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Focus on Regulation

Italy opens the door to corporate ownership of pharmacies – a revolution for the Italian Pharma distribution

By Law passed today, August 2nd, 2017 (Law for the improvement of the competition on the market), further to a recommendation of the Italian Competition Authority (“ICA“), the Italian legislature enacted provisions for the improvement of the competition in several fields, including the distribution of medicinal products by territorial pharmacies.

  1. How the sector was previously regulated

The ICA noted in its proposal of law sent to the Parliament in 2014 that, among others aspects, the legal restrictions to the ownership of a pharmacy business were detrimental to the competition on the market with regard to the distribution of medicinal products.

Ownership of a pharmacy business could be vested on natural persons who were licensed pharmacists. It was therefore not possible for corporate entities to own a pharmacy. Limited liability cooperative societies and non-corporate entities could own a pharmacy as long as the members were licensed pharmacists.

Pharmacists could not own more than one pharmacy. Each limited liability cooperative society could not own more than four pharmacies in the province where the society had its registered office. Due to the restrictions of law, the owner was usually the managing director of the pharmacy (e.g. the owner could employ other licensed pharmacists for carrying out the ordinary activity but the managing director had to be one of the owners).

These limitations must be put into context of the general regulation of pharmacies, which is still in force and has not been changed by the new law.  To this regard, it is worth noting that the opening of new pharmacies is still subject to the assignment of the authorisation upon participation to tenders, issued by the regional authority for newly instituted authorisations or authorisations returned to the authority, or for the eligibility of a professional to run a pharmacy. Further provisions rule, for example, the number and location of pharmacies in a given district.

It does not come as a surprise that such legal framework, in addition to the restriction on the subject who may own a pharmacy, has – so far – impeded the development of privately owned pharmacy chains on the Italian market.

  1. Restrictions on the ownership of pharmacies have been repealed

The big change introduced by the new law is certainly that corporate entities may now own a pharmacy business, including the relevant authorisation. Furthermore, the limit of maximum four pharmacies that may be owned by an association or non-corporate entities has been repealed. As a consequence, there are currently no limits as to the number of pharmacies that may be owned by corporate entities or associations of pharmacists. However, it is now provided for that each owner cannot directly or indirectly control than 20% of the pharmacies located within the same region or an autonomous province. The limit has been imposed in order to ensure the competition on the market in the relevant district.

Moreover, the new law does not require anymore that the managing director of the pharmacy is an owner of the pharmacy, being however still necessary that the appointed individual is a licensed pharmacist qualified as eligible to run a pharmacy according to Italian law. Clearly, this provides a greater leeway to corporate owners for the organisation of the business, as it should not be difficult for corporate investors to find on the Italian market professionals in possession of the needed requirements. Finally, the new law has repealed the restrictions to the opening hours of pharmacies that now are allowed to provide a round-the-clock service to their customers.

  1. Other restrictions are here to stay

Pharmacy business in Italy remains a highly a regulated activity. Most of the restrictions provided for by the law, e.g. as to the number of authorisations that are issue in a given district by the competent authorities, distribution on the territory, tenders for their assignment and qualification for the eligibility to own a pharmacy, have remained untouched.

As the unamended provisions were enacted having in mind a clearly different legal framework, the legislative changes may require an additional effort in the interpretation in order to understand how and to which extent the old law should be applied to corporate owned pharmacies.

  1. New investment opportunities in sight on the Italian market

The limitations that still remain in force should not prevent new investors from entering the Italian pharmacy business by acquiring existing authorisations and on-going businesses. The door is now open to new business models in the pharmaceutical distribution, including the establishment of pharmacy retail chains.

The opportunities associated to the recent legislative change needs to be further investigated, considering also the commercial and corporate structures that Italian law may offer to a potential investor in the pharmacy business. The exercise needs to be performed taking into account, at the same time, the complexity of the national regulation.