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I.D. NO. 534

INTRODUCTION ...................................................................................................................5
MERGERS OR AMALGAMATIONS ......................................................................................................7
ACQUISITIONS AND TAKEOVERS .......................................................................................................7
REGULATIONS GOVERNING MERGERS AND ACQUISITIONS IN INDIA ..........................................................8

UNDERSTANDING THE PHARMACEUTICAL INDUSTRY.....................................13

SWOT ANALYSIS OF INDIAN PHARMACEUTICAL INDUSTRY ....................................................................15
CURRENT SCENARIO ....................................................................................................................17
MAJOR PHARMACEUTICAL COMPANIES ...........................................................................................18
CHALLENGES .............................................................................................................................19
REGULATORY FRAMEWORK ..........................................................................................................20
FDI POLICY IN PHARMACEUTICAL SECTOR .........................................................................................22
NEW PHARMA PRICING POLICY ......................................................................................................23
INDIAN PHARMACEUTICAL SECTOR: FUTURE SCENARIO .......................................................................24


MERGERS AND ACQUISITIONS TREND IN INDIA ..................................................................................26
MERGERS AND ACQUISITIONS- CHALLENGE ......................................................................................27
GLOBAL SCENARIO ......................................................................................................................28
INDIAN SCENARIO ......................................................................................................................29

CONCLUSION ......................................................................................................................35
BIBLIOGRAPHY ..................................................................................................................37

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Mergers and Acquisitions in

Pharmaceutical Sector
The Indian pharmaceutical industry currently tops the chart amongst Indias science-based
industries with wide ranging capabilities in the complex field of drug manufacture and
technology. It not only caters to the domestic market in fulfilling the countrys demands but
also exports high quality, low cost drugs to more than 220 countries including USA, Russia,
Singapore, South Africa, Kenya, Malaysia, Nigeria, Ukraine, Vietnam and more. It ranks very
high amongst all the third world countries, in terms of technology, quality and the vast range
of medicines that are manufactured. Pharmaceutical Industry in India is one of the largest and
most advanced among the developing countries1. It is ranked 3rd in volume terms and 14th in
value terms globally. From simple headache pills to sophisticated antibiotics and complex
cardiac compounds, almost every type of medicine is now made indigenously.
The Indian pharmaceutical sector is highly fragmented with more than 20,000 registered units.
The pharmaceutical industry in India meets around 70% of the countrys demand for bulk
drugs, drug intermediates, pharmaceutical formulations (patented & generic drugs), chemicals,
tablets, capsules, orals and injectables. There are approximately 250 large units and about 8000
Small Scale Units, which form the core of the pharmaceutical industry in India (including 5
Central Public Sector Units: Indian Drugs & Pharmaceuticals Ltd., Hindustan Antibiotics Ltd.,
Bengal Chemical and Pharmaceuticals Ltd., Bengal Immunity Ltd., Smith Stanistreet
Pharmaceuticals Ltd.).
The sector comprises of quality producers and many units approved by regulatory authorities
in USA and UK. International companies associated with this sector have stimulated, assisted
and spearheaded this dynamic development and helped to put India on the pharmaceutical map
of the world. The Indian pharmaceutical sector is now undergoing change.
In the 1970s, the Government of India implemented a series of policy measures to achieve selfsufficiency in pharmaceutical production including legislation of the Indian Patent Act, 1970,
Drug Price Control Order, Foreign Exchange Regulation Act and increasing the import tariff
to promote the domestic industry, so as to enable the industry to meet the requirements of the
Indian population. The Patents Act, 1970 abandoned product patent protection for

Includes USA, Japan and Europe.

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medicines and allowed only process patent protection for pharmaceutical inventions. As a
result, Indian companies could produce new medicines which had been introduced in the
international market but were not available to needy patients in India. This made possible the
production and sale of new medicines at affordable prices. These policy initiatives during this
period cumulatively made India not only self-sufficient but also a net exporter of generic
medicines. While the Indian pharmaceutical industry recorded spectacular growth from 1991
till the first half of the 2000s, it is now facing serious threats to its self-sufficiency and ability
to compete in the generic medicines market. Much of which is due to the country's reintroduction, on January 1st, 2005, of a system of product patents; before which, only patents
for processes were permitted to be issued, a fact that had been instrumental in the domestic
industry's huge success as a worldwide exporter of high quality generic drugs. The new patent
regime has also led to the return of the pharmaceutical multinationals, many of which had left
India during the 1970s. Now they are back, and looking at India not only for its traditional
strengths in contract manufacturing but also as a highly attractive location for research and
development (R&D), particularly in the conduct of clinical trials and other services.
Over the last few years, Indian pharmaceutical companies have been increasingly targeted by
multinationals for both joint venture agreements as well as for acquisition. Some of the recent
collaborations include Bayer and Zydus Cadila agreeing to set up a joint venture called Bayer
Zydus Pharma (BZP), for the sales and marketing of pharmaceutical products in India, Sun
Pharma working with MSD (Merck & Co) to market and distribute Merck's Januvia
(sitagliptin) and Janumat (sitagliptin+metformin), Lupin-Lilly agreed to enter into
collaboration to promote and distribute Lillys Huminsulin range of products in India and
Nepal, Biocon-Pfizer JV collaboration to give Pfizer exclusive rights to commercialize Biocon
products globally including co-exclusive rights with Biocon in Gernmany, India and Malaysia,
etc. Some of the Indian pharmaceutical companies that have been acquired by MNCs in recent
times include US$ 4.6 billion acquisition of Ranbaxy by Daiichi Sankyo of Japan, Mylan taking
over Matrix Labs, Sanofi buying Shantha for US$ 783 million in 2008, Abbott of USA buyout
Piramal Healthcare in 2010, Aventis acquired Universal Medicines for over US$ 100 million
This report highlights the structure, regulatory framework, top market players, competitive
scenario etc. of the Indian Pharmaceutical Industry and presents a review of major Mergers
and Acquisitions in Indian pharmaceutical industry and the reasons of the said mergers and

