CELEX: 32019M9315
Language: en
Date: 2019-07-16 00:00:00
Title: Commission Decision of 16/07/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9315 - Chr. Hansen Holding A/S / Lonza Ltd) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                                 Brussels, 16.7.2019
                                                                 C(2019) 5442 final
                                                                                  PUBLIC VERSION
                                                                  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                                                                  omitted has been replaced by ranges of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.
                                                                To the notifying parties
Subject:            Case M.9315 – Chr. Hansen/Lonza/JV
                    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 or Madam,
(1)       On 11 June 2019, the European Commission received notification of a proposed
          concentration pursuant to Article 4 of the Merger Regulation by which Chr. Hansen
          Holding A/S ("Chr. Hansen", Denmark) and Lonza Ltd ("Lonza", Switzerland),
          controlled by Lonza Group Ltd (Switzerland), acquire within the meaning of Article
          3(1)(b) and 3(4) of the Merger Regulation joint control over a newly created
          undertaking (the "JV", Switzerland) by way of purchase of shares (the
          "Transaction").3 In this decision, Chr. Hansen and Lonza are collectively designated
          as the "Notifying Parties", while Chr. Hansen, Lonza and the JV are 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 "common 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         Publication in the Official Journal of the European Union No C 208, 19.06.2019, p. 6.
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak--- 1.   THE PARTIES
(2)  Chr. Hansen is a global bioscience company that mainly develops natural solutions
     for the food, nutritional, and agricultural industries. Chr. Hansen develops and
     produces cultures, enzymes, probiotics and natural colours for a rich variety of
     foods, confectionery, beverages, dietary supplements and animal feed.
(3)  Lonza is active in the supply of various services in the pharmaceutical, consumer
     health and nutrition industries. It notably provides contract development and
     manufacturing organisation ("CDMO") services for active pharmaceutical
     ingredients ("API") and finished dose pharmaceuticals ("FDP") under current Good
     Manufacturing Practice ("cGMP") and offers, since 20174, delivery mechanisms
     technology.
(4)  The JV will provide cGMP-certified CDMO services to pharmaceutical companies
     active in the microbiome space5 and exclusively in relation to the development and
     manufacture of live biotherapeutics6 and bacteriophages7 (together referred to as
     "LBP"). Contrary to existing CDMO players in this specific field, the JV will be
     active across the whole CDMO value chain, from the initial development of
     manufacturing processes for the production of LBP-based APIs to the final
     commercial-scale manufacturing of LBP-based FDP.
2.   THE TRANSACTION
(5)  On 2 April 2019, Chr. Hansen and Lonza entered into a joint venture agreement
     relating to the establishment of the JV as a full-functional joint venture. The
     Transaction consists in the acquisition of joint control by Chr. Hansen and Lonza
     over the JV by way of purchase of shares.
2.1. Joint control
(6)  Post-Transaction, Chr. Hansen and Lonza will each hold 50% of the shares in the
     JV.
(7)  In terms of governance, the JV will be run by a board of eight directors, half of
     which will be appointed by Chr. Hansen and Lonza respectively. The board will take
     key strategic decisions such as the approval of the JV’s annual budget, business plan,
     major investments, and the appointment of top management positions. The adoption
4    Following Lonza’s acquisition of Capsugel SA (Luxembourg). Case COMP/M. 8362 – Lonza
     Group/Capsugel, decision of 21 April 2017.
5    The microbiome space is a nascent research area in the biopharmaceutical industry involving
     microorganisms that reside in an environmental niche such as humans, animals or plants. For
     instance, the human microbiome includes communities of bacteria, fungi, archaea and viruses, the
     majority of which live in the guts. In recent years, research on the human microbiome has
     significantly intensified and is currently perceived as very promising for the treatment of human
     health and diseases in the coming 5 to 10 years.
6    LBPs are biological products made of living organisms (such as bacteria), that are suitable for the
     prevention, treatment and/or cure of a human diseases and that are not vaccines. LBPs are not
     filterable viruses or products intended as gene therapy. Contrary to vaccines, LBPs are not
     administered by injection but rather by oral, rectal, vaginal or topical delivery mechanisms.
7    Bacteriophages, also called “phages” or “bacterial viruses”, refer to any viruses that infect and
     ultimately kill bacteria.
                                                         2
 ---pagebreak---      of these key strategic decisions will require the affirmative votes of all directors
     present with the obligation that at least one director nominated by each of Chr.
