Independents win battle with Clicks

Independent pharmacies have won their seven-year battle against JSE-listed health and beauty retailer Clicks over its ownership of both pharmacies and a drug manufacturer, after the Constitutional Court ruled the company had contravened regulations to the Pharmacy Act.

The 5-4 majority judgment creates an immediate headache for Clicks, as it reinstates a previous high court ruling instructing the department of health to determine how to sanction the company and raises the prospect that it may need to sell off its pharmaceutical manufacturing subsidiary Unicorn Pharmaceuticals. While Unicorn is not a material contributor to Clicks’ operations, divestiture could affect its profit margins.

The Constitutional Court emphasised that while the department of health has the power to withdraw Clicks’ pharmacy licences or close the pharmacies down, such action would be “very drastic”. It suggested the department might give Clicks an opportunity to regularise the situation by divesting itself of Unicorn.

The Independent Community Pharmacy Association (ICPA) launched its challenge against Clicks in 2016, arguing its corporate structure created a conflict of interest, since its pharmacists had an incentive to recommend medicines sold by another subsidiary in the group.

JSE-listed Clicks Holdings owns all the shares in New Clicks, which holds all the shares in Unicorn and all the shares in Clicks Investments. Unicorn owns a licensed manufacturing pharmacy that has 39 generic medicines registered with the SA Health Products Regulatory Authority, while Clicks Investments owns all the shares in Clicks Retailers, which in turn owns 673 pharmacies.

The ICPA, which represents more than 1,200 independently owned pharmacies, first filed a complaint with the department and asked it to revoke Unicorn’s manufacturing licence and Clicks Retailers’ pharmacy licence. When that bid failed, it took the matter to the Western Cape High Court.

The central legal issue considered by the department and the courts was whether the term “beneficial interest” in the Pharmacy Act’s regulations governing the ownership and licensing of pharmacies includes owning shares in a company that owns a pharmacy business.

Regulation 6 of these rules says any person may ... own or have a beneficial interest in a community pharmacy on con

dition that such a person, or in the case of a body corporate, the shareholder, director, trustee, beneficiary or member ... is not the owner or the holder of any direct or indirect beneficial interest in a manufacturing pharmacy”.

The ICPA argued that the corporate structure of Clicks gave companies in the group a beneficial interest in pharmacies while simultaneously holding a beneficial interest in a manufacturing pharmacy, in contravention of these regulations.

ICPA chair Jackie Maiman said the organisation was delighted with the Constitutional Court’s ruling. “This victory brings the profession back into pharmacy as the Constitutional Court’s decision means that we will never have pharmacists who are presented with a conflict of interest when dispensing medicines for their patients. The court upheld the spirit of the law,” she said.

Clicks had not responded to Business Day’s request for comment at the time of publication.

Sasfin senior equity analyst Alec Abraham said it is unlikely that the department of health will revoke Clicks’ pharmacy licences or order it to close its pharmacies. A more likely scenario was that Clicks would divest itself of Unicorn.

“Unicorn is small, but as a shareholder, I would probably be a little concerned that there might be some impact on margin,” he said.