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Mergers or Amalgamations
A merger is a combination of two or more businesses into one business. Laws in India use the
term 'amalgamation' for merger. The Income Tax Act, 1961 [Section 2(1B)] defines
amalgamation as the merger of one or more companies with another or the merger of two or
more companies to form a new company, in such a way that all assets and liabilities of the
amalgamating companies become assets and liabilities of the amalgamated company and
shareholders not less than three-fourths in value of the shares in the amalgamating company or
companies become shareholders of the amalgamated company.
Thus, mergers or amalgamations
may take two forms:Merger through Absorption
Merger through Consolidation
Besides, there are three
major types of mergers:Horizontal merger

Vertical merger

Conglomerate merger

Acquisitions and Takeovers

An acquisition is the purchase of one business or company by another company or other
business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership
equity of the acquired entity. Thus, in an acquisition two or more companies may remain
independent, separate legal entities, but there may be a change in control of the companies. The
strategy of acquiring control over the management of another company either directly by
acquiring shares carrying voting rights or by participating in the management is generally
referred to as takeover. Takeovers may be broadly classified into hostile takeovers and
friendly takeovers. When an acquisition is 'forced' or 'unwilling', it is called a hostile takeover.
In an unwilling acquisition, the management of 'target' company would oppose a move of being
taken over. But, when managements of acquiring and target companies mutually and willingly
agree for the takeover, it is called friendly takeover.

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Regulations governing Mergers and Acquisitions in India

Mergers and acquisitions are regulated under various laws in India. The objective of the laws
is to make these deals transparent and protect the interest of all shareholders. They are regulated
through the provisions of:-

The Companies Act, 1956

The scheme of merger/amalgamation is governed by the provisions of Section 391-394 of

Companies Act 1956. The summary of legal procedures for mergers or acquisition laid down
in the Companies Act, 1956 is given here below:
Permission for merger: - Two or more companies can amalgamate only when the
amalgamation is permitted under their memorandum of association. Also, the acquiring
company should have the permission in its object clause to carry on the business of the acquired
company. In the absence of these provisions in the memorandum of association, it is necessary
to seek the permission of the shareholders, board of directors and the Company Law Board
before affecting the merger.
Information to the stock exchange: - The acquiring and the acquired companies should
inform the stock exchanges (where they are listed) about the merger.
Approval of board of directors: - The board of directors of the individual companies should
approve the draft proposal for amalgamation and authorise the managements of the companies
to further pursue the proposal.
Application in the High Court: - An application for approving the draft amalgamation
proposal duly approved by the board of directors of the individual companies should be made
to the High Court.
Shareholders' and creditors' meetings: - The individual companies should hold separate
meetings of their shareholders and creditors for approving the amalgamation scheme. At least,
75 per cent of shareholders and creditors in separate meeting, voting in person or by proxy,
must accord their approval to the scheme.
Sanction by the High Court: - After the approval of the shareholders and creditors, on the
petitions of the companies, the High Court will pass an order, sanctioning the amalgamation
scheme after it is satisfied that the scheme is fair and reasonable. The date of the court's hearing
will be published in two newspapers, and also, the regional director of the Company Law Board
will be intimated.
Filing of the Court order: - After the Court order, its certified true copies will be filed with
the Registrar of Companies.
Transfer of assets and liabilities: - The assets and liabilities of the acquired company will
be transferred to the acquiring company in accordance with the approved scheme, with effect
from the specified date.
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Payment by cash or securities: - As per the proposal, the acquiring company will exchange
shares and debentures and/or cash for the shares and debentures of the acquired company.
These securities will be listed on the stock exchange.

The Competition Act, 2002

The Act regulates the various forms of business combinations through Competition
Commission of India. Provisions relating to combinations include Section 5, 6, 20, 29, 30 and
31 of Competition Act, 2002. Section 5 of the Act defines combination by providing threshold
limits on assets and turnovers. At present, any acquisition, merger or amalgamation falling
within the ambit of the thresholds constitutes a combination. According to Section 6 of the Act
no person or enterprise shall enter into a combination, in the form of an acquisition, merger or
amalgamation, which causes or is likely to cause an appreciable adverse effect on competition
in the relevant market and such a combination shall be void. A
combination is either a merger of two enterprises or the acquisition of the control, shares,
voting rights or assets of an enterprise or an enterprise that belongs to a group if it meets the
jurisdictional requirements. Although the Act does not expressly so state, the term
combination include horizontal, vertical and conglomerate mergers.
Further, CCI on May 11, 2011 issued the Competition Commission of India (Procedure in
regard to the transaction of business relating to combinations) Regulations, 2011
(Combination Regulations). These Combination Regulations will now govern the manner
in which the CCI will regulate combinations which have caused or are likely to cause
appreciable adverse effect on competition in India (AAEC).
Under the Act, Enterprises intending to enter into a combination have to give notice to the
Commission. But, all combinations do not call for scrutiny unless the resulting combination
exceeds the threshold limits in terms of assets or turnover as specified by the Competition
Commission of India. The Commission while regulating a 'combination' shall consider the
following factors:

Actual and potential competition through imports;

Extent of entry barriers into the market;
Level of combination in the market;
Degree of countervailing power in the market;

Possibility of the combination to significantly and substantially increase prices

or profits;
Extent of effective competition likely to sustain in a market;
Availability of substitutes before and after the combination;

Market share of the parties to the combination individually and as a


Possibility of the combination to remove the vigorous and effective competitor

or competition in the market;
Nature and extent of vertical integration in the market;
Nature and extent of innovation;

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Whether the benefits of the combinations outweigh the adverse impact of the

Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate
their harmful effects.

