Excipients, Enforcement, And Exemptions: Reforming CCI’s Merger Review Process

CCL NLUO
2 days ago
6 min read

Second year student at Hidayatullah National Law University, Raipur

I. Introduction

In March 2025, Roquette Frères’ acquisition of IFF’s Pharma Solutions and certain Nutraceuticals lines was approved by the Competition Commission of India (‘CCI’) with no objections. The companies dealt with pharmaceutical excipients such as microcrystalline cellulose (‘MCC’) and croscarmellose sodium (‘CCS’) used in tablets and capsules in India. According to the CCI’s order, the combined entity would account for roughly 40–45% of the Indian CCS market by value, but Roquette’s incremental share from the deal was only about 0–5%. Excipients serve many functions — as solvents, binders, disintegrants, stabilizers, and coatings — that directly affect a drug’s manufacturability, stability, and bioavailability.

Despite their passive role, excipients occupy the frontiers of pharmaceutical R&D. A merger of excipient suppliers can cascade through the supply chain, influencing drug makers’ innovation pipelines, costs, and the safety profile of medicines. The merger thus illustrates a question: did India’s competition authorities, in applying Section 6 of the Competition Act 2002 (‘the Act’), overlook significant quandaries in an upstream sector fundamental to public health? While being defensible under the contemporary regulations, the CCI’s zero-objection clearance highlights gaps in how Indian merger policy treats critical inputs. Focusing solely on “incremental share” obscures the large share already held in a concentrated excipient market, and that global best practices would probe effects on innovation and potential foreclosure.

Over the past decade, the CCI has reviewed other excipient and formulation ingredient suppliers, such as the Sun Pharma-Ranbaxy merger, where certain inactive ingredients were vertically linked. In each instance, orders largely focused on the horizontal overlaps in finished products, resulting in a systematic quandary in merger analysis.

This article first deliberates upon the competitive and innovation concerns that upstream pharma mergers often raise but evade scrutiny under Indian law. Secondly, the piece critiques the CCI’s current merger review approach through a legal lens. Ultimately, it proposes targeted reforms to better future-proof India’s pharmaceutical competition regime.

II. Statutory Framework And Doctrinal Gaps

India’s merger control is rooted in Section 6 of the Act, which prohibits combinations that cause or are likely to cause an appreciable adverse effect on competition (‘AAEC’) within the relevant market. The statutory standard invites a multi-factorial analysis under Section 20(4) of the Act. However, in practice, the CCI has often adopted a more reductive approach by disproportionately prioritizing price effects and incremental market share. This methodological tendency is particularly evident in the Roquette–IFF excipient merger.

The Commission’s reasoning rested primarily on the observation that the transaction would result in only a marginal market share increment in the cross-linked CCS. However, such an approach risks obscuring a critical concern, that the post-merger entity would entrench a dominant position within this niche input market. When read alongside clause (c) of Section 20(4) of the Act, which mandates the CCI to evaluate the “level of concentration” in the relevant market. This clearance reflects not merely an analytical oversight but a statutory misapplication. The low incremental gain may still consolidate substantial control, especially where entry barriers under clause (b) are high and functional substitutes are limited.

Furthermore, clause (l) of Section 20(4), which refers to the “extent of innovation”, is specifically salient in excipient markets, where formulation innovation is capital-intensive and dependent on proprietary inputs. Recognizing this risk, competition authorities in global jurisdictions, such as the European Union and the United States of America, have moved towards explicitly integrating innovation harm within merger analysis, notably through the US Federal Trade Commission’s 2023 Merger Guidelines and the EU Commission’s scrutiny in Dow/DuPont. While the Indian merger control has evolved considerably, the articulated framework remains limited in addressing innovation-driven foreclosure risks. Considering Section 18 of the Act, which imposes a positive obligation on the CCI to “protect the interests of consumers” and “ensure freedom of trade,” which by necessity must extend to future harms, this omission is doctrinally significant.

Additionally, in CCI v. Co-ordination Committee of Artists and Technicians, the Supreme Court's judicial interpretation supports a purposive and dynamic reading of these provisions. As the Apex Court observed, the Commission’s interpretive authority must be exercised to give full effect to the Act’s purpose, not merely its letter. Analogously, in CCI v. Steel Authority of India Ltd., the Court held that merger assessments are inherently forward-looking inquiries, often based on predicted market behavior. Together, such judicial pronouncements reinforce that the CCI may go beyond static or mechanical thresholds and engage with the full range of competitive harms, including those arising from structural consolidation.