     Hansen and Lonza is present. Thus, the approval of key strategic decisions will
     require joint action from both Notifying Parties and neither Chr. Hansen nor Lonza
     will benefit from de facto sole control on these matters. Pursuant to the joint venture
     agreement, all other decisions will be taken on a simple majority basis, with the
     express approval of at least one director nominated by each of Chr. Hansen and
     Lonza. Consequently, the JV will be jointly controlled by Chr. Hansen and Lonza.
2.2. Full functionality
(8)  The JV will operate by performing the functions normally carried out by
     undertakings active on the same markets, independently from its parents. 8 The JV
     will also have sufficient resources to operate independently, including its own staff
     dedicated to its day-to-day management. The JV’s activities will go beyond one
     specific function performed by the parents, as the JV will provide new services to
     third-party pharmaceutical companies that are not currently offered by either of its
     parents. Although the JV will have several contractual agreements with its respective
     parents in relation to IP licensing, leasing or transitional service and supplies, these
     commercial arrangements will be entered into on an arm’s length basis and at market
     price. Neither Lonza nor Chr. Hansen are expected to become future clients of the
     JV. Conversely, the JV may potentially enter into supply agreements with Lonza
     with respect to the procurement of solid oral dosage delivery (SODDM)
     mechanisms. However, the Notifying Parties indicated that the choice of SODDM
     provider will ultimately remain with the JV’s final customer. Finally, the JV will
     operate on a lasting basis.
(9)  The Transaction will therefore lead to the creation of a full-functional joint venture.
2.3. Conclusion
(10) In view of the above, the Transaction constitutes a concentration within the meaning
     of Article 3(1)(b) and 3(4) of the Merger Regulation.
3.   EU DIMENSION
(11) The undertakings concerned have a combined aggregate worldwide turnover of more
     than EUR 5 000 million9 (Chr. Hansen: EUR 1 097 million; Lonza:
     EUR 4 792 million). Each of them has an EU-wide turnover in excess of EUR 250
     million (Chr. Hansen: EUR […] million; Lonza: EUR […] million), but they do not
     achieve more than two-thirds of their aggregate EU-wide turnover within one and
     the same Member State.
(12) The Transaction therefore has an EU dimension pursuant to Article 1(2) of the
     Merger Regulation.
8    Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the
     control of concentrations between undertakings, OJ C 95, 16.4.2008, recital 94 (the "Notice").
9    Turnover calculated in accordance with Article 5 of the Merger Regulation.
                                                      3
 ---pagebreak--- 4.      RELEVANT MARKETS
(13)    The Transaction reflects the Notifying Parties’ intention to expand their activities
        into the microbiome space. To that end, the JV will combine Lonza’s
        biopharmaceutical cGMP CDMO capabilities (that are not suitable for the
        development and manufacture of LBPs) and delivery mechanisms technology, with
        Chr. Hansen's experience with bacterial strains (microbial physiology, fermentation
        and freeze drying science).10
(14)    The JV is said to become the first player to offer a complete range of cGMP CDMO
        services for pharmaceutical products in the LBP space. More specifically, the JV
        will provide the following services to pharmaceutical companies:
        -     CDMO services in relation to LBP-based API, i.e. contract development
              organisation services at the API level ("API CDO" services) and contract
              manufacturing organisation services at the API level ("API CMO" services) of
              LBP-based API; and
        -     CDMO services in relation to LBP-based FDP, i.e. the supply of dosage-related
              technology and development solution services ("FDP CDO" services) for LBP-
              based pharmaceutical products and the commercial-scale manufacturing ("FDP
              CMO" services) of FDP based on LBP-API.11
(15)    The JV will be involved in the evaluation of strains selected by its customer to
        determine whether these can be scaled-up safely and whether production is feasible
        on a commercial basis, as part of the supply of API CDO services, but it will not be
        active within the area of drug discovery. Thus, the identification and establishment
        of the clinical benefit of the bacterial strains, as well as the clinical trial and
        commercialisation of the FDP, will be undertaken by the JV’s customers.
4.1.    Market definitions
4.1.1. Supply of CDMO services to pharmaceutical companies
4.1.1.1.          Product market definition
(16)    The Notifying Parties submit that the relevant product market should be defined as
        encompassing all CDMO services to pharmaceutical companies, without any further
        segmentation.
(17)    In previous decisions, the Commission considered the existence of a market for the
        supply of CDMO services for API distinct from the market for the supply of contract
        manufacturing for FDP.12 The results of the market investigation confirmed the
        relevance of such a distinction. First, from a demand-side perspective, the respective
        CDMO services for API and FDP address separate needs. On the one hand, CDMO
10      In fact, Chr. Hansen essentially is a contract manufacturer with experience in bacterial strains for the
        food and nutrition industry [confidential details in relation to the business strategy of Chr. Hansen].