The Foreign Exchange Management Act, 1999

FEMA is regulating the cross border mergers and acquisitions. The foreign exchange laws
relating to issuance and allotment of shares to foreign entities are contained in The Foreign
Exchange Management (Transfer or Issue of Security by a person residing outside India)
Regulation, 2000 issued by RBI vide Notification No. FEMA 20/2000-RB dated 3rd May,
2000. These regulations contained general provisions for inbound and outbound cross border
mergers and acquisitions in India. Under these provisions once the scheme of merger or
amalgamation of two or more Indian companies has been approved by a court in India, the
transferee company or new company is allowed to issue share to the shareholders of the
transferor company resident outside India subject to the condition that:

The percentage of shareholding of persons resident outside India in the transferee or

new company does not exceed the sectoral cap.

The transferor company or the transferee or the new company is not engaged in
activities, which are prohibited in terms of FDI policy.

The Securities and Exchange Board of India Act, 1992

The Securities and Exchange Board of India (the SEBI) is the nodal authority regulating
entities that are listed on stock exchanges in India. The Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 has been repealed by the
Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (the Takeover Code) with effect from October 23, 2011. The
changes introduced in the new regulations are based substantially on the recommendations of
Achuthan Committee that the SEBI had set up to review the working of the 1997 Regulations.
The Takeover Code restricts and regulates the acquisition of shares, voting rights and control
in listed companies. Acquisition of shares or voting rights of a listed company, entitling the
acquirer to exercise 25% or more of the voting rights in the target company, obligates the
acquirer to make an offer to the remaining shareholders of the target company to further acquire
at least 26% of the voting capital of the company. However, this obligation is subject to the
exemptions provided under the Takeover Code. Exemptions from open offer requirement under
the Takeover Code inter alia include acquisition pursuant to a scheme of arrangement:
1) involving the target company as a transferor company or as a transferee company, or
reconstruction of the target company, including amalgamation, merger or demerger,
pursuant to an order of a court or a competent authority under any law or regulation,
Indian or foreign; or
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2) arrangement not directly involving the target company as a transferor company or as a

transferee company, or reconstruction not involving the target companys undertaking,
including amalgamation, merger or demerger, pursuant to an order of a court or a
competent authority under any law or regulation, Indian or foreign, subject to (a) the
component of cash and cash equivalents in the consideration paid being less than
twenty-five per cent of the consideration paid under the scheme; and (b) where after
implementation of the scheme of arrangement, persons directly or indirectly holding at
least thirty-three per cent of the voting rights in the combined entity are the same as the
persons who held the entire voting rights before the implementation of the scheme.
Therefore if shares are acquired pursuant to a merger sanctioned by the Court under the Merger
Provisions, the above mentioned conditions are fulfilled then the acquirer need not make an
open offer for acquisition of additional shares under the Takeover Code.
The compliances under SEBI involve the following steps:
1) Acquirer must make a public announcement of the offer price, the number of shares to
be acquired from the public, identity of acquirer, purpose of acquisition, plans of
acquirer, change and control over the target company and period within which the
formalities would be completed.
2) The acquirer must make a public announcement through a merchant banker within 4
working days of entering into an agreement of acquiring shares or voting rights of the
target company.
3) Relevant documents should be filed with the SEBI which include a copy of the public
announcement in the newspaper, the draft, letter of offer and a due diligence certificate.
4) Correct and adequate information must be disclosed and comments should be
incorporated by SEBI.
5) Letter of offers to shareholders of the target company must be sent within 45 days of
the public announcement. The offer remains open for 30 days for acceptance by the
6) The acquirer should determine the offer price after considering the relevant parameters.
Once an offer is made an acquirer cannot withdraw it except unless the statutory
approvals have been refused, the sole acquirer has died or if the SEBI merits the
withdrawal of the offer.

The Income Tax Act, 1961

Amalgamation defined under Section 2(1B) of the Income Tax Act, 1961 means the merger of
one or more companies with another company or the merger of two or more companies to form
a new company in such a manner that the following conditions can be satisfied:-

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1) All the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the
2) All the liabilities of the amalgamating company or companies immediately before the
amalgamation become the liabilities of the amalgamated companies by virtue of the
3) Shareholders holding at least three-fourths in value of the shares in the amalgamating
company or companies (other than shares already held therein immediately before the
amalgamated company or its nominee) becomes the shareholders of the amalgamated
company by virtue of the amalgamation.
Tax Concessions
If any amalgamation takes place within the meaning of Section 2(1B) of the Act, the
following tax concession shall be available:
1) Tax concession to amalgamating company
2) Tax concession to shareholders of the amalgamating company
3) Tax concession to amalgamated company
1) Tax Concession to amalgamating company: Capital Gains tax not attracted: According to
Section 47(vi) where there is a transfer of any capital asset in the scheme of amalgamation, by
an amalgamating company to the amalgamated company, such transfer will not be regarded as
a transfer for the purpose of capital gain provided the amalgamated company, to whom such
assets have been transferred, is an Indian company.
2) Tax concessions to the shareholders of an amalgamating company [Section 47(vii)]:
Whereas shareholder of an amalgamating company transfers his shares, in a scheme or
amalgamation, such transaction will not be regards as a transfer for capital gain purposes, if
following conditions are satisfied:

