Source: The Economic Times
5 Aug 2014
NEW DELHI: Sun Pharma will have a market share of over 40% in 25 drugs once it takes control of Ranbaxy, according to an ET analysis, that may be reason for a close look at the deal by the competition watchdog that has begun to examine the biggest deal in the Indian pharma industry.
For nine drugs its market share will be more than 65% and in another 15 it will be 40-60%, revealed an analysis of the latest data from market research firm AIOCD Awacs.
Sun-Ranbaxy combined market share to be 9.5%
In addition, there are 11 drugs in which the Sun-Ranbaxy combine will enjoy a 33-40% market share. In all, the two companies have 128 common formulations.
The Competition Commission of India, the country’s anti-trust regulator, recently issued show-cause notices to both companies asking them to explain how the takeover won’t result in the domination of India’s Rs 76,000-crore drug market by the merged entity.The combined share of the two companies in the total drug market is 9.5%, which in itself is not a significant or threatening figure.
But it’s the substantial market share in several popular medicines that’s likely to be scrutinised by the regulator. A Sun Pharma spokesperson refused comment on ET’s emailed queries.Legal experts said CCI can insist that some brands or facilities be divested before the merger goes through if it establishes that the combined entity can dictate prices because of its dominant position in these categories.
It could also insist on undertakings that the merged entity will not raise prices and maintain production at a specified level. Sun-Ranbaxy combine will have a share of more than 57% in the Rs 430-crore market for common anti-inflammation drug diclofenac; a 78% market share in somastostatin, which is used to treat gastrointestinal hemorrhage and which has annual sales of Rs 50 crore; 76% of the Rs 80-crore market in prostate cancer drug leuprorelin; and 55% of the Rs 48-crore market in quetiapine, a drug used to manage dementia in the elderly.
The proposed entity will also have a 92% market share in the combination of rosuvastatin and ezetimibe, used to treat high cholesterol. Even though this drug has annual sales of just Rs 4 crore, CCI may still comb through the category to study the impact on the entire family of rosuvastatin and its combinations with fenofibrate, which stands at Rs 524 crore, as the entity will account for a little less than a third of the market.
The ET analysis showed that for at least eight-nine drugs, where Sun-Ranbaxy could control a disproportionate share of more than half the market, the total market size is very small, and the regulator may not pay much notice. On the other hand, there are some categories where the duo’s combined market share may be less, but the size of the market is big.
For instance, it will control 23-27% of the Rs 800-crore market for cholesterol-lowering drug atorvastatin and some of its combinations. The fragmented nature of the market and availability of molecules that can be substitutes will be a positive factor in CCI’s assessment of this deal, said Gautam Shahi, senior associate at J Sagar Associates, a law firm.
“If significant market power or dominant position is finally established in a few categories, CCI can resort to two possible approaches: structural remedies, such as asking the players to divest brands or facilities making concerned products or behavioural remedies like imposing an output and product line maintenance condition,” he said.
A senior executive at a rival drug firm said it would be interesting to see the position the competition watchdog adopts for drugs that are under price control. “The companies could argue that once price caps have been set by the government, they have no room to abuse their leadership position in pricing,” he said.
AIOCD is the All Indian Origin Chemists and Distributors. Awacs stands for Advanced Working, Action and Correction System.