility with the internal market. 
ii. API manufacturing on a proprietary basis  
Product market  
(23) The Commission has previously considered that the manufacturing of APIs forms a 
distinct relevant product market which is upstream to the market for finished dose 
pharmaceuticals, and that each individual API may potentially constitute a relevant 
product market, whereas certain APIs may be  substitutable with each other for all, 
or for a range of applications, but ultim ately left the product market definition 
open.11  
(24) The Notifying Party considers that the releva nt product market is the market for the 
manufacture of APIs. 
(25) For the purpose of the present case, the product market definition can be left open, 
since irrespective of whether the mark et is defined as encompassing the 
manufacturing of all APIs or of indivi dual API, the Transaction does not raise 
serious doubts as to its compatib ility with the in ternal market. 
Geographic market  
(26) The Commission has previously considered that the markets for the manufacture 
and supply of APIs are wider than the market for finished dose pharmaceuticals 
and possibly worldwide. Nevertheless, th e exact scope of th e geographic market 
was left open.12 
(27) The Notifying Party submits that the market  for the manufacture of APIs is global 
in nature, and if not then at least EEA-wide. 
(28) For the purpose of the present case, the geographic market definition can be left 
open, since irrespective of wh ether the markets for manu facturing of proprietary 
APIs and its possible segmentations are EEA-wide or global, the Transaction does 
not raise serious doubts as to its comp atibility with the internal market. 
                                                 
10   See replies to question 2.1.4 of Questionnaire Market Investigation. 
11  See e.g. COMP/M.6278 Takeda/Nycomed , paragraphs 17-18; M.5555 – Novartis / Ebewe , 
paragraph 16; Case COMP/M.5295 - Teva/Barr , paragraph 189; COMP/M.5253 - Sanofi-
Aventis/Zentiva , paragraphs 179-181.  
12  See e.g. COMP/M.6278 Takeda/Nycomed , paragraphs 19; COMP/M.5555 – Novartis / Ebewe , 
paragraph 20; COMP/M.5295 - Teva/Barr , paragraph 190; COMP/M.5253 - Sanofi-
Aventis/Zentiva , paragraphs 186.  
6 iii. Manufacturing and commercialisation of human health and nutrition ingredients 
Product market  
(29) The Notifying Party submits that human hea lth and nutrition ingredients belong to 
a single relevant product market, and th at there is no need to segment by 
production method or by ingredient. 
(30) In a previous case,13 the Commission considered th e human health and nutrition 
market distinguishing between cultures, colour and flavour ingredients for food 
production and envisaging various sub-delin eation within thes e categories, but 
ultimately left the precise market definition open. In another case,14 the 
Commission considered a market for s ynthetic emulsifiers,  with a possible 
distinction by type of emulsifiers15 but ultimately left the market definition open. 
(31) In this case, Lonza is manufacturing a small range of nutrition and health 
ingredients, including among others L-Carn itine, Nicotinates and sorbitan ester 
products. 
(32) For the purpose of the present case, the product market definition can be left open, 
since irrespective of whet her the market for the manufacturing of health and 
nutrition ingredients is defined as encomp assing the manufactur ing of all nutrition 
and health ingredients or is segmented by categories (e.g. by type of synthetic 
emulsifiers), by production me thod or by individual ingr edient, the Transaction 
does not raise serious doubts as to its compatibility w ith the internal market. 
Geographic market 
(33) According to the Notifying Parties' view, the relevant geographi c market definition 
for manufacturing of human health and nutri tion ingredients is global in nature or 
at least EEA-wide. 
(34) As regards the geographic market de finition, in previous decisions, the 
Commission considered the geographic scope  of markets for the manufacturing of 
human health and nutrition ingredients w ould be at least EEA-wide and possibly 
worldwide16, but left the exact definition open. 
(35) For the purpose of the present case, the geographic market definition can be left 
open, since irrespective of wh ether the market for manu facturing of nutrition and 
health ingredients and it s possible segmentations ar e EEA-wide or global, the 
Transaction does not raise serious doubts as to its compatibility with the internal 
market. 
                                                 