The transfer of shares is made in consideration of the allotment to him of any share or
shares in the amalgamated company, and
The amalgamated company is an Indian company

The cost of acquisition of such shares of the amalgamated company shall be the cost or
acquisition of the shares in the amalgamating company. Further, for computing the period of
holding of such shares, the period for which such shares were held in the amalgamating
company shall also be included.
3) Tax concessions to the amalgamated company: The amalgamated company shall be
eligible for tax concessions only if the following two conditions are satisfied:

The amalgamation satisfies all the three conditions laid down in Section 2(1B), and
The amalgamated company is an Indian company

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The word pharmaceutical comes from the Greek word Pharmakeia. The modern
transliteration of Pharmakeia is Pharmacia. The pharmaceutical industry develops, produces
and markets drugs or pharmaceuticals licensed for use as medications.
Worldwide, the pharmaceutical industry operates in two categories namely, innovative and
generic. Innovative companies are those that create knowledge and spend a lot of money on
R&D to develop new medicines. Generic companies are adoptive in name and permit copying
of medicines only after the expiry of the patent or for unpatented drugs. They copy the
knowledge already created by innovative companies and charge low prices since they do not
incur any basic research cost. Based on this categorization, globally, pharmaceutical companies
deal in two categories of pharmaceutical products namely generic2 and/or brand medications3
and medical devices. They are subject to a variety of laws and regulations regarding the
patenting, testing and ensuring safety and efficacy and marketing of drugs.
In India, the pharmaceutical products are generally categorised as branded medicines, brandedgenerics and generic medicines4. The basis of distinction between branded medicines, brandedgenerics and generic medicines categorization is as follows:

Branded medicines: contain one or more ingredients marketed under brand names
given to them by their manufacturers in India. These are normally promoted to doctors.
[In western countries brand-name medicines are defined differently: the term refers to
new drugs developed by the innovator patent holding companies].

Branded-generics: is an exclusively Indian terminology and refers to branded products

[same as category (a) above] but not promoted to the medical profession but marketed
through heavy incentives to retail chemists.
Generic medicines: are those which are marketed under their chemical/salt names.
[In western countries generic medicines are defined differently i.e. products that

A generic drug (short: generics) is a drug which is produced and distributed without patent

A brand name drug is a medication sold by a pharmaceutical company under a trademarkprotected name. Brand name medications can only be produced and sold by the company that
holds the patent for the drug. Brand name drugs may be available by prescription or over the

Department-related parliamentary standing committee on health and family welfare fortyfifth report on Issues relating to availability of generic, Generic-branded and branded
medicines, their formulation and therapeutic efficacy and effectiveness.
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contain the same ingredient(s) as brand-name medicines but are manufactured after the
expiry of patents by companies other than innovators. These are marketed under new
brand names].
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).
Bulk drugs form the therapeutically relevant active pharmaceutical ingredients (APIs)5 that are
processed further to prepare formulations eventually consumed by patients. A drug formulation
is in product form, which is ultimately administered to the user. According to estimates, the
proportion of formulations and bulk drugs is in the order of 75:25. There are over 60,000
formulations manufactured in India in more than 60 therapeutic segments6. More than 85% of
the formulations produced in the country are sold in the domestic market. India is largely selfsufficient in case of formulations, though some lifesaving, new-generation-technology-barrier
formulations continue to be imported.
The Indian pharmaceutical industry has the highest number of plants approved by the US Food
and Drug Administration outside the US. It also has the large number of Drug Master Files
(DMFs)7 which gives it access to the high growth generic bulk drugs market. The industry now
produces bulk drugs belonging to all major therapeutic groups requiring complicated
manufacturing processes and has also developed good manufacturing practices
(GMP) compliant facilities8 for the production of different dosage forms.
Setting up a plant is 40% cheaper in India compared to developed countries and the cost of
bulk drug production is 60-70 per cent less. The strength of the industry is in developing cost
effective technologies in the shortest possible time for drug intermediates and bulk activities
without compromising on quality.
The Indian pharmaceutical industry traditionally relied on reverse engineering i.e. product
copying, through which vast profits were made. In recent years, however, the larger domestic
companies have realised the need to undertake original research and/or penetrate into the
regulated generics markets in the USA/EU in order to survive in the global market. At the

Any substance or combination of substances used in a finished pharmaceutical product,

intended to furnish pharmacological activity or to otherwise have direct effect in the diagnosis,
cure, mitigation, treatment or prevention of disease, or to have direct effect in restoring,
correcting or modifying physiological functions in human beings.

Like anti biotics & anti bacterials, anti-cold & anti cough, vitamins & tonics , anti malarials,
skin creams including sunscreens, eye drops, ear drops etc.

DMF is a document prepared by a pharmaceutical manufacturer & submitted solely at its

discretion to the appropriate regulatory authority in the intended drug market and it
contains complete information on an API or finished drug dosage form.

A GMP Facility is a production facility or a clinical trial materials pilot plant for the
manufacture of pharmaceutical products. It includes the manufacturing space, the storage
warehouse for raw and finished product, and support lab areas.
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same time, the Indian pharmaceutical industry is renowned for supplying affordable generic
versions of patented drugs for illnesses like HIV/AIDS to some of the worlds poorest
The demand for pharmaceutical products in India is significant and is driven by low drug
penetration, rising middle-class & disposable income, increased government & private
spending on healthcare infrastructure, increasing medical insurance penetration etc.

SWOT Analysis of Indian Pharmaceutical Industry

The SWOT analysis of the industry reveals the position of the Indian pharmaceutical industry
in respect to its internal and external environment.


