Completed acquisition by Cegedim SA of Enigma Health UK plc

Affected market: Pharmacy software

No. ME/1481-05

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, assessment and decision.

PARTIES

Cegedim SA (Cegedim) is based in France and is mainly active in the provision of software applications and IT services to the healthcare market, including doctors, pharmacists and pharmaceutical companies.  Cegedim owns NDC Health Limited (NDC) (see note 1) and Infopharm Limited.  NDC supplies pharmacy management systems, i.e. software applications used by retail pharmacies to assist in their dispensing and re-ordering routines including reimbursement for prescriptions. These systems can also be used to collect anonymised prescription data which can be 'sold' to data providers.  Infopharm is a data provider active in the supply of specialised pharmaceutical data.

Enigma Health UK Plc (Enigma) was pre-merger owned by UniChem Limited, itself a wholly owned subsidiary of Alliance UniChem Plc.  Enigma's UK turnover amounted to £4.2 million in the calendar year 2003. It supplies software applications to retail pharmacies to assist in their dispensing and re-ordering routines. 

TRANSACTION

On 10 December 2004 Cedegim, through a special purpose vehicle, unconditionally acquired the entire issued share capital of Enigma.  The extended statutory deadline is 13 April 2005 and the administrative timetable expires 22 March 2005.

JURISDICTION

As a result of this transaction Cegedim and Enigma have ceased to be distinct.  The parties overlap in the supply of pharmacy management systems to pharmacies in the UK with a share of supply around 50 per cent.  Consequently, the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met.  A relevant merger situation has been created.

ASSESSMENT

This acquisition results in a merger of the first and third largest providers of pharmacy software systems, with the new entity having just above 50 per cent share of supply and an increment of 17 per cent.  These software products are also used to collect prescription data from the pharmacy, which is in turn collected and sold by data providers to the pharmaceutical and health industry.

Notwithstanding the parties' share of supply in pharmacy management systems post-merger, there will remain three competitors with a material market position.  There is also evidence of new entry and switching which is sufficient to counteract claims that barriers to entry are high.  Furthermore, this transaction removed the vertical link between the target and the pharmaceutical wholesaler UniChem which might previously have acted as a barrier to entry to those software providers not associated with a major pharmaceutical wholesaler.  Moreover, Enigma has encountered some problems in developing its new Windows-based product and may therefore not have been a strong constraint on NDC going forward. 

Third parties have been largely unconcerned about the horizontal effect of this transaction. 

In light of the above considerations, the OFT does not believe that it is or may be the case that this transaction may be expected to result in a significant lessening of competition in the supply of pharmacy management software systems.

More concern was expressed about the vertical effect of the transaction and possible foreclosure resulting from Cegedim's ability to deny access to prescription data extracted by the pharmacy management software.  However, the current contracts between the NDC and Enigma and the data providers will remain in place for a number of years.  These contracts will prevent foreclosure in the short to medium term as they prescribe data quality and timeliness of supply.  Longer term, on the basis of the available data on the total size of the market for prescription data products and the cost of new entry, it does not appear rational for Cegedim to foreclose the providers of prescription data products downstream and seek to replace these with its own prescription database. Such a strategy would seem even less plausible if additional costs for product development and marketing are taken into consideration.  Moreover, data providers would still have the means and ability to source data from pharmacies not supplied with a pharmacy management system by Cegedim as well as through direct supply contracts with pharmacies that are supplied by Cegedim.  Furthermore, entry by Cegedim into the prescription data services sector should introduce competition which does currently not appear to be a significant feature in the market for the provision of data.

Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

NOTES

1. Now named Cedegim RX Ltd.

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