General Superintendence concluded opinion on acquisition of Genix by Capsugel

The General Superintendence of the Administrative Council for Economic Defense – CADE issued an opinion on 23 March 2015 in which it recommends the analysis by the Tribunal of the acquisition of the totality of equity shares of Genix Indústria Farmacêutica by Capsugel Brasil (Merger file no. 08700.009711/2014-78).

Capsugel operates globally in the manufacture of a wide variety of capsules used as input to the production of medicines. Genix, which operates exclusively in Brazil, produces hard capsules to the pharmaceutical, health and nutrition industries.

After the analysis of the information provided by the parties, competitors and clients, the General Superintendence verified that Capsugel and Genix are the main suppliers of hard capsules to the pharmaceutical industry and to the Brazilian manipulation pharmacies’ market. There is a high concentration in the sector and there is only one competitor in the Brazilian market that produces hard capsules. However, the competition provided by this company is considerably lower than the parties, what derived concerns regarding its capacity to compete with the company resulting from the merger. Thus, the acquisition would result in a near monopoly, with Capsugel owning more than 90% of the market of hard capsules.

The Superintendence also concluded that the possibility of entrance of a new competitor would not be sufficient to move away the competition concerns raised with the high concentration of the market as a result of the acquisition of Genix by Capsugel.

Furthermore, economic tests used by the Superintendence revealed that the price dynamics of the Brazilian market of hard capsules is different that the international prices, probably due to the presence of an important national player – Genix – that imposes intense rivalry to Capsugel. The tests also showed that the two companies are the main national competitors of hard capsules and, thus, the acquisition of Genix would result in a large possibility of significant raise of prices.

Due to this anticompetitive potentiality, the General Superintendence understood that the approval of the transaction as it was presented could result in rise of prices of the product and, consequently, of the medicines that use it as input. Thus, the Superintendence challenged the merger before CADE’s Tribunal, which will be responsible for the final decision on the approval, blockage or adoption of eventual remedies to move away the competition problems. The Tribunal’s decisions can be applied unilaterally or upon agreement with the parties.

The merger was notified in November 2014. The legal deadline to the final decision is 240 days, extendable for 90 more days.