© Copyright 2013 by K&L Gates. All rights reserved.
Murray Deakin
Partner
Antitrust, Competition & Trade Regulation
Examin...
AGENDA
 Competitive landscape of Australian
pharmaceutical industry
 ACCC’s approach to market definition in the
pharmac...
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
paten...
AUSTRALIAN PHARMACEUTICAL
INDUSTRY
 Global players dominate locally
 Small number manufacture active
pharmaceutical ingr...
COMPETITIVE LANDSCAPE
 Pharma industry at mature stage
 Generic competition intensifying
 Global players rationalising ...
BASIS OF COMPETITION
 Patented versus out of patent versus generic
 Innovation
 Prescription, pharmacist only, OTC or
t...
BARRIERS TO ENTRY
 Patent protection
 High R&D costs
 Government regulation
 Manufacturing compliance
 TGA approvals
...
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 se...
THE RELEVANT MARKET
 Suitability of the hypothetical monopolist test
 Reference to the supply of the relevant active
ing...
PREVIOUS ACCC MERGER REVIEWS
M&A ACCC’s market definition
Aspen Global acquisition of
product portfolio from
GlaxoSmithKli...
ACCC INFORMAL MERGER CLEARANCE REGIME
INFORMAL MERGER CLEARANCE REGIME
 Key prohibition
 Remedies for breach
 Merger options
 Merger assessment criteria
 I...
KEY STATUTORY PROHIBITION
Section 50
Prohibits any direct or indirect acquisitions of
shares or assets which would have th...
REMEDIES FOR BREACH
 Pecuniary penalties – the greater of:
 A$10 million
 three times the value of the benefit derived
...
MERGER OPTIONS
 Proceed
 ACCC informal clearance
 ACCC formal clearance
 Australian Competition Tribunal authorisation...
MERGER ASSESSMENT CRITERIA
 import competition
 barriers to entry
 level of market concentration
 degree of countervai...
WHAT IS INFORMAL CLEARANCE?
 Apply to ACCC to ascertain its view of a
proposed merger
 ACCC undertakes a competition ass...
INFORMAL CLEARANCE PROCESS
klgates.com 20
 Typical duration: 6-12 weeks after pre-
assessment stage concludes
Pre-assessm...
INFORMAL MERGER REVIEWS 2009 - 2013
klgates.com 21
YEAR APPLICATIONS NOT OPPOSED OPPOSED
2009-2010 321 306 15
2010-2011 37...
INFORMAL PUBLIC AND CONFIDENTIAL
MERGER REVIEWS ASSESSED IN 2012-13
klgates.com 22
71%
8%
8%
3%
5% 5%
Not opposed
opposed
...
ACCC INFORMATION GATHERING POWERS
 Can request information on a voluntary basis
 Statutory information gathering powers:...
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 ...
Murray Deakin
Partner
(02) 9513 2335
murray.deakin@klgates.com
Sylvia Ng
Senior Associate
(02) 9513 2303
sylvia.ng@klgates...
Murray Deakin, K&L Gates - Examining the Competitive Landscape in the Australian Pharmaceutical Industry: Mergers and Acqu...
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Murray Deakin, K&L Gates - Examining the Competitive Landscape in the Australian Pharmaceutical Industry: Mergers and Acquisitions

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Murray Deakin delivered the presentation at 2014 Pharmaceutical Law Conference.

The Pharmaceutical Law Conference is the foremost meeting place and networking hub of the pharmaceutical law industry, and the only pharmaceutical law event in the Asia-Pacific region. The 2014 event highlights included pharma law reform, IP, competitive strategies, industry transparency, sustainable drug pricing and patenting life sciences and more.

For more information about the event, please visit: http://www.informa.com.au/pharmalawevent14

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Murray Deakin, K&L Gates - Examining the Competitive Landscape in the Australian Pharmaceutical Industry: Mergers and Acquisitions

  1. 1. © 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
  2. 2. 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? klgates.com 2
  3. 3. THE COMPETITIVE LANDSCAPE
  4. 4. 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 klgates.com 4
  5. 5. 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 klgates.com 5
  6. 6. COMPETITIVE LANDSCAPE  Pharma industry at mature stage  Generic competition intensifying  Global players rationalising operations  Growing trend for strategic alliances  Medium industry concentration klgates.com 6
  7. 7. 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 klgates.com 7
  8. 8. BARRIERS TO ENTRY  Patent protection  High R&D costs  Government regulation  Manufacturing compliance  TGA approvals  Product safety  PBS  Medicines Australia klgates.com 8
  9. 9. ACCC’s APPROACH TO MARKET DEFINITION
  10. 10. 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” klgates.com 10
  11. 11. 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 klgates.com 11
  12. 12. 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 klgates.com 12
  13. 13. ACCC INFORMAL MERGER CLEARANCE REGIME
  14. 14. INFORMAL MERGER CLEARANCE REGIME  Key prohibition  Remedies for breach  Merger options  Merger assessment criteria  Informal clearance  Vital statistics  Take home points klgates.com 14
  15. 15. 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. klgates.com 15
  16. 16. 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 klgates.com 16
  17. 17. MERGER OPTIONS  Proceed  ACCC informal clearance  ACCC formal clearance  Australian Competition Tribunal authorisation klgates.com 17
  18. 18. 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 klgates.com 18
  19. 19. 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 klgates.com 19
  20. 20. INFORMAL CLEARANCE PROCESS klgates.com 20  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
  21. 21. INFORMAL MERGER REVIEWS 2009 - 2013 klgates.com 21 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
  22. 22. INFORMAL PUBLIC AND CONFIDENTIAL MERGER REVIEWS ASSESSED IN 2012-13 klgates.com 22 71% 8% 8% 3% 5% 5% Not opposed opposed confidential concerns 87B undertakings withdrawn/no decision 87B variations
  23. 23. 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 klgates.com 23
  24. 24. WHAT CAN WE EXPECT IN THE FUTURE?
  25. 25. 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 klgates.com 25
  26. 26. Murray Deakin Partner (02) 9513 2335 murray.deakin@klgates.com Sylvia Ng Senior Associate (02) 9513 2303 sylvia.ng@klgates.com
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