11      Importantly, neither Chr. Hansen nor Lonza are currently active in this specific business segment, as
        Chr. Hansen [confidential details relating to business strategy of Chr. Hansen] while Lonza does not
        have [confidential details relating to the business strategy of Lonza].
12      Cases COMP/M. 8362 – Lonza Group/Capsugel, decision of 21 April 2017 and COMP/M.8541 –
        Thermo Fisher Scientific/Patheon, decision of 23 August 2017
                                                            4
 ---pagebreak---      services at the API level involve the evaluation, characterisation, development of
     production and scaling-up processes in relation to the manufacture of API. On the
     other hand, CDMO services at the FDP level mainly pertain to the development of
     an appropriate dosage formulation and the large-scale manufacture of the final drug
     products. Second, from a supply-side perspective, CDMO services at the API and
     FDP levels do not involve the same equipment and require specific know-how and
     expertise. In fact, multiple CDMO players do not have the capability to be active
     throughout the CDMO value chain and several respondents to the market
     investigation indicated to be exclusively active either at the API level or at the FDP
     level.13
(18) Within the market for the supply of CDMO services at the API level, the Commission
     previously considered a separate product market for biopharmaceutical CDMO
     services (as opposed to CDMO services in relation to chemically-synthesised drugs).
     The Commission also envisaged, but ultimately left open, the question of whether
     the product market for biopharmaceutical CDMO services should be further
     segmented (i) based on the host system used in the manufacturing process (i.e.
     mammalian cell cultures or microbial fermentation processes) and (ii) between
     process development and large-scale manufacturing of biopharmaceuticals.14
(19) The results of the market investigation confirmed the relevance of a distinction
     between the supply of CDMO services for biopharmaceuticals and chemically-
     synthesised API, as the production processes require different equipment and
     expertise.15 Market participants further explained that, within the segment for
     biopharmaceutical CDMO services, (i) the development and manufacturing of LBPs
     usually requires dedicated equipment16 because of the risks of cross-contamination
     with other products,17 and (ii) a distinction could be made between the supply of
     CDO services (i.e. process development) and the provision of CMO services (i.e.
     large-scale commercial production). Indeed, certain pharmaceutical companies
     observe that certain CDO service providers in relation to biopharmaceuticals do not
     have sufficient capacity to ensure a large-scale CMO activity.18 Conversely, other
     respondents further explained that they generally procure CDO services in-house and
     outsource CMO services only.19
(20) Within the market for the supply of CDMO services at the FDP level, the
     Commission previously considered the existence of a separate market for the supply
     of contract manufacturing services (CMO) but left open the question of whether this
     market should be further segmented according to: (i) the pharmaceutical form (solid
     dose and powder pharmaceuticals, liquid and semi-solid pharmaceuticals, sterile
13   Responses to questionnaire Q1 to CDMO competitors, question 2.
14   Case COMP/M.5479 – Lonza/Teva/JV, decision of 14 May 2005.
15   Responses to questionnaire Q3 to potential customers of the JV, question 5 and responses to
     questionnaire Q1 to CDMO competitors, question 5.
16   Responses to questionnaire Q1 to CDMO competitors, question 5.
17   Responses to questionnaire Q3 to potential customers of the JV, question 6. In the Form CO, the
     Notifying Parties also explain: “LBP-APIs are different in nature [from other API] because the APIs
     are not the molecules expressed during the reproduction process, but rather the entire bacteria. Other
     differences also exist in the manufacturing process as well, such as the fact that the manufacturing of
     LBP-APIs requires larger tanks”.
18   Responses to questionnaire Q3 to potential customers of the JV, question 9.
19   Responses to questionnaire Q3 to potential customers of the JV, question 8 and non-confidential
     version of the minutes of a call with a pharmaceutical company held on 6 June 2019.
                                                       5
 ---pagebreak---         liquid pharmaceuticals, and medicated confectionary pharmaceuticals); 20 (ii) the
        conditions of manufacture (toxicity, sterile environment, the nature of the
        technology/know-how needed to produce the FDP);21 and (iii) the type of API used.
