Will there be more transactions on the pharmacy market? | In Principle

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Will there be more transactions on the pharmacy market?

There have been few transactions on the pharmacy market in Poland since 25 June 2017, when the amendment to the Pharmaceutical Law popularly known as “Pharmacies for Pharmacists” entered into force. The transactions that did occur carried significant regulatory risk. This situation may change due to a recent interpretation by the Ministry of Health. Will we witness a gradual departure from the restrictive limitations under the 2017 amendment?

“Pharmacies for Pharmacists” in a nutshell

Under the “Pharmacies for Pharmacists” amendment, from 25 June 2017 licences to operate pharmacies may be issued by the province pharmaceutical inspector only to a pharmacist or a partnership controlled by pharmacists. It is also prohibited to establish new pharmacy chains, as operating four pharmacies bars receipt of a licence to operate additional locations. There are also restrictive demographic and geographical requirements for siting of new pharmacies. A licence will be issued only if on the application date, the number of inhabitants of the local commune per existing pharmacy open to the public is 3,000 or more, and the distance from the planned location of the new pharmacy to the nearest operating pharmacy open to the public is at least 500 metres in a straight line from the pharmacy’s entrance. The number of inhabitants of the commune as of the date of filing of the application is based on current data from Statistics Poland (GUS).

The rationale for the amendment was to protect the native pharmacy market against aggressive growth by pharmaceutical chains. But in the first two years the amendment has been in force, the number of pharmacies in Poland has dropped anyway.

Doubts about the status of existing chains

It became clear that applications for new licences to operate pharmacies would have to meet the restrictive requirements outlined above. However, no obligation was imposed on entities that had obtained their licences earlier to modify their operations to achieve compliance with the new requirements. In reality this meant upholding the status quo with respect to the number and size of existing pharmaceutical chains.

A question that raised doubts in interpretation was whether entities operating existing pharmacy chains could sell their shares in the chain to a buyer that did not meet the new requirements (e.g. an investor other than a partnership of pharmacists), after which the new owner would retain the right to operate the chain as before. Consequently, in February 2019, the SME Ombudsman sought a clarification from the Minister of Health on whether the Act of 7 April 2017 Amending the Pharmaceutical Law applies to licences issued prior to entry into force of the amending act.

Permissibility of transferring a licence to another entity

In the legal clarification issued in April 2019, the Minister of Health stated that as the amendment concerned the conditions for seeking new licences, and did not impose an obligation on existing holders to modify their operations to meet the new requirements, the amendment does not function retroactively. Thus if licences were issued prior to the amendment for operation of pharmacies by persons who are not pharmacists, these persons may continue to operate under the prior rules. Moreover, if such licences are valid and there are no grounds for withdrawing them, they may be transferred to another person via an administrative decision by the province pharmaceutical inspector.

Thus, in the case of licences issued prior to the amendment, the acquirers of entities holding such licences are not required to meet the conditions introduced by the amendment. This means that the new rules should not be interpreted as universally applicable conditions for operating pharmacies in Poland, but only as conditions for applying for new licences.

Joanna Krakowiak, Life Science and Regulatory practice, M&A and Corporate practice, Wardyński & Partners