© Copyright 2013 by K&L Gates. All rights reserved.
Murray Deakin
Partner
Antitrust, Competition & Trade Regulation
Examining the Competitive
Landscape in the Pharmaceutical
Industry: Mergers & Acquisitions
AGENDA
Competitive landscape of Australian
pharmaceutical industry
ACCC’s approach to market definition in the
pharmaceutical space
ACCC informal merger clearance regime
What can we expect in the future?
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THE COMPETITIVE LANDSCAPE
GLOBAL PHARMACEUTICAL INDUSTRY
Big pharma M&A activity on the rise
4 of the world’s top 10 drugs due to come off
patent
To maintain forward growth, big pharmas may
need to consider significant acquisitions
Attractive assets are currently priced high
High value acquisitions may necessitate
divestments of non-core assets
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AUSTRALIAN PHARMACEUTICAL
INDUSTRY
Global players dominate locally
Small number manufacture active
pharmaceutical ingredients
Large number only import and distribute
Ageing population driving growth
PBS expenditure growth may be unsustainable
Retail pharmacies facing challenges
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COMPETITIVE LANDSCAPE
Pharma industry at mature stage
Generic competition intensifying
Global players rationalising operations
Growing trend for strategic alliances
Medium industry concentration
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BASIS OF COMPETITION
Patented versus out of patent versus generic
Innovation
Prescription, pharmacist only, OTC or
therapeutic product
PBS cover and Chemist List Price
Global players
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BARRIERS TO ENTRY
Patent protection
High R&D costs
Government regulation
Manufacturing compliance
TGA approvals
Product safety
PBS
Medicines Australia
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ACCC’s APPROACH TO MARKET DEFINITION
MARKET
“a market in Australia and, when used in relation to
any goods or services, includes a market for those
goods or services and other goods or services that
are substitutable for, or otherwise competitive with,
the first-mentioned goods or services”
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THE RELEVANT MARKET
Suitability of the hypothetical monopolist test
Reference to the supply of the relevant active
ingredient or molecule nationally
Vertical integration is impacting functional level
Market in Australia or a State, Territory or region
of Australia
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PREVIOUS ACCC MERGER REVIEWS
M&A ACCC’s market definition
Aspen Global acquisition of
product portfolio from
GlaxoSmithKline (2012)
• Active ingredient of the relevant drug for every drug except 2
(injectable Amoxil and Imigran), which were defined more broadly
Aspen Global acquisition of
Zantac from
GlaxoSmithKline (2012)
• No conclusive view reached as to whether the OTC products which
used a different active ingredient or combination of active
ingredients were substitutable for OTC ranitidine
Aspen Pharmacare
acquisition of Sigma
Pharmaceuticals (2010)
• Active ingredient or molecule in the drugs
Pfizer acquisition of Wyeth
Corp (2009)
• Broad definition – various categories of drug, with different active
ingredients
Schering-Plough acquisition
of Merck & Co
• No conclusive view, but considered the acquisition in the context of
broad markets and by reference to the condition treated
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ACCC INFORMAL MERGER CLEARANCE REGIME
INFORMAL MERGER CLEARANCE REGIME
Key prohibition
Remedies for breach
Merger options
Merger assessment criteria
Informal clearance
Vital statistics
Take home points
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KEY STATUTORY PROHIBITION
Section 50
Prohibits any direct or indirect acquisitions of
shares or assets which would have the effect, or
be likely to have the effect of substantially
lessening competition in any market.
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REMEDIES FOR BREACH
Pecuniary penalties – the greater of:
A$10 million
three times the value of the benefit derived
10% of annual turnover
Injunctions
Divestiture
Forfeiture
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MERGER OPTIONS
Proceed
ACCC informal clearance
ACCC formal clearance
Australian Competition Tribunal authorisation
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MERGER ASSESSMENT CRITERIA
import competition
barriers to entry
level of market concentration
degree of countervailing market power
ability of merged entity to sustainably raise
prices
dynamics of growth, innovation and product
differentiation
removal of effective competitors
nature and extent of vertical integration
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WHAT IS INFORMAL CLEARANCE?
Apply to ACCC to ascertain its view of a
proposed merger
ACCC undertakes a competition assessment
ACCC decides whether merger is anti-
competitive
Apply before completion - earlier applications
desirable
Most widely used option
Best outcome: “no action” letter
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INFORMAL CLEARANCE PROCESS
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Typical duration: 6-12 weeks after pre-
assessment stage concludes
Pre-assessment and confidential review
Typical duration: around 2 weeks for pre-
assessment and 2-4 weeks for confidential review (if applicable)
Public review Typical duration: 6-12
weeks after pre-assessment stage
concludes
Post-SOI Typical duration: 6-12
weeks after SOI is published
INFORMAL MERGER REVIEWS 2009 - 2013
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YEAR APPLICATIONS NOT OPPOSED OPPOSED
2009-2010 321 306 15
2010-2011 377 370 7
2011-2012 340 333 7
2012-2013 289 278 11
TOTAL 1327 1287 40
INFORMAL PUBLIC AND CONFIDENTIAL
MERGER REVIEWS ASSESSED IN 2012-13
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71%
8%
8%
3% 5% 5%
Not opposed
opposed
confidential concerns
87B undertakings
withdrawn/no decision
87B variations
ACCC INFORMATION GATHERING POWERS
Can request information on a voluntary basis
Statutory information gathering powers: s 115
Can compel merger parties to:
provide documents and information
appear to provide evidence under oath.
Resorted to when:
it is most efficient to acquire critical information this way;
information unlikely to be provided voluntarily; and
third parties would prefer to be compelled.
From 2011 to 2013 the ACCC have used these powers
18 times
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WHAT CAN WE EXPECT IN THE FUTURE?
THE FUTURE
More M&A activity in pharma sector
Increased ACCC regulatory activity in the
pharmaceutical industry
Pay for delay litigation
Root and branch review of competition law
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Murray Deakin Partner (02) 9513 2335 [email protected]
Sylvia Ng Senior Associate (02) 9513 2303 [email protected]
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