(21)    In addition, in its recent Lonza Group/Capsugel decision,22 the Commission
        considered a market for dosage formulation and development services (CDO) but
        left open whether this market is part of a broader market for the supply of CDMO
        services (i.e. comprising both CMO and CDO services for FDP) or whether CDO
        should be considered separately and potentially further segmented by technology. 23
(22)    The Commission’s market investigation confirmed that several relevant
        segmentations could be envisaged for the market for the supply of CDMO services
        at the FDP level,24 based on (i) the type of API used (chemically-synthesised and
        biopharmaceutical API) and (ii) the delivery mechanism used, but also (iii) between
        the supply of CDO and CMO services.
(23)    In any event, for the purpose of the present decision, the Commission considers that
        the exact product market definition for the supply of CDMO services to
        pharmaceutical companies can be left open since the Transaction does not raise
        serious doubts as to its compatibility with the internal market irrespective of whether
        the market is defined as encompassing all CDMO services or is segmented by type
        of services.25
4.1.1.2.          Geographic market definition
(24)    The Notifying Parties submit that the market for CDMO services to pharmaceutical
        companies is at least EEA-wide in scope, if not global.
(25)    The Commission previously left open the question of whether the respective markets
        for CDMO services at the API and FDP levels and their possible segmentations are
        worldwide or EEA-wide in scope.26
(26)    The results of the market investigation confirmed that the geographic market for
        CDMO services to pharmaceutical companies, and its potential segments, is likely to
        be global in scope and, in any event, at least EEA-wide.27
(27)    For the purpose of this decision, the question of whether the market for CDMO
        services to pharmaceutical companies and its potential segments is at least EEA-
20      Cases COMP/M.8541 – Thermo Fisher Scientific/Patheon, decision of 23 August 2017;
        COMP/M.5253 – Sanofi-Aventis/Zentica, decision of 4 February 2009; and COMP/M.5953 – Reckitt
        Benckiser/SLL, decision of 25 October 2010.
21      Cases COMP/M.5253 – Sanofi-Aventis/Zentica, decision of 4 February 2009 and COMP/M.5555 –
        Novartis/Ebewe, decision of 22 September 2009.
22      Case COMP/M. 8362 – Lonza Group/Capsugel, decision of 21 April 2017.
23      Case COMP/M. 8362 – Lonza Group/Capsugel, decision of 21 April 2017.
24      Responses to questionnaire Q3 to potential customers of the JV, questions 5, 6 and 10 and responses
        to questionnaire Q1 to CDMO competitors, questions 5, 6, 11 and 13.
25      See recitals 41 and 42, as well as sections 5.1, 5.2.1 (in particular recital 54) and 5.2.2. (in particular
        recitals 61 and 63).
26      Cases COMP/M. 8362 – Lonza Group/Capsugel, decision of 21 April 2017 and COMP/M.8541 –
        Thermo Fisher Scientific/Patheon, decision of 23 August 2017.
27      Responses to questionnaire Q3 to potential customers of the JV, question 14 and responses to
        questionnaire Q1 to CDMO competitors, question 15.
                                                           6
 ---pagebreak---         wide or global in scope can be left open since the Transaction does not raise serious
        doubts as to its compatibility with the internal market under any of the alternative
        definitions.28
4.1.2. Manufacture and supply of SODDM
4.1.2.1.          Product market definition
(28)    The Notifying Parties submit that the relevant product market should include all
        types of SODDM, without any further segmentation.29
(29)    In previous decisions, the Commission considered a market for the manufacturing
        and supply of SODDM to the pharmaceutical/over-the-counter and nutrition
        industries that could be segmented into the following categories: (i) hard gelatine
        capsules; (ii) soft gelatine capsules; (ii) liquid filled hard capsules; and (iv)
        alternative polymer capsules. However, the Commission left open the exact product
        market definition.30
(30)    Lonza is also developing a new technology of hard capsules designed for enteric
        delivery. These enteric delivery capsules are currently used only in clinical trials by
        a limited number of customers.31 The Notifying Party considers that enteric delivery
        capsules do not constitute a separate market since, from a technical perspective, the
        same delivery mechanism can be achieved by coating normal hard capsules in latex.
        The results of the market investigation confirmed the Notifying Parties’ claim.32
(31)    In any event, for the purpose of this decision, the product market definition can be
        left open, since the Transaction does not lead to serious doubts as to its compatibility
        with the internal market irrespective of whether the market for the manufacture and
        supply of SODDM is defined as encompassing all SODDM or is segmented by type
        of capsules (hard gelatine, soft gelatine, alternative polymer and liquid filled).33
4.1.2.2.          Geographic market definition
(32)    The Notifying Parties submit that the relevant geographic market for the
        manufacture and supply of SODDM is at least EEA-wide in scope, if not global.
