The recent closure of a major pharmaceuticals wholesaler by one of the reculsive Linnamäe brothers has both the ministry responsible for the sector – the Ministry of Social Affaris, and the Competition Authority overseeing potential monopolies or abuse of market dominance – somewhat at a loss to know what will happen next. The move so far seems to have outfoxed reforms in the sector aimed at avoiding market dominance, something which the closure could lead to.
As reported by ERR News, Apteekide Koostöö Hulgimüük (AKH) will be ceasing commercial activities from November 1. The company currently controls 22 percent of the market, and a major shareholder is Aivar Linnmäe. At the same time, Lilnnamäe's brother, Margus, is the owner of what is on the surface a competitor wholesaler, Magnum Medical. Magnum says that it will take on AKH's former business, though the other major player in the field, Tamro, says it is also eyeing up the possible winnings.
Whether AKH was wrapped up to avoid competition authority and social affairs ministry scrutiny is still not clear, and what can be done about Magnum Medical taking over AKH's old territory is similarly uncertain.
"In a situation where one company goes out of business, we can obviously see an opportunity to expand our customer portfolio. We believe that every wholesaler in the market is doing its best to offer a partnership to the customers of those going out of business," Magnum's communications manager told ERR Friday.
The company says it has started negotiations with Apotheka-branded pharmacies with a view to becoming its wholesaler, and plans to do so with the Südameapteek brand in the near future as well.
Apotheka's parent company prior to pharmacy reforms which entered into force in April was Terve Pere Apteek OÜ, which was also a Magnum company.
The situation runs the risk of the market becoming even more concentrated in the hands of a few major players than was the case before pharmacy reforms aimed at heading off that precise outcome came into effect, on April 1.
The bill which passed saw several legislative challenges, and is aimed at, in theory, liberalizing the market by placing control of chain and other pharmacies into the hands of the qualified dispensing pharmacists who work there, and away from major wholesalers like Magnum.
The social affairs ministry had recently questioned the disproportionately large market share the now-defunct AKH, operating since 2004, had, at 22 percent market share, given it only employs four people on its books.
AKH turned-over €92 million with four employees last year
AKH's turnover last year was €92.1 million, 8.6 percent up on year, and its profit stood at €118,300, according to a report at year-end which also noted the company, far from having plans to close operations, wanted to maintain or strengthen its market position.
By way of comparison, another major player, Tamro, with a market share of 29 percent, employed about 100 people in 2018, when its turnover was €124 million and made a profit of €2.7 million, ERR's online news in Estonian reports. Tamro runs the Benu pharmacy chain.
Magnum, with 29 percent market share, employed 19 people last year, turned over €234.2 million and made a profit of €2.5 million.
The closure of AKH in any case makes any potential investigations moot; Aivar Linnamäe is listed as 47 percent shareholder, and 49 percent of the stake is owned by an overseas-registered firm, according to ERR.
Maikki Lemetti, nominal head of the company, wrote in a press release sent on Wednesday that the termination of the activity had been the owner's decision.
Competition Authority, social affairs ministry do not have clear explanation for AKH closure
Maris Jesse, Undersecretary of Health at the Ministry of Social Affairs, wrote to the Competition Authority on September 11 with her concerns; the ministry also wanted to investigate whether, given the close relationship of Magnum and AKH in particular, and the fact the two wholesalers' owners are brothers, there may in fact have been no competition to speak of.
Whether AKH's closure was the result of this potential scrutiny, Katri Eespere, health adviser at the Ministry of Social Affairs, told ERR on Thursday that the ministry was not aware of whether the two events were related.
"It can be assumed that the business plans of companies with a significant market size are planned in the long term. It is too early to assess the possible change in the situation of the pharmaceutical wholesale market," he said.
The Competition Authority (Konkurentsiamet) confirmed that since AKH had shut up shop, there was no scope for investigating it, though it was keeping the pharmaceutical sector as a whole in its sights.
Of practical changes, the state agency of medicines (Raviamet) said that pharmacies accustomed to dealing with AKH would now have to find new partners.
Tanel Kuusman, CEO of Tamro said that his firm was ready to be just that.
"This seems to us to be news. We are ready to serve the customers of the wholesaler to be closed (i.e. AKH – ed.), even to a greater extent than we have done so far," said Kuusmann.
Magnum says that it wants to take on AKH's former customers, however, and had started negotiations with Apotheka, and soon, Südameapteek.
Were that to transpire, it could lead to Magnum having over 40 percent market share – something in and of itself not illegal, AK reported.
"The competition law has a great, long list to it: Too high prices, discrimination, different pricing techniques," the authority's supervision department head Juhan Põldroos said, citing potential pitfalls for Magnum should it continue to grow, adding that it, too, did not know why AKH had closed.
Whether the coronavirus pandemic had a bearing on decisions was not reported.
Magnum has in the past denied that it was effectively the same concern as AKH.
Põldroos noted that it is logical to assume that someone will take AKH's position in the market, but whether existing customers will turn to Magnum, Tamro or any other market participant cannot be predicted.
"What will precisely happen from now can depend on many different scenarios. In general, competition law is structured in such a way that dominance is not prohibited or illegal in and of itself," Põldroos said.
Critics of the pharmacy reforms mostly concentrated on claims that the move would decimate the sector in rural areas and smaller communities, with Magnum Medical and AKH pharmacies joining those run by Lithuanian-owned firm Euroapteek in a "strike", technically more a lock-out and seen by politicians as being in poor taste, last December, intended to draw attention to this supposed outcome. In the event, only a handful of outlets closed once the reforms entered into force.
Margus Linnamäe, the owner of Magnum Medical, also owns the Postimees Grupp, which runs the daily newspaper of the same name, as well as its regional variants and other publications, as well as the Apollo entertainment group, responsible for bringing KFC to Estonia.
Linnamäe, complaining about the pharmacy reforms again in February this year, said he would be seeking damages from the state for their effects.
Editor: Andrew Whyte