13   See COMP/M.3845 -  PAI/Chr. Hansen, paragraphs 10-12. 
14   See COMP/M.5109 - Danisco/Abitec , paragraphs 10-25. 
15  Undistilled Monoglycerides (" MONO-DI"), Distilled Monogly cerides ("DISMO"), Diacetyl 
Tartaric Esters of Monoglycerides ("DATEM "), Sodium or Calcium Stearoyl Lactylates 
("SSL/CSL") and other emulsifiers. 
16 COMP/M.3845 -  PAI/Chr. Hansen, paragraphs 13-14; COMP/M.5109 - Danisco/Abitec , 
paragraphs 27-30. 
7 (2) Markets where Capsugel is active 
i. Solid oral dosage delivery mechanisms 
Product market  
(36) In previous decisions17, the Commission considered th e production of solid oral 
dosage delivery mechanisms (SODDM) as a distinct market that is upstream to the pharmaceutical, over-the-counter (OTC) a nd nutrition industries. The Commission 
has also considered both a wider mark et for the production of SODDM to the 
pharmaceutical, OTC and nutrition industries and the narrower segments: (i) hard gelatine capsules; (ii)  soft gelatine capsules; (iii) liquid filled capsules and (iv) 
alternative polymer capsules. The Commission ultimately left the product market definition open.  
(37) The Notifying Party indicated that the relevant product ma rket is the market for 
SODDM and there is no need to furthe r define sub-segments according to the 
different types, i.e. empty hard gelatine  capsules, soft gelatine capsules, liquid 
filled hard capsules and alternative polymer capsules.  
(38) The Notifying Party specified that empty hard  gelatine capsules have been used in 
the pharmaceutical industry for over 100 years and submitted that with some 
limited exceptions, there are no drugs or  nutritionals for which hard gelatine 
capsules are the sole or preferred method of oral dosage, or for which hard gelatine 
capsules offer significant performance adva ntages over alternative dosage forms. 
(39) The Notifying Party added that other oral dosage mechanisms on the market 
include soft gelatine capsules, liquid fill ed hard capsules, alternative polymer 
capsules, tablets, powders and liquids. Soft  gelatine capsules are primarily used to 
deliver oils and active ingredients that are dissolved or suspended in oil. Traditional 
hard and soft gelatine capsu les are derived from pork or beef products. To meet the 
dietary restrictions and religious requi rements of certain consumers, capsule 
suppliers have developed alternative pol ymer capsules, which do not contain any 
gelatine or other animal products.  
(40) In an internal document, a nother type of capsules is identified, namely inhalation 
capsules.
18 These capsules would be designed more for respiratory and systemic 
drug delivery.19 The Notifying Party considers that it is not a separate segment and 
that inhalation capsules can be  either hard gelatine or alternative polymer capsules.  
(41) For the purpose of the present case, the product market definition can be left open, 
since irrespective of whether the mark et for the manufacturing of SODDM is 
defined as encompassing the manufacturing of all SODDM or is segmented by type of capsules (hard gelatine, soft gelatine, alternative polymer and liquid filled), the 
Transaction does not raise serious doubts as to its compatibility with the internal 
market. 
                                                 
