COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM086Sep23
In the matter between:
Pharmacare Ltd t/a Aspen Pharmacare Acquiring Firm
and
Eli Lilly (S.A.) (Pty) Ltd Target Firm
Approval
[1] On 10 November 2023, the Competition Tribunal (“Tribunal”) unconditionally approved
the large merger wherein Pharmacare Ltd, trading as Aspen Pharmacare (“Aspen
Pharmacare”) will acquire the promotion, sales and distribution rights relating to 23
pharmaceutical products supplied in South Africa (the “Lilly Portfolio”), by Eli Lilly (S.A.)
(Pty) Ltd (“Lilly SA”). Upon implementation of the proposed transaction, Aspen
Pharmacare will exclusively conduct the promotion, sales and distribution of the Lilly
Portfolio in South Africa.
Parties to the transaction and their activities
Primary acquiring firm
Panel: Andreas Wessels (Presiding Member)
Geoff Budlender (Tribunal Member)
Thando Vilakazi (Tribunal Member)
Heard on: 09 November 2023
Order issued on: 10 November 2023
Reasons issued on: 01 December 2023
REASONS FOR DECISION
It
competitiontri bu nal
SOUTH AFRICA
2
[2] The acquiring firm is Aspen Pharmacare, which is wholly owned by Aspen Pharmacare
Holdings Limited (“Aspen Holdings”). Aspen Holdings is listed on the Johannesburg
Stock Exchange and is not controlled by any firm. Aspen Holdings controls several
firms which include Aspen SA Operations (Pty) Ltd, Brimpharm SA (Pty) Ltd, Alphamed
Formulations (Pty) Ltd, Beta Health Internationals and Ethicare (Pty) Ltd, amongst
others.
[3] Aspen Pharmacare, all the firms it controls, all the firms controlling Aspen Pharmacare,
and all the firms controlled by those, will be referred to as the “Acquiring Group”.
[4] The Acquiring Group is a multinational pharmaceutical company which focuses on
manufacturing, marketing and distribution of a broad range of generic as well as
branded pharmaceuticals covering both hospital and consumer markets. Of relevance
to this merger assessment are the Acquiring Group’s antidepressants, which fall under
Anatomical Therapeutic Classification (“ATC”) level 3 category N06A. In that regard,
the Acquiring Group supplies Cymgen, Lorien, Trepiline, Voxra, Wellbutrin, Cilift,
Ethipramine, Aropax, Aspen Trazodone, Espadrep, Thaden, Camcolit and Paxil. These
products are used to treat depressive disorders, anxiety, chronic pain and addiction.
[5] In addition, the Acquiring Group supplies antimetabolites, which fall under ATC3
category L01B. Antimetabolites are commonly used to treat leukaemia and other
various types of cancer such as cancer of the lung, breast, ovarian, testicles, bladder
and the intestinal tract. In this regard, the Acquiring Group supplies Purinethol and
Lanvis. These products are all distributed throughout South Africa.
Primary target firm
[6] The primary target firm is the Lilly Portfolio. The Lilly Portfolio is ultimately owned and
controlled by Eli Lilly and Company Inc., USA (“Lilly”), a public company listed on the
New York Stock Exchange. Lilly is not controlled by any firm.
New York Stock Exchange. Lilly is not controlled by any firm.
[7] The Lilly Portfolio comprises the promotion, sales and distribution rights relating to the
23 pharmaceutical products set out in Table 1 below. Relevant to the proposed
transaction are Lilly Portfolio’s offerings of antidepressants and antimetabolites.
Table 1: The Lilly Portfolio1
... ml:ICIIIIII JI ... ...... .., .... ... - -: - -....
