CCCS Grants Conditional Approval for Private Clinical Laboratories Merger with Commitments
21 October 2019
(View media release in PDF)
1. The Competition and Consumer Commission of Singapore (“CCCS”) has granted conditional approval of Pathology Asia Holdings Pte. Ltd. (“PAH”)’s completed acquisition of Innovative Diagnostics Private Limited (“Innovative”) and Quest Laboratories Pte. Ltd. (“Quest”) (each a “Party” and collectively, the “Parties”) (the “Transaction”), after accepting commitments from PAH.
2. Both Innovative and Quest provide in-vitro diagnostic (“IVD”) tests in Singapore, which can be used to detect diseases or other conditions, as well as monitor a person’s health. PAH is part of TPG Capital, a global private investment firm founded in 1992.
3. CCCS had identified competition concerns arising from the Transaction, based on information furnished by PAH and third-party feedback from customers and competitors. Specifically, Innovative and Quest are generally the closest competitors to each other pre-Transaction, being the top two suppliers in the provision of IVD tests by private clinical laboratories in Singapore, to non-affiliated customers (i.e. customers without an in-house/vertically-integrated laboratory). Third-party feedback raised concerns about the extent to which alternative providers (e.g. private hospital clinical laboratories and other private independent clinical laboratories) are able to exert sufficient competitive constraint on the merged entity, especially for customers such as private hospitals which do not manage their in-house laboratories, and health screening companies.
Commitments by PAH
4. To address the competition concerns identified by CCCS, PAH submitted a set of commitments (“Proposed Commitments”).
5. From 21 June to 5 July 2019, CCCS invited public feedback on whether the Proposed Commitments would sufficiently address the competition concerns arising from the Transaction. Third party feedback received by CCCS from industry players and customers generally agreed that the Proposed Commitments will achieve their objectives, but also identified some gaps in the Proposed Commitments’ sufficiency in addressing the competition concerns arising from the Transaction.
6. In response to the issues identified during the public consultation, PAH submitted revised commitments (“Final Commitments”), as summarised below:
a. Commitments relating to Third-Party IVD Testing (i.e. Send-Out Tests (“SOTs”)) and Service Standards. The Parties shall supply SOTs to competing laboratories, at prices which are fair, reasonable and non-discriminatory relative to the Parties’ direct non-contracted customers, as well as at service standards consistent with those offered by the Parties to their direct non-contracted customers. This commitment can help competing laboratories offer a wider range of IVD tests and be better able to compete for customers. Competing laboratories can then gauge demand to assess if they should expand to perform such SOTs in-house.
b. Commitments relating to Exclusivity. The Parties shall not include, and shall remove, any exclusivity obligations (including clauses giving rise to de facto exclusivity, such as loyalty-inducing retroactive rebates) in any new agreement, or any existing agreement which is renewed, extended or rolled over after 4 March 2019. This commitment prevents the Parties from locking in customers on an exclusive basis going forward, and allows such contracted customers, after any existing exclusive contracts have expired, to switch to other suppliers should they choose to do so.
c. Commitments relating to Allowing for Early Termination without Cause. The Parties shall allow for early termination without cause by contracted customers, subject to a prior written notice period, and without imposing any penalty or seeking any other form of remedy or relief from these contracted customers (subject to a limited exception). This commitment is similarly intended to lower barriers for customers to switch to other suppliers. Increasing customers’ ability to switch away from the merged entity post-Transaction is intended to also increase competing laboratories’ incentives (i.e. the gaining of sufficient volume/demand) to expand their volume of tests supplied and/or range of tests provided, and in turn, increase the extent of competitive constraint on the merged entity over time.
d. Commitments relating to prices offered to private hospitals which do not manage or operate their in-house laboratories, and health screening companies. The Parties shall not increase its prices and shall maintain the same terms and conditions set out in its existing agreements with these two customer types. This shall apply to any existing or new agreement in effect during the commitment period, subject to allowing the Parties to seek to adjust prices for inflation, in certain circumstances. The Parties shall extend or renew the existing agreements with these two customer types, unless there are commercially justifiable reasons not to do so. Given that time is required for competitors to enter or expand in the relevant market, this commitment is intended to address the risk of a price increase or a degradation of quality by the merged entity during the commitment period, for these two customer types.
e. Durations of the Commitments: The commitment period shall be four years from the date of CCCS’s decision on the Transaction.
f. Monitoring Trustee: PAH shall individually notify all customers affected by the commitments and shall conduct an internal audit annually, and submit signed yearly compliance statements to CCCS. Where CCCS has reasonable grounds for suspecting there has been non-compliance with any of the Commitments by the Parties, PAH shall appoint a Monitoring Trustee.
7. After evaluating the feedback provided by third parties and the revisions made by PAH, CCCS considers that the Final Commitments, which work holistically as a package, are sufficient to address the competition concerns arising from the Transaction. CCCS has therefore approved the Transaction on 18 October 2019, conditional upon the implementation of and compliance with the Final Commitments by PAH. The Final Commitments, attached in Annex 1, are effective from 18 October 2019.
8. More information on the Transaction and CCCS’s Grounds of Decision, including a copy of the Final Commitments, will be made available in due course on the CCCS website under the section “Public Register”.