(33)    In previous decisions, the Commission left open the question of whether the
        manufacture and supply of SODDM and its possible segments are EEA-wide or
        worldwide in scope.34 The market investigation confirmed that the geographic
        markets would be either EEA-wide or worldwide in scope.
28      See recitals 41 and 42, as well as sections 5.1, 5.2.1 (in particular recital 54) and 5.2.2. (in particular
        recital 63).
29      In particular, the Notifying Parties consider that even enteric capsules can be used interchangeably
        with hard capsules dipped into latex (in order to offer similar properties in terms of gastric acid
        resistance).
30      Case COMP/M. 8362 – Lonza Group/Capsugel, decision of 21 April 2017.
31      Currently, Lonza’s enteric delivery capsules are [confidential] sold to [confidential] customers who
        use them for drugs in clinical trials, namely [confidential details relating to customer sales].
32      Responses to questionnaire Q1 to CDMO competitors, question 28, and to questionnaire Q3 to
        potential customers of the JV, question 25.
33      See section 5.2.1 (in particular recitals 52, 53, 56, 57 and 58).
34      Case COMP/M. 8362 – Lonza Group/Capsugel, decision of 21 April 2017.
                                                             7
 ---pagebreak--- (34)    In any event, for the purpose of this decision, the question of whether the market for
        the manufacture and supply of SODDM and its potential segments is EEA-wide or
        global in scope can be left open since the Transaction does not lead to serious doubts
        as to its compatibility with the internal market under any of the alternative
        definitions.35
4.1.3. Bacterial strains
4.1.3.1.          Product market definition
(35)    The Notifying Parties consider that the relevant product market for bacterial strains
        encompasses all possible bacterial strains without a need for any segmentation.
(36)    The Commission did not previously assess the market for bacterial strains. In the
        context of the present case, the market investigation envisaged five alternative
        approaches to segment the market for bacterial strains based on their scientific
        classification, their end-use application, their technical characteristics, their property
        of occurring naturally or being genetically modified, or, finally, the types of related
        services offered by the bacterial strain provider. However, the results of the market
        investigation did not reveal any evidence suggesting that the market for bacterial
        strains should be segmented into narrower relevant product markets.36
(37)    For the purpose of the present decision, the Commission therefore considers that the
        exact product market definition for bacterial strains can be left open since the
        Transaction does not lead to serious doubts as to its compatibility with the internal
        market irrespective of the alternative product market definition considered.37
4.1.3.2.          Geographic market definition
(38)    The Notifying Parties submit that the geographic market for bacterial strains is
        worldwide in scope or at least EEA-wide.
(39)    The Commission did not previously assess the market for bacterial strains. The
        results of the market investigation carried out in the context of the present case did
        not reveal any evidence suggesting that the geographic market for bacterial strains or
        any of its hypothetical segments would be narrower than the EEA.38
(40)    For the purpose of the present case, the geographic market definition for bacterial
        strains and its potential segments can be left open since the Transaction does not lead
        to serious doubts as to its compatibility with the internal market irrespective of the
        alternative geographic definitions considered.39
35      See section 5.2.1 (in particular recitals 52, 53 and 57).
36      Responses to questionnaire Q1 to CDMO competitors, question 23; responses to questionnaire Q3 to
        potential customers of the JV, questions 19 and 20, and responses to questionnaire Q4 to bacterial
        strain service providers, questions 4 and 5.
37      See section 5.2.2 (in particular recitals 61 and 62).
38      Responses to questionnaire Q4 to bacterial strain service providers, questions 1 and 7.
39      See section 5.2.2 (in particular recital 62).
                                                             8
 ---pagebreak--- 5.   COMPETITIVE ASSESSMENT
(41) The JV does not currently commercialise any products but is set up to supply CDMO
     services in relation to API and FDP, including small-scale manufacturing to
     pharmaceutical companies engaged in pre-clinical and phase I / phase II clinical
     trials from 2019 onwards. Consequently, there is presently no horizontal overlap
     between the JV's activities and Lonza's activities on the markets for the supply of
     CDMO services. Still, the Transaction leads to affected markets in some of the
     possible relevant markets where Lonza is active and the JV will be active (i.e. supply
     of (i) biopharmaceutical CDMO services at the API level (including LBP and non
     LBP-based API), and (ii) biopharmaceutical CMO services at the API level
     (including LBP and non LBP-based API).