ATC3 cateaorv N06A (Antideoressants)
1 N06AX21 Duloxetine Cvmbalta
2 N06AB03 Fluoxetine Prozac
3 N06AB03 Fluoxetine Lillv-fluoxetine
ATC3 cateaorv L01B (Antimetabolites
4 L01BC05 Gemcitabine Gemzar
5 L01BA04 Pemetrexed Alimta
ATC3 cateaorv A10A (Insulin)
6 A10AE04 Insulin alaraine Basaalar
7 A10AD04 Insulin lisoro Humaloa
8 A10AC01 Insulin (human) Humulin
ATC3 cateaorv G04B (Uroloaicals)
9 G04BE08 Tadalafil Cialis
10 G04BE08 Tadalafil Ciavor
ATC3 cateaorv L04A (lmmunosuooressants)
11 L04AC13 lxekizumab Copellor
12 L04AA37 Baricitinib Unamitv/olumiant
ATC3 cateaorv G03X (Sex Hormones)
13 G03XC01 Raloxifene Evista
ATC3 cateaorv L01F (Antineoolastics
14 L01FG02 Ramucirumab Cvramza
ATC3 cateaorv L01E (Antineoplastics
15 L01EF03 Abemac iclib YularebNerzenio
ATC3 cateaorv HOSA (Calcium)
16 H05AA02 Terioaratide Forteo
ATC3 cateaorv H01A (Pituarv)
17 H01AC01 Somatropin Humatrope
ATC3 cateaorv A01B (Diabetes)
18 A10BJ05 Dulaalutide Trulicitv
ATC3 cateaorv JSC (HIV Antivirals)
19 Not available in South Africa Mirikizumab Elemetra
ATC3 cateaorv N2C (Anti-miaraine preparations)
20 Not available in South Africa Galcanezumab Emaaalitv/Pontevia
21 Not available in South Africa Lasmiditan Revvow/Bimiere
22 Not available in South Africa Insulin lispro Lvumjev
ATC3 cateaorv A10S GLP-1 aaonist a-diabs
23 Not available in South Africa Tirzeoatide Mouniaro/Yuroeak
1 Source: Commission's compilation based on submissions by the merging parties' and
3
4
Proposed transaction and rationale
Transaction
[8] In terms of the proposed transaction, Aspen Pharmacare will acquire the promotion,
sales and distribution rights relating to the Lilly Portfolio. Post-merger, Aspen
Pharmacare will exclusively conduct the promotion, sales and distribution of the Lilly
Portfolio in South Africa 2
and retain all the revenue derived from distributing the Lilly
Portfolio in South Africa.3
[9] Lilly will continue to own all the intellectual property related to the 23 pharmaceutical
products comprising the Lilly Portfolio. In addition, Lilly will conduct all the
manufacturing of all the pharmaceutical products comprising the Lilly Portfolio.
Rationale
[10] According to Aspen Pharmacare, the transaction presents an opportunity to expand into
product categories where Aspen Pharmacare currently has little or no presence, such
as its therapeutic product portfolio
. Aspen Pharmacare intends to utilise the
complementary nature of the Lilly SA Products with Aspen Pharmacare’s existing
product range. The objective is that commercialising the Lilly SA Products will further
diversify Aspen Pharmacare’s South African business and therefore improve its
resilience, while also supporting the continuity of supply of medication to South African
patients.5
[11] From Lilly’s perspective, the rationale for the distribution and promotion arrangement is
to increase market reach and patient access as a result of Aspen Pharmacare’s
significant commercial footprint and on the ground presence in South Africa. It is
intended that this will enhance the growth prospects for the Lilly SA Products, enabling
greater access to innovative and high-quality medicines for South African patients. 6
2 Aspen Pharmacare will be responsible for selling, distributing, and promoting Lilly’s current and future
pipeline products in various therapeutic areas in South Africa and certain sub-Saharan countries. Aspen
will promote, sell and distribute Lilly Portfolio and pipeline products in the Southern African Development
Community (“SADC”) and the following key sub-Saharan countries: Kenya, Nigeria, and French West
Africa.
3 The Acquiring Group will retain all the sales revenue it generates from the Lilly Portfolio.
4 Commission’s Merger Report, para 14.
5 Merging parties’ Joint Competitiveness Report, para 28.
6 Merging parties’ Joint Competitiveness Report, para 27.
5
Competition assessment
[12] In its assessment of product overlap, the Commission had regard to the ATC
Classification System 7
, which is used in local and foreign jurisprudence for the
classification of active ingredients in medicines, according to the organ or system on
which they act, and their respective therapeutical, pharmacological, and chemical
properties. Medication is classified at five different levels. Relevant to the proposed
merger is the third level, ATC3 which is referred to as the chemical, pharmacological or
therapeutic subgroup (in that it groups indications for their intended use).
[13] The merging parties’ activities overlap horizontally as both the Acquiring Group and Lilly
are involved in the provision of pharmaceutical products classified under ATC3 category
N06A (Antidepressants). Further, there is an overlap between the merging parties’
activities in the provision of pharmaceutical products classified under ATC3 category
L01B (Antimetabolites).
[14] The proposed transaction does not present any vertical overlap, and Lilly will continue
to manufacture the Lilly Portfolio, post-merger.
