The Competition Commission of India (CCI) has slapped a Rs64-crore penalty on drugmakers GlaxoSmithKline Pharmaceuticals and Sanofi for collusive bidding in the government tender for supply of meningitis vaccine for Haj pilgrims.
The matter relates to information filed by Bio-Med Private Limited against the Union of India through Deputy Assistant Director General (Stores), Medical Store Depot (DADG) in the ministry of health and family welfare.
Bio-Med, a manufacturer of human vaccines, alleged that GlaxoSmithKline Pharmaceutical Limited, Mumbai and Sanofi, Mumbai collided in the tendering for polysaccharide Quadrivalent Meningococcal Meningitis vaccines in contravention of the provisions of the anti-trust Act.
Bio-Med developed polysaccharide Quadrivalent Meningococcal Meningitis vaccines in 2004 and is the only indigenous manufacturer of QMMV vaccines.
Every year, the government invites tenders for purchase of meningitis vaccine that is required to be administered upon Haj pilgrims.
Apart from imposing penalties, the competition watchdog has directed GlaxoSmithKline and Sanofi to "cease and desist" from anti-competitive practices.
CCI imposed a fine of Rs60.45 crore on GlaxoSmithKline and Rs3.04 crore on Sanofi.
The penalties amount to three per cent of their three-year average turnover. In this case, turnovers of the two companies for the financial years 2008, 2009 and 2010 have been taken into account.
CCI noted the existence of anti-competitive agreement between GlaxoSmithKline and Sanofi, which, it said, "clearly made out", that both parties failed to establish independent business decision-making.
"Additionally, the peculiar market conditions, including, the presence of only three suppliers of the QMMV vaccines together with the tendering process initiated by the opposite party 1 make the market conducive to collusion," said the order dated June 4 and made public on Friday.
This is because the product is homogeneous, there is a fixed demand in the market and suppliers are repetitive, it added.
"They have not produced any evidence either before the DG or before the Commission to substantiate their claims. In the absence of any evidence, the Commission notes that the assertions made by opposite party 2 (GlaxoSmithKline) and opposite party 2 (Sanofi) are merely bald statements and also appear to be an afterthought to justify their illegal, collusive conduct," the order said.
CCI's investigation arm - Director General (DG) - had submitted its detailed probe report in November 2014.
Bio-Med alleged that while the government floated tenders for the supply of meningitis vaccines for the years 2002-03 without asking for any qualifications with respect to annual turnover or manufacturing/ marketing experience of the bidders, the tender for the year 2005-06 had two new conditions, including a minimum annual turnover of Rs10 crore (in any of the preceding three years) and a certificate showing the manufacturing and marketing experience of the bidders (in the three preceding three years). The minimum turnover requirement was again modified in the year 2008 to Rs20 crore and it was raised to Rs50 crore in 2011.
Bio-Med said it had successfully met the Rs20 crore turnover criteria in the years 2009-10, 2010-11 by offering competitive prices.
The Rs50-crore turnover condition remained valid for the year 2012 also with a minor variation. Bio-Med alleged that by changing the turnover criteria from any of the preceding three years to the three years in the year 2012, the government took a unilateral and arbitrary decision, helping Glaxo and Sanofi to abuse their dominant position.
This, according to Bio-Med, had disastrous consequences for the company as well as the Government of India and the Indian patients.
Bio-Med also alleged that Glaxo and Sanofi engaged in cartelisation abusing their dominant position and the government's tendering conditions through bid rotations and geographical allocations (international) from the period 2002 to 2012.
The Commission, however, noted that the government was not an enterprise under the Act and therefore, did not direct any investigation against it. The DG investigated the matter and submitted the investigation report.
The DG found that the changes in the conditions stipulated in the tenders issued by the government were brought about pursuant to the decisions taken at the ministerial level, the order said.
When contacted, a Sanofi spokesperson said the company is in the process of evaluating the CCI order.
"We strongly disagree with the CCI's findings in this case and are in consultation with our legal advisors to file an appeal against the order," it said in a statement.