Cost competitiveness due to lower labour cost and production cost;

Well-developed industry with strong manufacturing base;

Well established network of Laboratories and R&D infrastructure for new drug
discovery and development;
Access to pool of highly trained and skilled scientists, both in India and abroad;

Strong marketing and distribution network in domestic as well as international market;

India is second largest country in terms of population in world with rich biodiversity;

Expertise in reverse engineering and development of new Chemical process made

Indian pharmaceutical industry as one of the strongest generic industry.

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Low investment in innovative Research & Development;

Lack of resources to compete with MNCs for New Drug Discovery Research and to
commercialize molecules on a worldwide basis;
Lack of strong linkages between industries and academia;
Lack of culture of innovation in the industry;
Low per capita medical expenditure and healthcare spend in country;
Inadequate regulatory standards;

Production of spurious and low quality drugs tarnishes the image of industry at home
and abroad.


Significant export potential to the developing as well as developed countries;

Licensing deals and collaborations with MNCs for New Chemical Entities and New
Drug Delivery Systems;
Providing marketing operations to sell MNC products in domestic market;

India can be niche player in global pharmaceutical R&D by developing world class
Contract manufacturing arrangements with MNCs;
Potential for developing India as a centre for International Clinical Trials;
Increasing incomes and buying power of people especially in rural areas has opened
the great opportunity for Indian pharma companies. Around 70% of the total population
of India is residing in rural areas;
Growing awareness for health and increasing spending on health.


Product patent regime poses serious challenges to domestic industries unless it invests
in R&D;

R&D efforts of Indian pharmaceutical companies hampered by lack of enabling

regulatory requirement. For instance, restrictions on animal testing out-dated patent

DPCO (Drug Price Control Order) puts unrealistic ceilings on product prices and
profitability and prevents pharmaceutical companies from generating investible

Entry of foreign players (well-equipped technology based products) into the Indian

Transformation of process patent9 to product patent10;

It is granted for a new process of manufacturing an already known product or for

manufacturing a new product, or for manufacturing more articles of the same product that
is reducing the cost of the already known product.
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Current Scenario
Indian pharmaceutical industry is estimated to be worth US$4.5 billion, growing at about 8 to
9 per cent11 annually. It grew at 15.7 per cent during December 2011. According to McKinsey,
by 2015 it is expected to reach top 10 in the world beating Brazil, Mexico, South Korea and
McKinsey & Companys report, India Pharma 2020: Propelling access and acceptance,
realizing true potential, predicted that the Indian pharmaceutical 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. While, Market Research firm Cygnus report forecasts that the
Indian bulk drug industry will expand at an annual growth rate of 21 per cent to reach US$16.91
billion by 2014. On the other hand, formulation industry is expected to grow at 17% CAGR
(compound annual growth rate) to reach US$21 billion in FY 2012.
As per the IMS Prognosis Report of 2011, Indias pharmaceutical spending has been steadily
increasing. It ranked 15 in 2005, 12 in 2011 and is expected to escalate up to 8 by 2015. Some
statistics as of mid-2011 are as below:

Pharmaceutical Statistics
Total turnover in US$

26 billion

Total Value of domestic market in US$ in 2010

12 billion

Total exports in US$

13.9 billion

Formulation exports

5.8 billion

API exports

8.1 billion

%Volume of global production


%Value of global production


Employment generation (direct and indirect)

Approx. 42 lakh

FDI Between April 2000-2010 in US$

1707.52 million


It is granted when a new product has been invented by the person. The product so invented
may either be more or less useful product than an already known product , or a new product

According to A Brief Report Pharmaceutical Industry in India, published in January

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Major Pharmaceutical Companies

India based pharmaceutical companies are not only catering to the domestic market and
fulfilling the countrys demands, they are also exporting to around 220 countries. They are
exporting high quality, low cost drugs to countries such as the US, Kenya, Malaysia, Nigeria,
Russia, Singapore, South Africa, Ukraine, Vietnam, and more. Currently, the US is the biggest
customer and accounts for 22 per cent of the sectors exports, while Africa accounts for 16 per
cent and the Commonwealth of Independent States (CIS) places around eight per cent of orders,
as per Research and Market report.
For most of the pharma companies, domestic business contributes in the range of 20-50% of
the overall revenue. US business contribution stands at 20-30% and remaining comes from the
RoW (Rest of the World) markets12.
Top Companies in India by Net Sales (2011-12)


Net Sales (Rs. cr.)

Ranbaxy Labs




Dr. Reddys Labs




Aurobindo Pharma


Cadila Health


Jubilant Life








Most of the Pharma companies have shown considerable decline in growth in the first half of 2011.
The slowdown is widely visible in the Chronic and Acute categories. Anti-invective, pain and
gastro together contribute 1/3rd of the total pharma market. The pharma companies have started
facing challenges in domestic market due to increase in competition from unlisted MNCs

Includes more than 35 different markets entailing South East Asia, Asia Pacific, Africa
& Middle East.
Page 18

in this segment. They are rapidly expanding their field force to extend their geographical reach.
Companies like Cipla, Torrent and IPCA which are mainly focused on Indian market are already
feeling the heat. Growth rates of companies such as Cadila, Dr. Reddy and Ranbaxy have already
come down.
Basing on the changing macro factors and economic growth Emkay Research has expected the
growth estimates of the pharma companies to decrease. It cut down the domestic growth estimates
for Cadila, Cipla, Dr. Reddy, IPCA, Sun Pharma and Unichem for FY12 and FY13 by 2% to 5%
and retained the growth estimates for Lupin, Ranbaxy, GlaxoSmithKline, Pfizer, Torrent and

