SG recommends blocking Fagron’s acquisition of Purifarma

On 8 May, the Office of the Superintendent General (SG) at the Administrative Council for Economic Defense (CADE) forwarded the transaction with recommendation for blockage to the Tribunal of CADE, regarding SM Empreendimentos’ acquisition (from Fagron Group) of Gemini and Lepuge, which constitute the Purifarma company.

According to the antitrust authority, the arrangement of the activities from both companies in the market of drug input distribution to pharmacies raises high competition concerns. These are related to the market shares above 50% and the installed capacity, as well as entry barriers and constraints to the establishment of companies as competitive as the parties involved.

Purifarma operates as a distributor of drugs, cosmetics, food, and phytotherapeutic inputs to compounding pharmacies, as well as to pharmaceutical, cosmetics, food, supplements, and veterinary industries. In addition, the reseller distributes PPE equipment, and provides supplies to public bodies.

SM Empreendimentos also operates in the Brazilian markets of drugs, cosmetics, food, veterinary, and phytotherapeutic inputs.  Moreover, it distributes glass and plastic packages for industries of cosmetics, food, pharmaceutic, and compounding pharmacies, as well as PPE equipment for laboratory use. The company is part of the Dutch “Fragon Group”, which develops and sells software, and provides equipment to compounding pharmacies, laboratory analyses for inputs’ quality control, R&D of analytic and biolytic methods, and development and sale of genomic tests.

During the discovery phase, CADE concluded that there are entry barriers in the distribution market of drug inputs for the compounding pharmacy sector, namely: legal and regulatory requirements, need for specific infrastructure and equipment, established trusted relationships with clients, economies of scale, scope and density, service capacity and logistical coverage, capacity for technical support to the pharmacies for proper usage of the inputs, need for technical responsibility and traceability, and, finally, limited access to excusive inputs. Also, in regard to  a probable abuse of market power, a two-year term would not be enough for the effective establishment of a company, given the untimely entries characteristic of this market. Thus, the rivalry conditions did not suffice to dispel competition concerns. .

The suppliers of the compounding area adopted some competitive strategies such as the ones based on commodities, added value, medical specialties, exclusive products, bundled sales, lower prices and extended payment terms, efficient logistics, quality, technical support, and manufacturers' documentation. Since the Fagron Group has a large portfolio, Purifarma’s acquisition would result in a significant market share increase, mainly in the sector of commodity inputs of widely used products. Although Purifarma mainly offers commodities, it has a considerable market share, besides being one of the most important companies to exert competitive pressure on the applicants of this market.

Regarding the application of remedies, it was found to be insufficient to mitigate competition concerns. The SG decided to file an objection, recommending the blockage of the acquisition. The Tribunal of CADE is to assign the proceeding to a rapporteur commissioner, and subsequently review the case for a final decision.