17 See Case COMP/M.6231 - KKR/Capsugel , paragraphs 10-15. See also Case COMP/M.2922 - 
Pfizer/Pharmacia   
18   Annex 5.4.2 of the Form CO, page 42. 
19  http://www.capsugel.com/biopharmaceuticals/ capsule-encapsulation-technologies/inhalation-
capsules/dpi-technology/ 
8 Geographic market  
(42) As regards the geographic market de finition, in a previous decision20 the 
Commission suggested that it  is at least EEA-wide. 
(43) For the purpose of the present case, the geographic market definition can be left 
open, since irrespective of whether the market for ma nufacturing of SODDM and 
its possible segmentations are EEA-wide or  global, the Transaction does not raise 
serious doubts as to its compatib ility with the in ternal market. 
ii. Dosage formulation and development services 
Product market  
(44) The Commission did not analyse the market of dosage formulation and 
development services in its previous decisions.  
(45) The Notifying Party submits that the relevant  product market to be the provision of 
contract development and manufacturi ng organisation (CDMO) services which 
include dosage-related technology and deve lopment solutions services for solid 
oral dosage products to biopharmaceutical and consumer health and nutrition companies. According to the Notifying Pa rty while not all provi ders offer all the 
same or identical services, such dos age-related technology and development 
solutions services for solid oral dosage  products can include design of the dosage 
formulation, technology selection consul ting (i.e. identifyi ng the appropriate 
dosage form for a product), development of  targeted delivery technologies (i.e. 
modified and targeted release solutions),  bioavailability enhancement solutions 
such as the development of spray-dried dispersions and nanopa rticle technologies, 
formulation optimization consulting, etc.  
(46) The Notifying party does not consider it appropriate to further segment 
development services (dosage related technology and development solutions 
services for solid oral dose products ) by technology. Although some variation 
exists, reportedly the majority of competitors providing these services have a broad 
menu of offerings similar to Capsugel and customers for solid oral dosage development services generally do not vi ew the sector in any sub-categories by 
technology, but consider developmen t services to be one sector. 
(47) For the purpose of the present case, the product market definition can be left open, 
since irrespective of whether the market for the dosage formulation and development services is defined as en compassing all CDMO services or is 
segmented by technology, the Transaction doe s not raise serious doubts as to its 
compatibility with the internal market. 
Geographic market  
(48) According to the Notifying Party's vi ew, the geographic market of dosage 
formulation and development services is worldwide. 
(49) For the purpose of the present case, the geographic market definition can be left 
open, since irrespective of whether th e market for dosage formulation and 
                                                 
20  See COMP/M.6231 - KKR/Capsugel , paragraph 14 
9 development services and its possible segm entations are EEA-wide or global, the 
Transaction does not raise serious doubts as to its compatibility with the internal 
market. 
C.  Competitive assessment 
(1) Vertical relationships 
(50) The Transaction leads to vertical links between the manufacture of nutrition and 
health ingredients by Lonza, and more sp ecifically the manufacturing of sorbitan 
ester and L-Carnitine products (Lonza, upstream) and the manufacturing of liquid-
filled hard capsules (Capsugel, downstream).  
i. Sorbitan ester (Lonza, upstream) and liqui d-filled hard capsules (Capsugel, 
downstream) 
(51) Capsugel purchases Lonza's sorbitan este r products (sold under Lonza's trademark 
Glycomul) and uses them as synthetic em ulsifiers in the encapsulation process of 
its liquid-filled hard capsules for certa in health and nutrition customers. More 
specifically, in 2016, Capsugel purchased EUR […] worth of Glycomul globally 
([50-60]% of Lonza's Glycomul sales), all of which outside of the EEA.  
(52) The Notifying Party submits that Lonza's ma rket share in the upstream market for 
the manufacturing and supply of all human health and nutrition ingredients, of 
synthetic emulsifiers or any possible na rrower segmentation including a market 
limited to sorbitan esters or  sorbitan monolaurate is de minimis , less than [0-5]% at 
global and EEA level.  
(53) The Notifying Party submits that Capsugel's market share in the downstream 
market for all SODDM is [10-20]% at globa l level and [10-20]% at EEA level, of 
soft gelatine and liquid-filled hard capsules  together is less th an [10-20]% at global 
and EEA level, and for liquid-filled hard  capsules is only slightly higher at around 
[30-40]%, [30-40]% at global leve l and [20-30]% at EEA-level.  
(54) The Commission did not identify any ri sk of foreclosure post-Transaction. 
(55) As to input foreclosure, the market inves tigation indicated that sufficient alternative 
sources of supply will remain post-Transaction.21 Capsugel identified for instance 
[name of supplier] as  an alternative supplier, from whom it used to purchase 
sorbitan ester. The existence of alterna tive sources of supply is also confirmed by 
[name of supplier], the only other current customer of Lonza for Glycomul, which 
specified that it is a " very small buyer of Glycomul for industrial use coating 
application ".22  
(56) As to customer foreclosure, in additi on to Capsugel having limited purchases of 
Glycomul, this product has a variety of a pplications, not limited to food emulsifier, 
but also including cosmetics, plastics, i nks and coatings. Lonza's other customer 
[name of supplier] is not active like Caps ugel in SODDM. Suppliers will therefore 
continue having sufficient output post-Transaction.  
                                                 
