Affected market: Pharmaceutical distribution
The OFT's decision on reference under section 33 given on 26 September
2005. Full text of decision published 30 September 2005.
Phoenix Medical Supplies Limited (Phoenix) is a non-trading holding
company which holds 100 per cent of the shares in Phoenix Healthcare
Distribution Ltd (PHD). PHD is a pharmaceutical wholesaler to retail
pharmacies and dispensing doctors in Great Britain. It also operates a
small chain of retail pharmacies. Numark plc (Numark) owns 4
pharmacies and provides buying and marketing support to over 1720
independent pharmacies which belong to the Numark scheme. Numark Trading
Ltd (NTL) is a joint venture company between Numark and Phoenix. NTL is
a pharmaceutical wholesaler, selling over the counter (OTC) (see [note
1]) pharmaceuticals under the Numark own brand and other brands.
It is the OFT's view that the transaction meets the turnover test as
the UK turnover of Numark in the year ended 31 December 2004 was £76.8
Phoenix currently owns 14.71 per cent of the share capital in Numark.
Phoenix proposes to acquire the remaining share capital in Numark. In
doing so, Phoenix will also indirectly acquire the remaining 50 per cent
issued share capital in the NTL joint venture. This is a pre-notified
merger with a statutory deadline of 28 September 2005.
As a result of this transaction Phoenix, Numark and NTL will cease to be
distinct. The UK turnover of Numark exceeds £70 million, so the turnover
test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is
satisfied. The OFT therefore believes that it is or may be the case that
arrangements are in progress or in contemplation which, if carried into
effect, will result in the creation of a relevant merger situation.
Numark owns 4 pharmacies which creates a horizontal overlap with
Phoenix's 372 pharmacies. At a national level, the combined share of
supply and increment is minor. At the local level, an overlap only
arises within a one and two mile radius in one area where there are a
number of other competitors also present. Accordingly, the combined
share at local level is not considered significant and is not considered
No other overlaps exist between the parties. Although both are
pharmaceutical wholesalers, NTL only supplies OTC pharmaceuticals while
Phoenix's subsidiary, PHD, supplies only ethicals, prescription-only
Under the Numark scheme, Numark sources 350 own-brand OTC products from
suppliers and these are distributed almost exclusively to over 1720
independent pharmacies which belong to the scheme. These member
pharmacies are branded as Numark pharmacies. NTL acts as the wholesale
supplier of Numark's own-brand OTC products and delivers them directly
to Numark-branded pharmacies and also to other distributors (Sangers
(NI), Sangers Maidstone, Unichem, Maltbys, Mawdsley Brooks and PIF) for
onward distribution to Numark pharmacies.
Post-merger, Phoenix will control the supply and distribution of
Numark's own-brand OTCs. Some third parties have raised the concern
that following the acquisition, Phoenix will become the exclusive
distributor of Numark's own-brand products, restricting the choice of
supplier for Numark-branded pharmacies and reducing competition between
If market power exists or is created in one or more markets along the
supply chain, the transaction could change the incentives of the merged
entity to renegotiate distribution terms with competing distributors. In
addition, the transaction may increase the ability and/or incentive of
the merged entity to foreclose the distribution of Numark’s own-brand
OTCs to competing distributors, which account for of NTL’s OTC
The evidence gathered during this enquiry shows that at each level of
the supply chain Numark does not hold market power. The parties estimate
that Numark's own-brand represents less than 2 per cent of OTCs
supplied by wholesalers to pharmacies in the UK. One wholesale supplier
stated that if Phoenix refuses to supply Numark products for
distribution it can source alternative products from other suppliers
(indeed NTL also distributes OTC products from other OTC producers).
There will remain a number of wholesalers in the UK post-merger and,
since the supply of OTCs to pharmacies is not as time critical as the
supply of ethicals (there is no need or expectation of a twice daily
delivery service for example), the parties have contended that that
wholesalers compete at a national level. Certainly, all third parties
acknowledge that there are numerous sources for OTCs and switching is
easy. Moreover, there is evidence of multi-sourcing.
The parties state that Phoenix does not have an incentive to foreclose
because this strategy may cause members to resign from the Numark
scheme. If alternative wholesalers were no longer supplying the Numark
own brand OTCs, distribution coverage would be harmed. In addition, the
parties state members are not obliged to purchase Numark’s own-brand
OTCs and are free to source competing products (be they OTCs or ethical
pharmaceuticals) from the wholesaler of their choice. If pharmacists
require a cooperative buying arrangement they can join alternative
buying groups active in the market.
Given the above, the OFT does not consider that Phoenix will have the
ability to foreclose in this sector.
THIRD PARTY VIEWS
Other than the potential for foreclosure discussed above, which was
raised by a small number of third parties, no concerns were raised.
The limited overlap between the parties at a horizontal level does not
raise any competition concerns. The suggestion has been made that
post-merger Phoenix may seek to foreclose access to Numark’s own-brand
OTCs. However, it is not considered that it has the ability to do so.
Its own-brand OTCs represent a very small percentage of OTCs supplied by
wholesalers to pharmacies and there will remain a number of competing
wholesalers supplying rival products post-merger. Switching is
considered to be easy.
Consequently, the OFT does not believe that it is or may be the case
that the merger may be expected to result in a substantial lessening of
competition within a market or markets in the United Kingdom.
This merger will therefore not be referred to the Competition Commission
under section 33(1) of the Act.
- OTCs are medicines that either need to have their sale supervised by
a pharmacist or need to be kept in a lockable shop.