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DSPs and bricks-and-mortar pharmacies are ‘substitutable’, finds CMA

The competition authority recently found that Pharmacy2U’s purchase of LloydsDirect did not pose a competition threat… C+D looked at its reasoning

The Competition and Markets Authority (CMA) has released the full text of its decision to approve the merger of the UK’s two largest distance-selling pharmacies (DSPs) - Pharmacy2U and LloydsDirect - it announced last week (April 19).

Last month, the competition authority revealed that it had “cleared” Pharmacy2U’s purchase of its closest DSP rival LloydsDirect, finding that it would not lead to a “substantial lessening of competition”.

Read more: CMA merger inquiry clears Pharmacy2U purchase of LloydsDirect

But the reasoning behind this decision was not published at the time.

Now, the CMA’s decision document has revealed why it found that there is no “realistic prospect” of a substantial lessening of competition following the merger. 

It said that evidence it received supported a view that DSPs and bricks-and-mortar pharmacies are “substitutable” and that high street pharmacies are “a suitable alternative to DSPs”.

Read more: CMA revokes Pharmacy2U/LloydsDirect enforcement order

Pharmacy2U and LloydsDirect had also argued that “all pharmacies are interchangeable” from a “demand-side perspective”, it added.

The companies said that both types of pharmacies are “subject to the same regulatory framework” and provide “essentially the same service”, with many bricks-and-mortar pharmacies offering delivery for prescription-only medicines (POMs) like DSPs.


Switch up


The CMA also looked at data provided by Pharmacy2U and LloydsDirect, which showed that the “vast majority” of patients that changed their nomination from the DSPs switched to bricks-and-mortar pharmacies and vice versa.

According to the CMA’s analysis of this data, patients did not consider other DSPs as the only “credible alternatives” to Pharmacy2U.

Read more: CMA launches first phase inquiry into Pharmacy2U/LloydsDirect merger

Instead, it found that when patients moved away from Pharmacy2U, the share of patients that chose LloydsDirect was “substantially lower” than expected if patients only accepted DSPs over a bricks-and-mortar pharmacy.

This led the competition authority to find that there was “a degree of interchangeability” in terms of demand for DSPs and bricks-and-mortar pharmacies.


No merged majority


The CMA’s examination of the DSP market also noted that Pharmacy2U and LloydsDirect were the two largest DSPs in England before the merger and “substantially larger than their next nearest competitors”.

Between January and June 2023, Pharmacy2U accounted for between 20% and 30% of all DSP-dispensed POMs in England and LloydsDirect accounted for 10-20%, while no other DSP dispensed more than 5% of the total DSP dispensing volume.

However, the CMA noted that the 400 or so “smaller alternative” DSPs in England together dispense “over half of the prescriptions dispensed by DSPs”. 

Read more: UPDATED: Competition watchdog probes Pharmacy2U purchase of LloydsDirect

This was evidence to the competition authority that “other DSPs have been successful in winning nominations” and supported its conclusion that these other DSPs “provide a competitive constraint” on Pharmacy2U and LloydsDirect.

When the CMA looked at the wider community pharmacy market, it found that Pharmacy2U and LloydsDirect’s combined share was “small” at 5% or less of the total for POMs dispensed. 

Bricks-and-mortar pharmacies “are and will continue to be the predominant form” by which prescription medicines are dispensed to patients in the community, the CMA found.


Merger inquiry


In October, C+D broke the news that Pharmacy2U had snapped up the now-defunct Lloydspharmacy’s online prescription service LloydsDirect for an undisclosed sum.

But in November, the competition authority announced that it was looking into the “assets merger” of the major DSPs.

Read more: UPDATED: Pharmacy2U buys LloydsDirect for undisclosed sum

And the CMA announced that it had begun a phase one merger inquiry into Pharmacy2U’s acquisition in January.

But in February, it announced it would lift its enforcement order - which signalled that it did not believe the purchase gave rise to “competition concerns” – before it formally issued its approval for the merger last month.

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