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News & Trends - Pharmaceuticals

Pharmacy Guild echoes ACCC red flags over Chemist Warehouse-Sigma deal

Health Industry Hub | June 14, 2024 |

Pharma News: The Pharmacy Guild of Australia has echoed the significant concerns of the Australian Competition and Consumer Commission (ACCC) regarding the proposed reverse-takeover of Sigma by Chemist Warehouse. If finalised, this merger would create the largest pharmaceutical retailer in Australia, valued at over $8.8 billion.

ACCC Commissioner Stephen Ridgeway said “This is a major structural change for the pharmacy sector, involving the largest pharmacy chain by revenue merging with a key wholesaler to thousands of independent pharmacies that in turn compete against Chemist Warehouse.

“We have identified a range of preliminary competition concerns, including at the retail level and as a result of the proposed integration of the merged firm across the wholesale and retail level. We want to hear from interested parties, including rival pharmacies, as we continue this review.”

The Pharmacy Guild of Australia expressed its concerns in a statement, noting, “As a major structural change to the community pharmacy sector, the Guild remains concerned that the reverse takeover of Sigma by Chemist Warehouse will increase prices, reduce service quality, and degrade the world-class healthcare available through Australia’s community pharmacy network.

“The Guild is similarly concerned by the potential for discriminatory and/or self-preferencing conduct by Chemist Warehouse, the foreclosing of pharmacies currently supplied by Sigma, and the use of Sigma’s data assets to undermine the competitive position of non-Chemist Warehouse pharmacies.”

Sigma is a major wholesaler of prescription medicines, over-the-counter (OTC) products, and front-of-store items, servicing over 4,000 community pharmacies nationwide. It also provides brand and support services to pharmacies operating under its franchise banners, such as Amcal+, Discount Drug Stores, PharmaSave, and Guardian. Sigma also holds a 51% stake in NostraData, which supplies technology and data analytics solutions to pharmacies, wholesalers, and manufacturers.

Chemist Warehouse, a privately held company, franchises around 600 pharmacies and retail stores under various brands, including Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist Warehouse. Around 550 of these are Chemist Warehouse and MyChemist pharmacies.

Ridgeway added, “The transaction would create a merged company that is uniquely vertically integrated across multiple levels of the pharmacy supply chain. This new business model for the pharmacy sector could raise barriers to rivals expanding or entering, which may lessen competition.”

Sigma responded by stating that the issues identified by the ACCC are not “unexpected for a proposed transaction of this complexity”. Both Chemist Warehouse and Sigma believe there are “good arguments” why the proposed merger will not decrease competition, though they have not outlined these arguments.

The ACCC has voiced major concerns that the acquisition could harm pharmacies currently supplied by Sigma, leading to a significant reduction in competition in pharmacy retailing. Post-merger, Sigma’s independent pharmacy clients would become competitors to Chemist Warehouse, potentially impacting their competitiveness.

“In particular, we are focused on how the newly merged company may have the ability and incentive to favour Chemist Warehouse stores or worsen terms to non-Chemist Warehouse banner stores, raising their costs and rendering them less competitive,” Ridgeway stated.

He further expressed concerns that the merger could allow Chemist Warehouse to access and misuse commercially sensitive data.

“Following the acquisition, the merged company may be able to use insights from data obtained to target pharmacies that rival Chemist Warehouse or pre-empt and undermine them,” Ridgeway explained.

Independent pharmacies currently have three main choices for wholesale supply and banner franchise arrangements, but the merger might reduce effective options to just two, according to the ACCC. This reduction in competition could lead to higher prices and reduced service quality in pharmacies.

The ACCC also highlighted potential impacts on upstream markets for pharmacy retail products, especially for suppliers competing with Chemist Warehouse and Sigma’s own-label products. Suppliers with fewer paths to consumers, such as those of prescription medicines and OTC products exclusive to pharmacies, might be particularly affected.

The Pharmacy Guild has encouraged all interested parties to make a submission to the ACCC by the deadline of 27 June. The ACCC expects to make a final decision on 5 September.

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