Indian Pharma Domestic Growth Expectations13


FY12 Domestic

Earlier growth

Cadila Health






Dr. Reddys Labs






Sun Pharma









Ranbaxy Labs















Source: Emkay Research

Every industry has its own sets of advantages and disadvantages under which they have to
work; the pharmaceutical industry is no exception to this. Some of the challenges the industry
faces are:

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Regulatory obstacles
Lack of proper infrastructure
Lack of qualified professionals
Expensive research equipments
Lack of academic collaboration
Underdeveloped molecular discovery program
Divide between the industry and study curriculum

Regulatory Framework in Pharmaceutical Sector in India

The pharmaceutical industry is heavily regulated. All aspects of the life-cycle of new drugs are
regulated, from patent application to marketing approval, commercial exploitation, patent
expiration and competition with generics. All the important actors in the pharmaceutical
industry the manufacturers, wholesalers, retailers and prescribing physicians are also subject
to regulatory controls.
Medicines apart from their critical role in alleviating human suffering and saving lives have
very sensitive and typical dimensions for a variety of reasons. They are the only commodity
for which the consumers have neither a role to play nor are they able to make any informed
choices except to buy and consume whatever is prescribed or dispensed to them.
While drug regulators decide which medicines can be marketed - pharmaceutical companies
either produce or import drugs that they can profitably sell - doctors decide which drugs and
brands to prescribe, the consumers are totally dependent on and at the mercy of external entities
to protect their interests. It is because of these typical dimensions that the state undertakes to
regulate the import, manufacture and sale of medicines so as to ensure that they are both safe,
effective and of standard quality.
Drug regulation covers many functions, namely, marketing approval of new medicines based
on safety and efficacy studies, licensing and monitoring of manufacturing facilities and
distribution channels, post-marketing adverse drug reaction (ADR) monitoring, quality control
(QC), periodic review and re-evaluation of approved drugs, control of drug promotion
Regulation of drug trials.
While most functions pertaining to drug regulation come under the jurisdiction of Central
Government and are carried out by the Central Drug Standards Control Organization
(CDSCO), others viz. licensing and monitoring of manufacturing units and distribution
channels; quality control etc. are carried on by state level drugs authorities under the
administrative control of state governments. Drugs and Cosmetics Act, 1940 and Rules, 1945,
Drugs & Magic Remedies (Objectionable Advertisements) Act, 1954 as amended from time to
time are the principal legislations that govern the functioning of CDSCO and state drug

Page 20

Regulatory Legislations:
1. Relevant legislations (includes but not limited to the following):

Drugs and Cosmetics Act, 1940.

Drugs and Cosmetics Rules, 1945.
Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954.
The Indian Medical Council Act, 1956.
Indian Medical Council (Professional conduct, Etiquette and Ethics) Regulations, 2002
Drug Price Control Order, 1995.
Essential Commodities Act (Section 3)

2. Some Relevant policies

Draft National Pharmaceutical Pricing Policy, 2011

3. Regulatory agencies

Central Drug Standard Control Organization (CDSCO).

Drug Controller General of India (DCGI)
Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers
National Pharmaceutical Pricing Authority (NPPA)
State level: State Drug Controllers and Inspectors

Other key laws that affect pharmaceutical sector include:

Competition Act, 2002
Indian Patent Act, 1970
TRIPS Agreement

Major Pharmaceutical Regulatory Bodies in India:

Department of Chemicals & Petrochemicals (DCP)14

DCP is responsible for the policy, planning, development, and regulation of the chemical,
petrochemical, and pharmaceutical industries in India. This department aims:

To provide impartial and prompt services to the public in matters relating to chemical,
pharmaceutical and petrochemical industries.
To take steps to speedily redressal of grievances received.
To formulate policies and initiate consultations with Industry associations and to amend
them whenever required.

Central Drugs Standard and Control Organization (CDSCO)15

CDSCO lays down standards and regulatory measures of drugs, cosmetics, diagnostics and
devices in the country. It regulates clinical trials and market authorization of new drugs. It

Page 21

also publishes the Indian Pharmacopoeia. The main functions of the Central Drug Standard
Control Organization (CDSCO) include control of the quality of drugs imported into the
country, co-ordination of the activities of the State/Union Territory drug control authorities,
approval of new drugs proposed to be imported or manufactured in the country, laying down
of regulatory measures and standards of drugs and acting as the Central Licensing Approving
Authority in respect of whole human blood, blood products, large volume parenteral, sera and
vaccines. The CDSCO functions from 4 zonal offices, 3 sub-zonal offices besides 7 port
offices. The four Central Drug Laboratories carry out tests of samples of specific classes of

National Pharmaceutical Pricing Authority (NPPA)16

NPPA is an organization of the Government of India which was established, to fix/

revise the prices of controlled bulk drugs and formulations and to enforce prices and
availability of the medicines in the country, under the Drugs (Prices Control) Order,

The organization is also entrusted with the task of recovering amounts overcharged by
manufacturers for the controlled drugs from the consumers.

It also monitors the prices of decontrolled drugs in order to keep them at reasonable

FDI Policy in Pharmaceutical Sector17

The issue of FDI in existing Indian pharma companies started attracting government's attention
after some foreign firms acquired big Indian companies such as Ranbaxy by Daiichi Sankyo
of Japan, Shanta Biotech by Sanofi Aventis of France and Piramal Health Care's health unit by
Abbott Laboratories of the US.
As per the circular number 56 dated December 9, 2011, RBI has notified the new policy for
the foreign investment in Indian pharmaceutical companies. The reviewed policy is as under:

FDI, up to 100 per cent, under the automatic route, would continue to be permitted for
green field investments in the pharmaceuticals sector.