Product market
[15] In assessing the relevant product market, the Commission had consideration to Glaxo8
,
Austell
and the European Commission’s Mylan N.V 0
0 merger, where ATC
categorisation was used as a base in determining the relevant product market.
[16] However, what is considered truly substitutable, or clinically interchangeable at the
dispensing level is a bioequivalent generic medication with the same active
pharmaceutical ingredient (“API”), strength and dosage formulation.
7 The ATC classification was developed and maintained by the World Health Organization Collaborating
Centre for Drug Statistics Methodology. See https://www.who.int/tools/atc-ddd-toolkit/atc-classification .
8 Glaxo Wellcome plc/SmithKline Beecham plc Case No. 58/AM/May00 and
National Association of
Pharmaceutical Wholesalers and Others/Glaxo Wellcome (Pty) Ltd and Others Case No. 68/IR/Jun00.
9 Austell Pharmaceuticals (Pty)Ltd and Dezzo Trading 392(Pty) Ltd , Commission Case No.
2020Oct0034.
1010 Mylan N.V and Meda AB, EC Case No. M.7975.
!i
6
[17] Therefore, whilst the ATC3 category identifies possible therapeutic equivalents, these
may not be direct substitutes at a dispensing level since they may fall within the same
broad drug category but have a different API or have a different clinical use.
[18] Considering this, the Commission found that the following offerings by the merging
parties under ATC3 category N06A (antidepressants), are substitutable at a clinical
level:
a)a) the Acquiring Group’s Cymgen is substitutable for Lilly Portfolio’s Cymbalta 1
1; and
b)b) the Acquiring Group’s Lorien is substitutable for the Lilly Portfolio’s Prozac and Lilly
Fluoxetine.1212
[19] As regards the ATC3 category L01B (Antimetabolites), the Commission found that
whilst the merging parties have offerings in this category, neither of the Acquiring
Group’s offerings, Purinethol and Lanvis, are substitutable for the Lilly Portfolio’s Alimta
and Gemzar. That is because the Acquiring Group’s offerings are used for the treatment
of leukaemia, whilst the Lilly Portfolio’s offerings are used for the treatment of various
types of cancer, namely breast, lung, testicular, bladder and ovarian cancers.
[20] Without taking a definite view the Commission assessed the impact of the merger on
the provision of pharmaceutical products under ATC3 category N06A (antidepressants)
and L01B (antimetabolites).
Geographic market
[21] The Commission had regard to Glaxo1313 and Austell 4
4 where a national geographic
market was assumed as the merging parties, including their competitors, supply
pharmaceutical products throughout the country.
[22] In addition, the customers of the merging parties such as Dis-Chem, Alpha Pharma,
and Universal Pharmaceutical Distributors have a presence throughout South Africa. In
1111 These products have the same API, (Duloxetine).
1212 These products have the same API (Fluoxetine).
1313 Glaxo Wellcome plc/SmithKline Beecham plc Case No. 58/AM/May00 and
National Association of
National Association of
Pharmaceutical Wholesalers and Others/Glaxo Wellcome (Pty) Ltd and Others Case No. 68/IR/Jun00.
1414 Austell Pharmaceuticals (Pty)Ltd and Dezzo Trading 392(Pty) Ltd Commission Case No.
2020Oct0034.
this instant transaction, the Commission found no evidence to deviate from previous
matters in which the relevant geographic market was defined as national.
[23] The Commission therefore assessed the proposed merger in:
a) The national market for the provision of pharmaceutical products classified under
ATC3 category N06A (antidepressants).
b) The national market for the provision of pharmaceutical products classified under
ATC3 category L01 B (antimetabolites).
Assessment
ATC3 category N06A (Antidepressants}
[24] The Commission found that the Acquiring Group has a market share of approximately
1111% (by value) and the Lilly Portfolio has a market share of approximately 1 % in ATC3
category N06A.15 The merging parties combined market share post-merger in ATC3
category N06A will therefore be approximately 1111%.
[25] Market participants16 indicated that there remain numerous alternatives post-merger
and that the merger does not raise any concerns under ATC3 category N06A.
[26] Furthermore , within ATC3 category N06A, there are substantial unit price differences
between the merging parties' competing offerings since Lilly Portfolio's products are
non-generics and Aspen's products are generics-
a) Lilly Portfolio's Cymbalta costs approximately 300% more than Aspen's Cymgen.
b} Lilly Portfolio's Prozac costs approximately 400% more than Aspen's Lorien.
c) Lilly Portfolio's Lilly Fluoxetine costs approximately 300% more than Aspen's Lorien.