9. For more information on the merger review process in Singapore, please refer to Annex 2.
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About The Competition and Consumer Commission of Singapore
The Competition and Consumer Commission of Singapore (“CCCS”) is a statutory board of the Ministry of Trade and Industry. CCCS administers and enforces the Competition Act (Cap. 50B) which empowers CCCS to investigate and adjudicate anti-competitive activities, issue directions to stop and/or prevent anti-competitive activities and impose financial penalties. CCCS is also the administering agency of the Consumer Protection (Fair Trading) Act (Cap. 52A) or CPFTA which protects consumers against unfair trade practices in Singapore. Our mission is to make markets work well to create opportunities and choices for business and consumers in Singapore.
For more information, please visit www.cccs.gov.sg.
About the Section 54 Prohibition under the Competition Act & Merger Procedures
Section 54 of the Act prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition in Singapore.
CCCS is generally of the view that competition concerns are unlikely to arise in a merger situation unless:
- The merged entity has/will have a market share of 40% or more; or
- The merged entity has/will have a market share of between 20% to 40% and the post-merger combined market share of the three largest firms is 70% or more.
Merging entities are not required to notify CCCS of their merger but they should conduct a self-assessment to ascertain if a notification to CCCS is necessary. If they are concerned that the merger has infringed, or is likely to infringe, the Act, they should notify their merger to CCCS. In such cases, CCCS will assess the effect of the merger on competition and decide if the merger has resulted, or is likely to result, in a substantial lessening of competition (“SLC”) in Singapore.
Separately, CCCS has the ability to conduct an investigation into an un-notified merger if there are reasonable grounds for suspecting that the merger infringes section 54 of the Act. In the event CCCS finds that a merger situation has resulted or is expected to result in an SLC, CCCS has powers to give directions to remedy the SLC. For example, CCCS can require the merger to be unwound or modified to address or prevent the SLC, as the case may be. CCCS may also consider issuing interim measures prior to the final determination of the investigation.
Phase 1 and Phase 2 Merger Review
A Phase 1 review entails a quick review and allows merger situations which do not raise competition concerns under the section 54 prohibition to proceed. CCCS expects to complete a Phase 1 review within 30 business days. By the end of this period, CCCS will determine whether to issue a favourable decision and allow the merger situation to proceed. If CCCS is unable, at the end of the 30-day period, to conclude that the merger situation will not result in a substantial lessening of competition, CCCS will inform the merger parties and the merger parties may file Form M2. Upon receipt of Form M2, CCCS will proceed to a Phase 2 review.
A Phase 2 review entails a more detailed and extensive examination of the merger situation. While the principles of substantive assessment are the same, CCCS will require access to more extensive and detailed information regarding the merger parties and the markets in question.
As the Phase 2 review is more complex, CCCS will endeavour to complete a Phase 2 review within 120 business days.
Section 60A of the Act states that CCCS may, at any time before making a decision as to whether the section 54 prohibition has been or will be infringed, accept commitments that remedy, mitigate or prevent the substantial lessening of competition or any adverse effect arising from the merger situation. Where CCCS has accepted a commitment, CCCS will make a favourable decision.
Further details can be found in the CCCS Guidelines on Merger Procedures 2012.
For more information, please visit www.cccs.gov.sg
 PAH submitted that it would continue to operate Innovative and Quest separately and independently from each other and not merge the business operations of Innovative and Quest, pending CCCS’s assessment of the Transaction.
 On 7 September 2018, CCCS received an application from PAH for a decision on whether the Transaction infringes the prohibition in the Competition Act (Cap. 50B) (the “Act”) against anticompetitive mergers. Section 54 of the Act prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore. CCCS was unable to clear the merger at the end of the Phase 1 review, and proceeded to an in-depth Phase 2 review on 9 November 2018.
 According to PAH, IVD tests are diagnostic tests done on samples such as blood or tissue that have been taken from the human body. IVD tests can detect diseases or other conditions, and can be used to monitor a person’s overall health to help cure, treat, or prevent diseases, amongst other uses.
 The types of customers whom the Parties generally serve include general practitioners, clinics, medical centres, hospitals, dialysis centres, not-for-profit organisations and third-party payors.
 These two types of customers generally require high volumes of IVD tests and have other specific requirements which can only be met by the Parties currently.
 For more information on the Transaction, CCCS’s Phase 1 review and public consultation of the Proposed Commitments, please refer to the media releases dated 11 September 2018, 29 October 2018, 16 November 2018 and 21 June 2019 at www.cccs.gov.sg.
 The gaps identified from the third party feedback include, among others, that: (i) the two-year commitment period initially proposed by PAH in the Proposed Commitments is insufficient for a new entrant or an existing supplier to grow into a significant player in the market; and (ii) in respect of allowing customers to terminate their contracts early by giving written notice, a shorter duration than PAH’s proposed 90 business day notice period, would be more reasonable and in line with industry practices.
 Send-out test, or SOT, refers to an IVD test that is not performed by the laboratory receiving the request for such IVD test from customers, but is sent out to and performed by third-party laboratories.
 For the avoidance of doubt, customers will retain the ability to decide whether to accept this offer by the Parties.