21  Replies to question 4.1 – Questionnaire market investigation. 
22  Reply of [name of supplier] to question 4.1 – Questionnaire market investigation. 
10 (57) In view of the above, the Tr ansaction does not give rise to serious doubts as to its 
compatibility with the internal market stemming from the vertical relationship 
between Lonza sorbitan ester Glycomul product and Capsugel liquid filled hard capsules activities. The same conclusion holds if the markets are defined as broader than sorbitan ester products or liquid filled of hard capsules. 
ii. L-Carnitine (Lonza, upstream) and liquid-filled hard capsules (Capsugel, 
downstream) 
(58) Capsugel purchases Lonza's L-Carnitine (Carnipure) product, which is a derivative 
of amino-acids, for the formulation of certa in liquid filled hard  capsules. Carnipure 
is used as raw ingredient in a variety of human and animal health and nutrition 
products, in order to aid weight management  or to supplement a consumer's intake 
of L-Carnitine through their diet. In 2016, Capsugel purchased EUR […] of 
Carnipure from Lonza, of which EUR […] were purchased at EEA level. 
(59) The Notifying Party submits that Lonza's ma rket share in the upstream market for 
the manufacturing and supply of nutrition and he alth ingredients is less than [0-5]% 
at global or EEA-level. More specifically in the segment for L-Carnitine, its market 
share decreased from [30-40]% in value and [20-30]% in volume in 2014 to [20-
30]% in value and [20-30]% in volume in 2016 at global level and from [30-40]% 
in value and [20-30]% in volume in 2014 to [20-30]% in value and [20-30]% in 
volume in 2016 at EEA level.  
(60) As mentioned above in paragraph (53) above, the Notifying Party submits that 
Capsugel's market share in the downstr eam market for the manufacture of all 
SODDM is [10-20]% at global level and [10- 20]% at EEA level, of soft gelatine 
and for liquid-filled hard capsules is only slightly higher at around [10-20]% at 
global and EEA level, and for liquid-fille d hard capsules only slightly around [30-
40]%, [30-40]% at global level and [20-30]% at EEA-level.  
(61) The Commission did not identify any ri sk of foreclosure post-Transaction. 
(62) As to input foreclosure, post-Transacti on, there will remain several competitors 
holding market shares above 5% at globa l and EEA levels, such as Biosint, 
Liaoning, Northeast pharmaceuticals, Ka iyuan Hangtai Fine Chemicals and 
Zhejiang Jiashan Chengda. Capsugel's curre nt main supplier of L-Carnitine is 
[name of supplier]. In addition, Lonza sale s of Carnipure to Capsugel represent less 
than [0-5]% of its total sales of Carnipure. The market investigation confirmed that customers, and in particular Lonza's othe r customers such as [name of customer] 
and [name of customer], could find altern ative sources of supply and no risk of 
foreclosure were identified.
23  
(63) As to customer foreclosure, in additi on to Capsugel's limited amount of purchases 
of L-Carnitine, the latter can be sold not only to Capsugel's competitors but also directly to nutrition and health companie s. Suppliers will ther efore continue having 
sufficient output post-Transaction.  
(64) In view of the above, the Tr ansaction does not give rise to serious doubts as to its 
compatibility with the internal market stemming from the vertical relationship 
between Lonza L-Carnitine Carnipure pr oduct and Capsugel liquid filled hard 
                                                 