(42) The Transaction also leads to two vertically affected relationships between:
     –     Lonza’s supply of hard gelatine capsules (upstream), where Lonza holds EEA
           and global market shares in excess of 30%, and the JV’s future activities in
           CDMO services at the FDP level (downstream); and
     –     Chr. Hansen’s activities in relation to bacterial strains (upstream) and Lonza’s
           and the JV’s activities in the supply of biopharmaceutical CDMO services at the
           API level (downstream), where Lonza’s and the JV’s combined market share
           would be in excess of 30%.
(43) For the avoidance of doubt, the present decision and the below competitive
     assessment remain without prejudice to the legal obligation of the JV and its parents
     to comply with Articles 101 and 102 TFEU.
5.1. Horizontal non-coordinated effects
(44) The JV will supply a complete range of CDMO services in relation to LBPs to
     pharmaceutical companies, both at the API and FDP levels. Neither the activities of
     Lonza (who supplies CDMO services for chemical and non-LBP biological
     products) nor the activities of Chr. Hansen’s (who supplies CDMO services,
     including for LBPs, exclusively to the health and nutrition industries and not to
     pharmaceutical companies40) will specifically overlap with the JV’s activities. The
     Transaction therefore does not lead to any horizontal overlap between the JV and its
     parents on the hypothetical segment for the supply of CDMO services for LBPs at
     the API and/or FDP levels.
(45) Nevertheless, horizontally affected markets arise when considering the broader
     hypothetical markets, at global level41, for the supply of (i) biopharmaceutical
     CDMO services at the API level (including both LBP-based and non-LBP-based
     API), and (ii) biopharmaceutical CMO services at the API level (including both
40   Internal documents assessing the creation of the JV show that Chr. Hansen [confidential details
     relating to the sales strategy and the business and marketing plan of Chr. Hansen] (Annex 5.4.6 of the
     Form CO). An additional internal analysis undertaken by Chr. Hansen concludes that [confidential
     details relating to the sales strategy and the business and marketing plan of Chr. Hansen] (Annex 1 to
     the Notifying Parties’ response to RFI6).
41   Under the alternative on an EEA-wide geographic market definition, the markets for the supply of
     biopharmaceutical CDMO services at the API level and for biopharmaceutical CMO services at the
     API level are not affected by the Transaction.
                                                         9
 ---pagebreak---      LBP-based and non-LBP-based API) due to Lonza’s market share on each of these
     markets (i.e. [30-40]% on the market for CDMO services at the API level worldwide
     and [30-40]% on the market for CMO services at the API level worldwide).
(46) On each of these markets, the JV’s market share is expected to remain fairly limited
     (up to [0-5]%) over the […] year period following the start of its activities. This is
     due to the fact that the LBP space currently constitutes a niche area of the market for
     the provision of biopharmaceutical CDMO and CMO services to pharmaceutical
     companies worldwide.42
(47) Post-Transaction, Lonza and the JV would continue to face numerous other large
     suppliers of biopharmaceutical CDMO services at the API level, including
     Boehringer Ingelheim ([10-20]% on the markets for CDMO and CMO services at
     the API level worldwide), Samsung Biologics ([10-20]% on the markets for CDMO
     and CMO services at the API level worldwide), Wuxi Biologics ([5-10]% on the
     market for CDMO and CMO services at the API level worldwide), and other smaller
     players such as, among others, Fujifilm Diosynth, Luina Bio, SynCo Wacker and
     Biose.
(48) Moreover, Lonza and the JV would not be close competitors, as they would offer
     biopharmaceutical CDMO and CMO services in relation to different types of API
     (LBP-based API for the JV as opposed to chemical and non-LBP biological API for
     Lonza). Multiple alternative biopharmaceutical cGMP CDMO players such as Luina
     Bio, SynCo Wacker or Biose will directly compete with the JV on the hypothetical
     markets for the supply of biopharmaceutical CDMO and CMO services in relation to
     LBP-based API, where the Transaction aims to create a new player on the market.43
(49) Eventually, the vast majority of market participants consider the impact of the
     Transaction to be neutral on the overall market for CDMO and CMO services in
     relation to biopharmaceutical products. More specifically, no customer expects any
     negative impact of the Transaction on these broad markets and some even expect the
     Transaction to have a positive impact on their activities.44 While some competitors
     pointed out that the JV would become the first player active throughout the whole
     production chain in the nascent LPB space and therefore expect it to rapidly acquire
     a strong position on this hypothetical market, the creation of the JV would also entail
     additional production capacity (in particular, commercial manufacturing capacity).45
(50) In view of the above and all the information obtained over the course of the market
     investigation, the Commission considers that the Transaction does not raise serious
     doubts as to its compatibility with the internal market with respect to its horizontal
42   Market shares are expressed in terms of sales (value). Considering Lonza’s production capacity and
     the JV’s (future production capacity), their combined market share would remain below 20% under
     all plausible market definitions.
