MERGERS AND ACQUISITIONS INPHARMACEUTICAL SECTOR

Prepared by:Anjali MehraICSI, New Delhi

INDIAN PHARMACEUTICAL

INDUSTRY

Introduction

Pharmaceutical industry in India is ranked 3rd in volume terms and 14th in value terms globally.

It is highly fragmented with more than 20,000 registered units.

It meets around 70% of the country’s demand for bulk drugs, drug intermediates, pharmaceutical formulations (patented & generic drugs), chemicals, tablets, capsules, orals and injectables.

The Indian pharmaceutical industry traditionally relied on “reverse engineering” i.e. product copying, through which vast profits were made.

Contd….

The pharmaceutical sector consists primarily of three types of players: bulk drugs producers, pure formulators, or integrated firms (which produce both bulk drugs and market formulations).

Pharmaceutical companies deals in: Generic Drugs (produced & distributed without

patent) Brand Medications (produced & sold by the co.

that holds patent for the drug), and Medical Devices

Growth

Indian pharmaceutical industry is estimated to be worth US$4.5 billion, growing at about 8 to 9 per cent annually.

It is predicted that the Indian pharmaceuticals market will grow to US$55 billion in 2020; and if aggressive growth strategies are implemented, it has further potential to reach US$70 billion by 2020.

Ranbaxy Labs ; 7,686.59

Cipla ; 6,977.50

Dr. Reddy’s Labs ; 6,686.30Lupin ; 5,364.37

Aurobindo Pharma ; 4,284.63

Cadila Health ; 3,152.20

Jubilant Life ; 2,641.07

Wockhardt ; 2,560.16

IPCA Labs ; 2,352.59

GlaxoSmithKline ; 2,345.88

Top Pharmaceutical Companies in India by Net Sales (2011-12)

Net Sales in Rs. cr

Major Pharmaceutical Regulatory Bodies in India

Department of Chemicals & Petrochemicals:- Responsible for the policy, planning, development, and regulation of the chemical, petrochemical & pharmaceutical industries in India.

Central Drugs Standard and Control Organization:- Control the quality of drugs imported into the country, approval of new drugs proposed to be imported or manufactured in the country etc.

Contd….

National Pharmaceutical Pricing Authority:- Established to fix/revise the prices of controlled bulk drugs & formulations and to enforce prices & availability of the medicines in the country.

FDI Policy

FDI, up to 100 per cent, under the automatic route, is allowed for green field investments in the pharmaceuticals sector.

FDI, up to 100 per cent, is permitted for brown field investment (i.e. investments in existing companies), in the pharmaceutical sector, under the government approval route.

Pharma Pricing Policy

Under this policy, 348 essential medicines will come under the Govt. price control.

The Group of Ministers finalised market based weighted average prices for all the drugs, which have a market share of more than 1%.

The weighted average price of products having over 1% market share would be taken as the maximum retail price.

Mergers & Acquisitions in Pharmaceutical Sector

Merger and Acquisition ‘Merger’ refers to a combination of two or more

companies into a single company whereby the assets and liabilities of one are vested in the other, with the effect that the former enterprise loses its identity.

‘Acquisition’ means an act of acquiring effective control by one company over assets or management of another company without any combination of companies. In this, two or more companies may remain independent and enjoy separate legal entities, but there may be a change in control of the companies.

Regulations governing M&As in India

The Companies Act, 1956 (Section 391-394) The SEBI (Substantial Acquisition of Shares &

Takeovers) Regulations, 2011 The Foreign Exchange Management Regulation,

2000 The Income Tax Act, 1961 The Competition Act, 2002 (Section 5, 6, 20, 29, 30,

& 31)

Mergers & Acquisitions in the pharmaceutical sectors have grown considerably in the past few years.

Large pharmaceutical companies enter into transactions so as to maintain their market share and to reduce competition with other new generation drugs.

Now, it is important to pay particular attention to whether such mergers are creating barriers to generic entry or causing potential harm to innovation.

M&As Deals (Outbound)Company (Acquirer) Company (Target) For Amount

Biocon Axicorp (German) $30 million

Dr. Reddy’s Labs Trigenesis Therapeutics (USA) $11million

Wockhardt Esparma (German) $11million

Wockhardt C. P. Pharmaceuticals (UK) $17.9 million

Wockhardt Negma Laboratories (France) $265 million

Wockhardt Morton Grove Pharma (USA) $38 million

Zydus Cadila Alpharma (France) Euros 5.5 million

Ranbaxy RPG Aventis (France) $70 million

Nicholas Piramal Biosyntech (Canada) $4.85 million

Sun Pharma Taro (Israel) $500 million

Cadila Healthcare Quimica e Farmaceutica Nikkho $26 million

M&As Deals (Inbound)Company (Acquirer) Company (Target) For Amount

Daiichi Sankyo (Japan) Ranbaxy (India) $4.2 billion

Abbott (USA) Piramal (India) $3.72 billion

Sanofi Aventis Shantha (India) $783 million

Mylan (USA) Matrix (India) $736 million

Reckitt Benckiser Paras (India) $724 million

Hospira Orchid (India) $400 million

Fresenius Kabi (German) Dabur Pharma (India) $219 million

Abbott (USA) Wockhardt (India) $22.5 million

Reasons for M&As

Absence of proper R&D facilities Increase in market share Generic competition Growing Indian population Increase in chronic diseases Gradual expiry of patents Product/Brand extension etc.

Daiichi-Ranbaxy Deal

Largest in the India 8th in largest in the global generic pharmaceuticals Serving in over 125 Countries Ground operations in 49 countries & Manufacturing in 11 countries Strong R&D Base

2nd largest in Japan 22nd Largest in the world Operations in 50 countries Producer of high quality drugs

15th Largest drug maker in the worldMarket Capitalization–$30 Billion Low cost production

The Deal Daiichi-Sankyo acquired 34.8% stake in Ranbaxy

on 11th June, 2008. It made an open offer to the Ranbaxy shareholders

for another 20%. Picked up another 9.12% through preferential

allotment. It was an all cash transaction. Size of the deal: approx. US$ 4.6 Billion. As per the deal, total value of Ranbaxy was US$ 8.5

billion.

Strategic Objectives Behind The Deal Presence in emerging markets for Daiichi-Sankyo. Entry into non-proprietary drugs for Daiichi-Sankyo

(Product Extension). To develop new drugs to fill the gaps and take advantage of Ranbaxy’s strong areas.

The acquisition of Ranbaxy by Daiichi represents a major entry for the Japanese firm into the high growth business areas of generic drug.  The acquisition shows that global pharma companies are making efforts to cope up with strong generic drug makers.

Conclusion

Consolidation in Indian pharmaceutical industry could lead to increase in prices of drugs, reduce availability of drugs in domestic market etc.

Due to such effects of increasing consolidation, it would be the consumer who would suffer the most. Therefore, the law should specifically empower and require the antitrust enforcement agencies to review & respond to concerns arising from combinations in the pharmaceutical industry.

It is also important to assess the impact of combinations on innovations as M&As in innovations markets may pose a threat for subsequent entry of new products by stifling competition at the R&D and product development stage.

Thank you!