23  Replies to question 4.1 – Questionnaire market investigation. 
11 capsules activities. The same conclusion holds if the markets are defined as broader 
than L-Carnitine products or liqui d filled of hard capsules.  
(2) Conglomerate effects  
Introduction (65) The Commission investigated whether the Transaction would lead to conglomerate 
effects within the meaning of its Guidelin es on the assessment  of non-horizontal 
mergers (non-horizontal merger guidelines),
24 since the Parties have to a certain 
extent complementary portfolios. 
(66) According to the non-horizontal merger guidelines, while non- horizontal mergers 
are usually not anti-competitive, the combin ation of products in closely related 
markets may confer upon the merged entity th e ability and incentive to leverage a 
strong market position in one market to another, by means of tying or bundling. 
Tying and bundling, as such, often have no anti-competitive effects, as companies engage in tying and bundli ng in order to provide thei r customers with better 
products or offerings in cost-effective wa ys. In certain circumstances, however, 
these practices may lead to a reduction in rivals' actual or potential ability or incentive to compete. This could, in tu rn, reduce the competitive pressure on the 
merged entity, thus allowi ng it to increase prices.
25 
Products and markets concerned 
(67) The Commission assesses the extent to which the combination of Lonza's activities 
in contract manufacturing of APIs, ma nufacturing of proprietary APIs and 
manufacturing of human health and nutri tion ingredients and Capsugel's position in 
the manufacturing of SODDM and dosage fo rmulation and deve lopment services 
could have anti-competitive conglomerate effects.  
(68) Indeed, post-Transaction, the merged entity will be able to provide combined 
offers, including its pharmaceutical and nutri tion and health ingredients as well as 
formulation and encapsulation services.  
(69) The activities of Lonza and Capsugel ultim ately address the needs of the same 
customer base, of the nutrition and h ealth industry and of the pharmaceutical 
industry. The Parties can be considered  as being active in  closely related 
neighbouring product markets.  
(70) In the EEA, Capsugel manufactures more sp ecifically a) hard capsules (80-90% of 
sales), b) soft gelatines cap sules and liquid filled hard capsules (<1% of sales) and 
c) alternative polymer caps ules (approx. 10% of sales) . Capsugel also performs 
formulation and development services . The Commission considers that an 
assessment of potential conglomerate effects is necessary in view of the strong 
position of Capsugel on the market for S ODDM, in particular in relation to the 
potential sub-segments for hard gelatine capsules, liquid filled capsules and 
                                                 
24 Commission's Guidelines on the assessment of non-horizontal mergers under the Council 
Regulation on the control of concentrations between undertakings (OJ C 265, 18.10.2008, p.6). 
25   Non-horizontal merger guidelines, paragraph 91. 
12 alternative polymer capsules where the market shares ar e close to or above [30-
40]%.  
(71) The Parties' market shares at global and EEA levels in the different markets are 
summarized in Tables 1 and 2 here below. 
1. Table 1 –Market shares for Lonza at EEA and global levels 26 
 Contract manufacturing of 
APIs Nutrition and health ingredient 
 All By 
production 
method All L-Carnitine Nicotinates Synthetic 
emulsifiers 
 Vol Val Vol/Val Vol/Val Vol Val Vol Val Vol/Val 
2016 
Global N/A [0-
5]% <[30-40]% <[0-5]% [20-30]% [20-
30]% [20-
30]% [20-
30]% <[0-5]% 
EEA N/A [0-
5]% <[30-40]% <[0-5]% [20-30]% [20-
30]% [20-
30]% [20-
30]% <[0-5]% 
2015  
Global N/A [0-
5]% <[30-40]% <[0-5]% [20-30]% [20-
30]% [20-
30]% [20-
30]% <[0-5]% 
EEA N/A [0-
5]% <[30-40]% <[0-5]% [20-30]% [20-
30]% [20-
30]% [20-
30]% <[0-5]% 
2014 
Global N/A [0-
5]% <[30-40]% <[0-5]% [20-30]% [30-
40]% [30-
40]% [30-
40]% <[0-5]% 
EEA N/A [0-
5]% <[30-40]% <[0-5]% [20-30]% [30-
40]% [30-
40]% [30-
40]% <[0-5]% 
 
                                                 
26  Only nutrition ingredients where ma rket shares of Lonza are close to [30-40] % are added. As to 
proprietary APIs, Lonza market shares are less than 5% for [name of drug] and less than 25% for 
[name of drug]  both at EEA and global levels (see footnote 6). 
13 Table 2 –Market shares for Capsug el at EEA and global levels  
 SODDM Development 
Formulation 
Hard gelatines 
capsules27 Soft gelatines capsules  Liquid filled hard 
capsules Alternative 
Polymer 
capsules28 Val/Vol 
 