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

But, The Finance Ministry favours capping FDI in the pharmaceutical sector at 49 per cent in
existing units, whereas the DIPP has been supporting 100 per cent FDI through the FIPB route.
Now, The Department of Industrial Policies and Promotions (DIPP) is set to decide on 49 per
cent foreign direct investment for brownfield projects in pharmaceutical projects either through
automatic route or approval route.

Page 22

Under the proposed rules, for any merger or acquisition (M&A), the overseas investor will
have to seek permission from the Foreign Investment Promotion Board (FIPB). After six
months, it will be the monopoly watchdog Competition Commission of India (CCI) which will
vet such deals. This decision was taken after directions were received from the Prime Minister
along with the Cabinet members who had shown concerns arising out of several acquisitions
of domestic pharmaceutical companies by overseas firms. The above measures were suggested
by a high-level committee, headed by Planning Commission Member Arun Maira.
The FDI in the Indian pharmaceutical industry is mainly market- seeking. Indias advantage
for MNCs in the pharmaceutical industry is, first of all, the large domestic market with a 1.1
billion population and an annual increase of 2.2%. Indias large population and wide disease
pattern make the country attractive for pharmaceutical firms. Relatively cheap manpower and
skilled labour are other factors that attract foreign investors. India has an exceptional advantage
in pharmaceuticals due to its good human resources and highly skilled work force. English is
widely spoken, which makes communication easy for foreign investors. The production of
pharmaceuticals is also relatively cheap in India and there is a strong production base in the
country. It is easy to get good quality bulk drugs, which is attractive for foreign firms. Because
of Indias focus on reverse engineering and development of production processes, it has high
technical competence in production in the pharmaceutical industry, which makes its industry
attractive for foreign investors. The industry is also very highly competitive among suppliers,
which gives the MNCs a good bargaining position. India has many advantages for foreign
investors and consequently, the country has future potential to become an attractive destination
for outsourcing in drug discovery and clinical research.

New Pharma Pricing Policy18

A GOM, headed by Agriculture Minister Sharad Pawar on September 27, 2012 finalised a new
pharmaceutical pricing policy.19 In simple terms, under this policy 348 essential medicines will
come under the government price control. Till now, through the National Pharmaceutical
Pricing Authority (NPPA), the government controls prices of 74 bulk drugs and their
The Group of Ministers arrived at a consensus and finalised market based weighted average
prices for all the drugs, which have a market share of more than 1%. It includes the 348 drugs
but not their combinations. The weighted average price of products having over 1% market
share would be taken as the maximum retail price.
The government came out with this pricing control policy so that the most essential drugs gets
to the proverbial last man in the queue when they need them the most.
The aim behind pricing control policy is not about controlling the price of top brands. It is
about making affordable.
Page 23

Indian Pharmaceutical Sector: Future Scenario

The dream of Indian pharmaceutical companies for marking their presence globally and
competing with the pharmaceutical companies from the developed countries like Europe,
Japan, and United States is now coming true. The new patent regime has led many
multinational pharmaceutical companies to look at India as an attractive destination not only
for R&D but also for contract manufacturing, conduct of clinical trials and generic drug
research. With market value of about US$45 billion in 2005, the generic sector is expected to
grow to US$100 billion in the next few years.
The Indian companies are using the revenue generated from generic drug sales to promote drug
discovery projects and new delivery technologies. Contract research in India is also growing
at the rate of 20-25% per year. By revising its R&D policies the government is trying to boost
R&D in domestic pharmaceutical industry. It is giving tax exemption for a period of ten years
and relieving customs and excise duties of all the drugs and material imported or exported for
clinical trials to promote innovative R&D.
The future of Indian pharmaceutical sector is very bright because of the following factors:

Clinical trials in India cost US$25 million each, whereas in US they cost between
US$300-350 million each.

Indian pharmaceutical companies are spending 30-50% less on custom synthesis

services as compared to its global costs.

In India investigational new drug stage costs around US$10-15 million, which is almost
1/10th of its cost in US (US$100-150 million).

Page 24


The past two decades have effectuated a wave of change in India- liberalization, technological
advancements, globalization, and sustainable development to name a few. This includes a
major corporate development called Mergers and Acquisitions (M&A). There are several
causes of mergers and acquisitions in the pharmaceutical industry.20 Among them are:

Absence of proper research and development facilities or High cost of R&D

High valuation of Indian firms (Premium Value)
Increase in market share
Change in mind set of promoters
Generic competition

Manufacturing prowess and cost competitiveness of Indian companies [highest no. of

US FDA (Food & Drug Administration) approved plants outside US]
Geographical expansion
Emerging markets-future growth driver
Overcome barriers to entry
Product/Brand extension
Growing Indian population
Growing middle class with higher purchasing power (Increasing market)
Increase in chronic diseases
Low growth rate of global pharma
High profile product recalls: MNCs now focusing on pharmerging markets
Gradual expiry of patents etc.

A merger, acquisition, or co-marketing deal between pharmaceutical companies may occur as

a result of complementary capabilities between them. A small biotechnology company might
have a new drug but no sales or marketing capability. Conversely, a large pharmaceutical
company might have unused capacity in a large sales force due to a gap in the company pipeline
of new products. It may be in both companies' interest to enter into a deal to capitalize on the
synergy between the companies.
Besides mergers and acquisitions, Indian pharmaceutical companies are also following some
strategies for their growth in global market such as:

Page 25

Geographic diversification with few companies focussing on increasing presence in the

regulated markets and others exploring the developing/under-developed markets of the

Partnerships for supply of bulk drugs and formulations with the generic companies as
well as innovators.

