State Aid: Commission Approves €28.8 Million Austrian Measure to Support the Modernisation of Sandoz’s Penicillin Production in Tyrol

The European Commission has approved, under EU State aid rules, a €28.8 million Austrian measure to support the modernisation of Sandoz GmbH (‘Sandoz’) penicillin production site in Tyrol. The measure will help to maintain in the EU the last fully integrated production of amoxicillin, the most used penicillin type, contributing to the security of supply of essential and live-saving medicines. The measure will contribute to strengthening the continuity and security of supply of medicines in line with the Pharmaceutical Strategy for Europe.

The Austrian measure

Austria notified the Commission of its plans to support Sandoz, part of the Novartis group, in modernising its amoxicillin production site in Kundl, Tyrol.

Amoxicillin is the worldwide most widely used antibiotic for the treatment of bacterial infections. It is included in the World Health Organisation’s list of essential medicines that satisfy priority health care needs. There have been repeatedly shortages across many EU Member States due to manufacturing delays and production capacity issues, among other things.

Under the measure, the aid will take the form of a direct grant of €28.8 million to support the modernisation of Sandoz’s amoxicillin production process. In particular, Sandoz will (i) further rationalise the production process of starting material from fungal cultures, and (ii) build a new plant for carrying out the enzymatic synthesis of the active pharmaceutical ingredient (‘API’).

The Commission’s assessment

The Commission assessed the measure under EU State aid rules, in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union, which enables Member States to support the development of certain economic activities subject to certain conditions.

The Commission found that:

• The measure is necessary and appropriate to ensure the integrated production of amoxicillin in the EU, thus improving supply security of live-saving medicines, strengthening the EU’s supply chains and reducing the EU’s vulnerability to supply disruptions. Without the public support, the investment in the integrated production of amoxicillin would not have taken place, which would have reduced the ability of the EU to manage potential future health crises.
• The aid is proportionate and limited to the minimum necessary based on a proven funding gap (i.e. the aid amount necessary to cover the additional cost of modernisation compared to another realistic less costly scenario).
• The aid will have a limited impact on competition and trade in the EU given that: (i) the market for amoxicillin is steadily growing; (ii) Sandoz has a modest market share; and (iii) its only EU competitor Centrient Spain is active in only one of the segments covered by Sandoz (i.e. the manufacture of the API). There are only three other relevant integrated producers active worldwide.

On this basis, the Commission approved the Austrian measure under EU State aid rules.

Source : European Commission