Vol Val Vol Val Vol Val Vol Val 
2016  
Global [30-
40]% [50-
60]% <[0-5]% <[10-20]% N/A N/A [40-
50]% [50-
60]% < [5-10]% 
EEA [50-
60]% [60-
70]% <[0-5]% <[10-20]% N/A N/A [40-
50]% [60-
70]% < [5-10]% 
2015  
Global [30-
40]% [50-
60]% <[0-5]% <[10-20]% [30-
40]% N/A [40-
50]% [50-
60]% < [5-10]% 
EEA [50-
60]% [70-
80]% <[0-5]% <[10-20]% [20-
30]% N/A [40-
50]% [50-
60]% < [5-10]% 
2014  
Global [30-
40]% [60-
70]% <[0-5]% <[10-20]% N/A N/A [40-
50]% [40-
50]% < [5-10]% 
EEA [60-
70]% [70-
80]% <[0-5]% <[10-20]% N/A N/A [30-
40]% [40-
50]% < [5-10]% 
 
(72) Tables 1 and 2 show Capsugel’s strong pr esence in the EEA in hard capsules, 
alternative polymer capsules and to a lesser extent, liquid filled hard capsules. The respondents to the market investigation i ndeed generally considered that Capsugel 
has a very strong market position in hard capsules especially in Europe.
29 
(73) The Notifying Party submits that the combin ation of a contract manufacturer and a 
capsule supplier does not provide the merged entity with any material or insurmountable competitive advantage vi s-à-vis customers or competitors. 
According to the Notifying Party cust omers have significant and sufficient 
negotiating strength on a b ilateral basis to either c ontinue to buy individual 
products from the merged entity or, in the alternative, to easily and quickly switch 
to one of the many rivals of Lonza a nd Capsugel, for each of the necessary 
individual inputs, thus defeati ng any tying or bundling strategy. 
                                                 
27  The market shares in the table reflect Capsugel 's market position for hard gelatine capsules overall 
and a possible segment for inhalation hard gelatine capsules only. 
28  The market shares in the table reflect Capsug el's market position for alternative polymer capsules 
overall and a possible segment for inhalation alternative polymer capsules only. 
29   Replies to question 6.2  – Questionnaire market investigation. 
14 (74) The Commission assesses below whether the merged entity could and is likely to 
engage into tying or bundli ng strategies and whether such strategies could lead to 
the exclusion of competitors from the market and ultimately to possible price increases. 
(75) Given the nature of the products, there is no technical bundling possible, i.e. –
capsules cannot be technically  tied so that they coul d only be used for APIs 
produced in-house . The merged entity could however offer commercial bundling, 
which is foreseen in the Transaction s ynergies through cross- selling of products.
30 
(76) As regards the possibility  for commercial bundling, th e market investigation 
showed that the Transaction is not likely to give rise to eff ects through commercial 
bundling either, since alternative suppliers for manufacturing of ingredients, such 
as Catalent, Fareva, Patheon and Evonik for contract manufacturing of APIs to 
pharmaceutical companies, and for manufact uring of capsules, such as ACG, 
Qualicaps, Suhueng, and Pharmacapsulas fo r the manufacture of hard gelatine 
capsules,  would remain on the markets.  
(77) Two of the respondents to the market investigation31 indicated a concern that the 
merged entity will impose its capsules in the context of its offers for contract manufacturing of APIs, lead ing to the exclusion of co mpeting capsules providers 
that would not be able to provide su ch combined offers. However, other 
respondents and in particular all the custom ers considered such scenario unlikely, 
since they would keep the possibility of buying the produc ts separately from other 
alternative sources of supply. One respondent replied that “ Lonza could try to 
implement such a practice  [imposing to all customers a bundle] but it would likely 
not be attractive to customers who could then go to other suppliers" .
32 Many 
respondents consider that a lternative suppliers both on the market for capsules and 
pharmaceutical ingredients will remain.33  
(78) In general, respondents consider ed that the merged entity “ may propose 
combination solutions comprising multiple products and services ”34 and 
“customers may wish to consider purchasing such combined solution ”.35 However, 
as a range of alternative sources of s upply will continue to be available, the 
combined entity “ will not be in a position to force customers to purchase a 
combined package of goods and/or services ”36. Moreover, according to a common 
customer, if the merged entity will be be tter to address supply chain needs, it will 
not engage into imposing commercial bundles as " it would likely alienate 
customers and drive bus iness away overall ".37 Thus, the allegation by a competitor 
                                                 