As the legislative and judicial framework provides the requisite and a more forward-looking merger review in the pharmaceutical input market, the critical task lies in recalibrating the interpretative defaults that continue to shape the CCI enforcement. In the excipient market, this requires looking beyond static overlaps to assess how input consolidation distorts innovation and downstream choices. As things stand, the CCI’s reliance on narrow overlap assessments risks entrenching structural concentration beneath the veneer of nominal increments.

III. Pre-Notification Incentives And Information Asymmetry

Another underappreciated legal concern afflicting India’s merger control framework, particularly in innovation-sensitive input markets such as pharmaceuticals, is the procedural design that governs how combinations are evaluated. While the Act lays down a relatively robust standard under Section 6, its operationalisation through the CCI’s procedural rules creates scope for regulatory circumvention.

Although the Act does not require pre-notification consultation with the Commission, Regulation 5A of the Combination Regulations permits such consultation on a voluntary and non-binding basis. In practical application, commentators note that the pre-filing consultations and the streamlined Green Channel processes give significant scope to the merging parties to pre-structure transactions in a way that minimizes regulatory scrutiny, with most combinations being cleared at the prima facie stage. Parties frequently exclude overlapping R&D verticals, proprietary input divisions, or pipeline innovation assets from the scope of the transaction. By 1 September 2019, the CCI had cleared approximately 610 combinations, with a vast majority within a 30-day working period. The pattern highlights the strong procedural incentives for parties to structure the transaction that fit within a Phase I, also known as the "prima facie" stage review, and avoid the longer, more probing scrutiny of Phase II. Phase II initiates only after the commission finds that the corporation may cause an AAEC and may take up to 150 calendar days, involving a deeper scrutiny and market testing. Such procedural bifurcation, as a result, allows the companies to have strong incentives to structure their filings to avoid triggering Phase II. Additionally, combinations with potential innovation or vertical harms may be cleared in Phase I based on narrowly defined disclosures, thereby eluding meaningful regulatory engagement.

For instance, the Roquette–IFF merger, the notified transaction pertained to excipients used in the formulation of tablets and capsules; the order does not reference Roquette’s downstream presence in hydroxypropyl methylcellulose capsules. It is plausible that such information was claimed confidential under Combination/General Regulations and therefore omitted from the published order.

It is important to note that, in practice, the CCI maintains a fairly stringent approach to granting confidentiality. Unless a party can demonstrate a clear likelihood of commercial harm, the Commission is unlikely to withhold information from the public version of its orders. Nonetheless, regarding the transparency of public reasoning, such confidentiality on potential vertical linkages bars the assessment of competitive risks by the stakeholders, resulting in a concern in the innovation-sensitive input markets.

Whereas the United States of America, the Hart–Scott–Rodino framework requires notifying parties to disclose adjacent product markets, vertical relationships, and innovation portfolios to prevent illegal mergers and crucially empowers the FTC/DOJ to issue binding “Second Requests” that compel the submission of additional documents and internal communications. By comparison, the Indian regime empowers prescribing parties in far greater discretion to dictate both the structure and scope of disclosure. In defiance of serving administrative efficiency, such architecture inadvertently incentivizes firms to restrain the visibility of competitive risks, especially in sectors where innovation controls are determinative of long-term market power.

The OECD’s 2023 India Competition Review criticised the limited use of sectoral guidance as a remedy. The introduction of a sector-specific guideline would not require legislative amendment, nor would it alter the prevailing limitations under Section 6 of the Act. Rather, it would serve to recalibrate the Commission’s approach to disclosure in innovation-intensive sectors, bridging the gap between statutory mandate and practical enforcement. As a result, this enables the CCI to facilitate a more informed application of Sections 18 and 20(4), towards better anticipation of competitive harms in upstream pharmaceutical markets. As the Commission continues to evolve its sector-sensitive guidance framework for merger review in the life sciences domain would represent a contextually grounded development.

IV. Conclusion

The Roquette–IFF merger clearance illustrates a compelling study of the limitations of India’s existing merger review framework in upstream pharmaceutical inputs. Despite the statutory framework under Sections 6 and 20(4) of the Act, envisaging a multifactorial analysis, the CCI’s reliance on narrow overlap metrics risks overlooking long-term innovation and input-level concerns. Such pharmaceutical excipients, where innovation incentives and vertical interdependencies are determinants of long-term competition, such reductive assessments fall short of the intended scope of law. The result is a structural shortcoming in Indian merger control, wherein transactions that pose significant innovation or foreclosure risks are often evaluated through an evidentiary framework ill-equipped to capture them.

As India’s pharmaceutical landscape becomes more globally integrated and innovation-dependent, competition law must develop accordingly. In such input markets, future-proofing must become a regulatory imperative, not a retrospective justification.

Note: This article has been reviewed by Mr. Anshuman Sakle (Partner, Khaitan & Co.), at the Tier II Stage.