The non-compete clauses in Hospira's acquisition of Orchid's API (active pharmaceutical ingredients) business and Mylan's acquisition of Strides Arcolab's subsidiary have fallen foul with the Competition Commission of India (CCI), reports CNBC-TV18's Payaswini Upadhyay.
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In both the deals, Competition Commission of India concluded that though the acquisitions would cause no adverse affect on the domestic market, it objected to the duration and scope of the non-compete clauses.
Orchid and its promoter were prohibited from competing in the same business for eight and five years respectively. To get the deal cleared by CCI, the parties had to modify the duration to five years. In Mylan-Strides deal, the proposed duration was six years which again had to be modified to four years.
The second aspect CCI objected to was the scope of the non-compete clause. Hospira had to place put restrictions on Orchid and its promoters from conducting research and development (R&D) and testing of two APIs.
The CCI gave the deal a go-ahead only after the clause was modified to allow Orchid to conduct R&D and testing on new molecules which are currently non-existent worldwide.
Mylan's non-compete clause sought to impose three restrictions on Strides, its group companies and promoters —a blanket restriction covering injectable products across all therapeutic categories; products in the oncology and ophthalmic categories that Strides did not manufacture, and development of new molecules which are presently non-existent.
CCI observed that a non-compete clause should cover only those products for which the target is either in the process of developing, manufacturing or selling.
Regarding the CCI's concerns being restricted to the pharma sector alone, legal experts add that there have been deals with non-compete clauses of six and even eight years duration that have been cleared by CCI.
So, this could be a sign of extreme caution by the CCI is due to the government's concerns with regards to influx of foreign companies into India's pharmaceutical sector.
But till the regulator makes its stance clear on non-compete clause, it is difficult to arrive at a conclusion.