43   In the context of the present case, merger-specific horizontal coordinated effects are unlikely to arise
     since the supply of biopharmaceutical CDMO services at the API level and its potential segment for
     biopharmaceutical CMO services at the API level involve multiple players of various sizes, non-
     homogeneous products (services addressing specific customer needs) and are characterised by a
     dynamic environment driven by research and innovation (as evidenced by the expected emergence of
     CDMO services in relation to LBP). Therefore, the Transaction is unlikely to enable or facilitate
     market players in the supply of biopharmaceutical CDMO services at the API level to reach common
     terms of coordination.
44   Responses to questionnaire Q3 to potential customers of the JV, question 27.1.
45   Responses to questionnaire Q1 to CDMO competitors, question 31.4.
                                                       10
 ---pagebreak---          non-coordinated effects in the supply of CDMO services and its potential relevant
         segments.
  5.2.   Vertical effects
  5.2.1. Vertical relation between Lonza’s supply of hard gelatine capsules (upstream) and
         the JV’s supply of CDMO services at the FDP level (downstream)
  (51)   Lonza manufactures and supplies SODDM that are used in the production of FDP,
         including LBP-based drugs.
  (52)   The Transaction gives rise to one vertically affected relationship involving the
         hypothetical upstream market for hard gelatine capsules, where Lonza held relatively
         high market shares in 2018 both in the EEA and globally (see Table 1).
   Table 1 – Worldwide and EEA-wide market shares (based on 2018 sales and volume)
                             in the market for hard gelatine capsules
                                     Global                                  EEA
Market player             volume                value            volume               value
JV                           0%                   0%                 0%                 0%
Chr. Hansen                  0%                   0%                 0%                 0%
Lonza                    [20-30]%            [40-50]%           [50-60]%           [50-60]%
ACG                      [10-20]%            [10-20]%           [10-20]%           [10-20]%
Qualicaps                 [5-10]%            [10-20]%           [10-20]%           [10-20]%
GS Capsule                 [0-5]%              [0-5]%        (incl. in Others)  (incl. in Others)
SuHeung                    [0-5]%              [0-5]%        (incl. in Others)  (incl. in Others)
Roxlor               (incl. in Others)    (incl. in Others)      [5-10]%            [5-10]%
Others                   [30-40]%            [20-30]%            [5-10]%            [5-10]%
Total                       100%                100%              100%               100%
Total market            475 billion          EUR 986            62 billion         EUR 197
size                        units             million              units             million
Source: Parties’ estimates
  (53)   In the hypothetical global market for hard gelatine capsules, Lonza held 2018 market
         shares of up to [40-50]% (based on value), followed by ACG [10-20]% and
         Qualicaps [10-20]%. Under the alternative of an EEA-wide geographic market
         definition, Lonza’s share was at [50-60]% (based on value) and [50-60]% (based on
         volume), followed by ACG ([10-20]%) and Qualicaps ([10-20]%). However,
         irrespective of Lonza’s strong market position in the hypothetical segment for hard
         gelatine capsules at either global or EEA level, no foreclosure risks appear likely to
         arise post-Transaction.
  (54)   On the downstream market for the supply of CDMO services at FDP level, the JV is
         expected to hold a very limited market presence (well below [0-5]%both at EEA-
         wide and global level) over the […] year period following the start of its activities.
         Customer foreclosure is unlikely to occur, as the Notifying Parties represented that
         the JV will account for less than [0-5]% of the total demand for hard gelatine
         capsules. Suppliers of this type of capsules will therefore retain a large array of
         customers to whom to sell their products.
                                                     11
 ---pagebreak--- (55)   Similarly, input foreclosure regarding access to Lonza’s hard gelatine capsules is
       unlikely to materialise.