[27] Accordingly, whilst the merging parties' ATC3 category N06A offerings are clinically
substitutable, the price differential between Lilly Portfolio antidepressants and Aspen's
antidepressan ts is more than the 5-10% (utilised to determ ine the extent to which
products are substitutable under the SSNIP Test).
15 The Commission calculated market shares using IQVIA data, which measures the sale of
pharmaceutical products from various outlets for the period of July 2022 - June 2023.
16 Medical aid schemes and pharmaceutical distributors.
7
ATC3 category L01 B (Anti metabolites}
[28] As mentioned, the Commission found that whilst the merging parties have offerings in
this category, neither of the Acquiring Group's offerings, Purinethol and Lanvis, are
substitutable for the Lilly Portfolio's Alimta and Gemzar.
[29] Nonetheless, the Commission estimated market shares under the broad ATC3 category
L01 B and found that the combined market shares will be approximately 1% (by value)
with a market share accretion of less than 1%.
Pipeline products
[30] The Commission also considered whether there are any potential overlaps between the
merging parties' pipeline products (i.e., pharmaceutical products under development).
In this regard, the Commission found an overlap between the merging parties
pharmaceutical products classified under A TC3 category N2C (Anti-migraine
Preparations) and ATC3 category JSC (HIV Antivirals).
[31] However, whilst the Acquiring Group has offerings under the ATC3 category N2C and
ATC3 category JSC, none of these products have the same API as Lilly Portfolio's
products (awaiting registration).
Third party concern
[32] A medical aid scheme raised a concern that whilst it did not object to the proposed
transaction, it was concerned about the prices of the products within the Lilly Portfolio
which it considered to be high, given Lilly's practice of "global price benchmarking".
[33] In response, the merging parties indicated that Lilly Portfolio products are subject to the
Single Exit Pricing regulatory regime17. In this regard, the Minister of Health restricts
any annual price increases to levels that typically reflect inflation and currency
fluctuations. The same pricing regime therefore continues irrespective of whether the
products are distributed by Lilly or Aspen.
17 Letter dated 11 October 2023 (Record, p513-514).
8
[34] The Commission found that no intervention is required to address the concern raised
since the merger does not result in high market shares in the overlapping ATC3
categories.
[35] Competitors and customers of the merging parties raised no concerns.
[36] Having regard to the above and the Commission's thorough assessment, we find no
evidence to suggest that the proposed transaction will result in a substantial prevention
or lessening of competition in any relevant market.
Public interest
Employment
[37] The merging parties submitted that there will be no retrenchments or job losses as a
result of the proposed transaction.
[38] The merging parties submitted that Lilly SA currently employs ■ employees in South
Africa, ■ of which will transfer to Aspen Pharmacare as part of the Lilly Portfolio, in
terms of section 197 of the Labour Relations Act, 66 of 1995. The remaining ■
employees will remain in the full-time employment of Lilly SA.
[39] The Commission contacted the employee representative of Lilly SA and the South
African Chemical Workers Union ("SACWU") and the Chemical, Energy, Paper Printing,
Wood and Allied Workers Union ("CEPPWAWU") who represent employees of Aspen
Pharmacare. No concerns were raised.
Spread of ownership
[40] Aspen Pharmacare has 44.66% ownership held by historically disadvantaged persons
("HDPs"). Lilly SA does not have any ownership by HDPs or workers.
[41] The Commission found that the proposed transaction will result in the level of (indirect)
ownership by HDPs over Lilly Portfolio increasing by 44.6%.
[42] No further public interest concerns arise through the transaction and we are satisfied
that the transaction is not likely to raise any concerns from a public interest perspective.
9
Conclusion
[43] Considering the above , we unconditionally approved the proposed merger.
Signed by:Thando Vilakazi
Signed at 2023-12-01 13:06:20 +02:00
Reason:Witnessing Thando Vilakazi
Prof Thando Vilakazi
1 December 2023
Date
Concurring: Adv Geoff Budlender SC and Mr Andreas Wessels
Tribunal case manager:
For the merging parties:
For the Commission :
Leila Rattee
Neil MacKenzie, Veronica Cadman , and Palesa Mpe
of Fasken
Nhlakanipho Mbhense and Wiri Gumbie
10