30   See Form CO, paragraphs 307 and followings. 
31   Replies to e.g. question 5.1 – Questionnaire market investigation. 
32   Replies to question 7.1 – Questionnaire market investigation. 
33   Replies to question 7.2  – Questionnaire market investigation. 
34   Reply of a customer to question 7.2 – Questionnaire market investigation. 
35   Reply of a customer to question 7.1 – Questionnaire market investigation. 
36   Replies to question 7.2 – Questionnaire market investigation. 
15 of Capsugel that customers will likely be locked in38 is not supported by the overall 
results of the market investigation. What is more, the market investigation suggests 
that any anti-competitive bundling strategy would have the effect to make the customers look for alte rnative suppliers.  
(79) In particular, even if Capsugel's market  position is strong in hard gelatine and 
alternative polymer capsules, it faces co mpetitive constraints from existing players 
such as ACG, Qualicaps, Suhueng, and Pharmacapsulas mentioned above. In addition, several respondents considered th at there would not be high barriers to 
entry for these products.
39 Market participants also indicated that pharmaceutical 
companies could relatively easily switch supplier of capsules, since this variation does not require an agreement from the re gulatory authorities wh ich only need to 
be informed.
40 
(80) The market investigation showed that the combination of Lonza and Capsugel's 
products could enhance a new market tr end to provide combined offers to 
customers. One of the market participants outlines the positive effects post-transaction considering that th ere will be a possibility for " higher level of service 
and quality through suppliers consolidat ion and better alignment to pharma 
industry " with " possible end-to-end, integrated o ffering for customers with positive 
business case (i.e. leaner supply c hain, easier planning of supply) ".
41 Other market 
participants highlighted that this merger follows a trend in the market to offer the 
full supply chain services and that other competitors, such as Patheon, started to 
also implement such strategy.42 Another respondent consid ered however that the 
combined offer could change the competitive landscape as competing companies may not be able to house the expertise of the merged entity and could find it difficult to compete in the development of  novel therapeutics. A respondent to the 
market investigation
43 pointed out that combining the expertise is worth noting 
because it has the capacity to change th e therapeutic development business related 
to the delivery of novel modality. The syne rgies of the Transaction anticipated by 
the Parties confirmed that the merger may create new combination products or 
development projects, although such projects are not " intrinsic to the deal " and 
would require substantial investments.44 However, the market investigation did not 
bring elements as to why such innova tion, which may better address customers' 
                                                                                                                                                 
37   Reply of a customer to question 7.3 – Questionnaire market investigation. 
38   A reply to question 7.3  – Questionnaire market investigation. 
39  See e.g. Minutes of the conference call w ith a customer, 13 March 2017; Minutes of the 
conference call with a co mpetitor, 7 March 2017. 
40   See e.g. Minutes of the conference  call with a customer, 13 March 2017. 
41   A reply to question 8 – Questionnaire market investigation. 
42  See e.g. Minutes of the conference call w ith a customer, 13 March 2017; Minutes of the 
conference call with a co mpetitor, 7 March 2017. 
43  Replies to question 7.3 – Questionnaire market investigation. 
44  See Annex 5.4.5 of the Form CO, "Project Am a Dablam – Commercial synergies DD", Lonza, 
24 November 2016. 
16 needs, would be ultimately harmful to competition and in particular why 
competitors would not be able to replicate such strategy.  
(81) In light of the above considerations, the Commission did not identify serious 
doubts as to the compatibility of the Transa ction with the intern al market stemming 
from the combination of Lonza's and Caps ugel's portfolio of products and services. 
IV. C ONCLUSION  
(82) For the above reasons, the European Co mmission has decided not to oppose the 
notified operation and to declare it compatible with the internal market and with the EEA Agreement. This decision is adopted in  application of Artic le 6(1)(b) of the 
Merger Regulation and Article 57 of the EEA Agreement. 
For the Commission 
 (Signed ) 
 Cecilia MALMSTRÖM Member of the Commission