(56)   First, there is no technical bundling possible between Lonza’s hard gelatine capsules
       (including its enteric capsules) and the FDP manufactured by the JV because, as
       explicitly and repeatedly confirmed by the Notifying Parties, the JV’s customers will
       remain free to purchase capsules from any alternative supplier such as AGC,
       Qualicaps or Roxlor.46
(57)   Second, a sufficient number of alternative players will remain active in the supply of
       hard gelatine capsules, including AGC, Qualicaps, and Roxlor both at EEA and
       worldwide level. Should Lonza engage into an input foreclosure strategy towards
       competing CDMO service providers at the FDP level, these downstream competitors
       would still be able to source the necessary capsules on the market. As regards enteric
       delivery capsules more specifically, all potential customers who replied to the
       market investigation indicated that there are alternatives to enteric capsules for the
       manufacture of LBP-based FDPs, so that these specific capsules do not constitute a
       critical input.47
(58)   Third, given the limited size of the JV's future purchases of hard gelatine capsules
       (less than [0-5]%) compared to Lonza’s total current sales of hard gelatine capsules,
       it is unlikely that Lonza would have any economic incentive of discontinuing
       supplies to its other downstream customers, which are not necessarily CDMO
       players (e.g., pharmaceutical companies with in-house capabilities at the FDP level)
       or active in the development and manufacture of LBP-based drugs at the FDP level.
(59)   In view of the above and all the information obtained over the course of the market
       investigation, the Commission considers that the Transaction does not raise serious
       doubts as to its compatibility with the internal market with respect to the vertical link
       between Lonza’s upstream activities in the supply of hard gelatine capsules, on the
       one hand, and the JV’s future downstream activities in the supply of CDMO services
       at the FDP level, on the other hand.
5.2.2. Vertical relation between the Chr. Hansen’s supply of bacterial strains (upstream)
       and Lonza and the JV’s supply of biopharmaceutical CDMO services at the API
       level
(60)   The Transaction gives rise to a vertically affected link between the downstream
       market for biopharmaceutical CDMO services, where both Lonza and the JV will be
       active, and the upstream market for bacterial strains, where only Chr. Hansen is
       active.
(61)   The vertical relationship between Chr. Hansen’s upstream activities in relation to
       bacterial strains and the JV’s future downstream activities in the supply of
46     For instance: “Ultimately […], the choice of SODDM provider, will remain with the customers of the
       Joint Venture” (Form CO, paragraph 71); “The choice of a specific delivery mechanism (and its
       supplier) will ultimately be decided by the customer of the Joint Venture in each case” (Form CO,
       paragraph 113); “Lonza will not have an exclusive SODDM supply agreement with the Joint Venture,
       and the delivery mechanism and choice of supplier will ultimately be decided by the Joint Venture’s
       customers” (Form CO, footnote 27); “The Joint Venture will purchase SODDM either from Lonza
       […], or from an alternative supplier as instructed by its customers” (Form CO, paragraph 287).
47     Responses to questionnaire Q3 to potential customers of the JV, question 25 and 25.1.
                                                         12
 ---pagebreak---      biopharmaceutical CDMO services is indirect since the JV’s customers (and not the
     JV itself) will be involved in the drug discovery process and the selection of
     bacterial strains. Irrespective of this, even if the JV were to license bacterial strains
     directly from Chr. Hansen and rely on them to develop and manufacture LBP-based
     API, no risk of foreclosure is likely to materialise in the context of the present case.
(62) In fact, Chr. Hansen only holds a limited position on the upstream market for the
     supply of bacterial strains and any of its possible segments ([0-5]% both at EEA-
     wide and global level), in particular in relation to bacterial strains suitable for LBPs.
     Respondents to the Commission’s market investigation confirmed that there is a
     large number of suppliers that could provide bacterial strains for the development of
     LBP-based API.48 Given Chr. Hansen’s limited presence in the upstream market, the
     Parties would lack the ability to successfully engage into any input foreclosure
     strategy.
(63) Likewise, customer foreclosure regarding access to bacterial strains is unlikely to
     materialise post-Transaction given the marginal position that the JV is expected to
     hold at the downstream level (up to [0-5]% both at EEA-wide and global level) over
     the […] year period following the start of its activities.
(64) In view of the above and all the information obtained over the course of the market
     investigation, the Commission considers that the Transaction does not raise serious
     doubts as to its compatibility with the internal market with respect to the vertical link
     between Chr. Hansen’s activities in the upstream supply of bacterial strains and any
     of its potential segments, on the one hand, and the activities of Lonza and the JV in
     the downstream supply of biopharmaceutical CDMO services at the API level, on
     the other hand.
6.   CONCLUSION
(65) For the above reasons, the European Commission 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 Article 6(1)(b) of the
     Merger Regulation and Article 57 of the EEA Agreement.
                                                        For the Commission
                                                        (Signed)
                                                        Margrethe VESTAGER
                                                        Member of the Commission
48   Responses to questionnaire Q1 to CDMO competitors, question 24.
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