For regulated markets such as the US, there are companies focussing on value added
generics, niche segments or patent challenges in the US.

Focus on offering research and manufacturing services on a contractual basis (CMOs

and CROs).

Apart from these strategies Indian companies have to devise newer strategies continuously to
survive in the highly competitive global market in an industry that is characterised by - high
capital requirement, high technical requirement, high process skills, high value addition
prospects, high export volumes, high market sophistication.

Impact of Mergers and Acquisitions on Indian Pharmaceutical Industry

The healthcare sector in India has experienced a paradigm a shift due to emerging trends in
globalization, developing markets, industry dynamics and increasing regulatory and
competitive pressures.
Companies across the world are reaching out to their counterparts to take mutual advantage of
the others core competencies in R&D, Manufacturing, Marketing and the niche opportunities
offered by the changing global pharmaceutical environment.
The pharmaceutical sector offers an array of growth opportunities. This sector has always been
dynamic in nature and the pace of change has never been as rapid as it is now. To adapt to these
changing trends, the Indian pharmaceutical companies have evolved distinctive business
models to take advantage of their inherent strengths and the "Borderless" nature of this sector.
These differentiated business models provide the pharmaceutical companies necessary
competitive edge for consolidation and growth.

Mergers and Acquisitions Trend in India

Mergers and Acquisitions (M&A) interest in India is currently very high in the pharmaceutical
industry. Size and end-to-end connectivity are major detriments in the global markets. To
achieve them, Western MNCs have to look to Indian companies. Indias changing therapeutic
requirements and patent laws will provide new opportunities for big pharmaceutical for
launching their patented molecules. While, Indias strong manufacturing base will stand global
generic companies in good stead as a low-cost development and manufacturing destination.

Page 26

Besides consolidation in the domestic industry and investments by the US and European firms,
the spate of mergers and acquisitions by Indian companies has ushered an era of the "Indian
Pharmaceutical MNC". After traversing the learning curve through partnerships and alliances
with international pharmaceutical firms, Indian pharmaceutical companies have now moved
up a step in the value chain and are looking at inorganic route to growth through acquisitions.
Many top and mid-tier Indian companies have gone on a global "shopping spree" to build up
critical mass in International markets. Also, given the easy access to global finance the Indian
companies are finding it easier to fund their acquisitions.
Incentives for Mergers and Acquisitions by Indian companies

Build critical mass in terms of marketing, manufacturing and research infrastructure;

Establish front end presence;

Diversification into new areas: Tap other geographies/therapeutic segments/customers

to enhance product life cycle and build synergies for new products;
Enhance product, technology and intellectual property portfolio;
Catapulting market share.

The Indian companies excel as far as the back end of the pharmaceutical value chain is
concerned i.e. manufacturing APIs and formulations. Over the past few years, the Indian
pharmaceutical companies have also stepped up their efforts in product development for the
global generic market and this is visible with the DMF filings at the US FDA. About 30% of
the new DMF filings at the US FDA are being filed by Indian companies.
Acquisitions are the quickest way to front end access. What is interesting is the fact that apart
from market access i.e. marketing and distribution infrastructure, the acquiring company also
gets an established customer base as well as some amount of product integration (the acquired
entities generally have a basket of products) without the accompanying regulatory hurdles.
There are also entry barriers for companies from the developing countries, and acquisitions
make it easy for these organizations to find a foothold in the developed markets.

Mergers and Acquisitions- Challenge

While growth via acquisitions is a sound idea in principle, there are challenges as well, which
relate mainly to the stretched valuations of acquisition targets and the ability to turn them
around within a reasonable period of time. The acquisitions of RPG Aventis (by Ranbaxy) and
Alpharma (by Cadila) in France are clear examples of acquisitions proving to be a drain on the
companys profitability and return ratios for several years post acquisition. In several other
cases acquisitions by Indian generic companies are small and have been primarily to expand
geographical reach while at the same time, shifting production from the acquired units to their
cost-effective Indian plants. A few have been to develop a bouquet of

Page 27

products. Other than Wockhardts acquisition of C. P. Pharma and Esparma, it has taken at
least three years for the other global acquisitions to see break-even.
Most of the acquiring companies have to pay greater attention to post merger integration as
this is a key for success of an acquisition and Indian companies have to wake up to this fact.
Also, with the increasing spate of acquisitions, target valuations have substantially increased
making it harder for Indian companies to fund the acquisition.

Global Scenario
In the last year of the decade, the world saw the biggest merger of this industry i.e. the Pfizer
buyout of Wyeth for a staggering $68 billion. The combined company will create one of the
most diversified companies in the global healthcare industry. Operating through patient-centric
businesses that match the speed and agility of small, focused enterprises with the benefits of a
global organizations scale and resources, the company will respond more quickly and
effectively to meet changing healthcare needs. The combined company will have product
offerings in numerous growing therapeutic areas, a strong product pipeline, leading scientific
and manufacturing capabilities and a premier global footprint in health care.
Further the takeover of Solvay pharmaceuticals by US drug maker Abbott Laboratories and the
proposed merger of Novartis AG and Alcon Inc. have sent the share markets on a high tide.
The reason behind such bullish response is mainly the excitement among investors that the
imminent merger of these companies will create a multi-national drug maker in India. Other
major global takeovers in the pharmaceutical sector are shown in the following table:21

Sl. No

Company (Acquirer)

Company (Target)

For Amount




$46.8 billion



Schering Plough

$41.1 billion




$19.7 billion


Schering Plough


$14.4 billion




$13.6 billion




$7.7 billion

Though global mergers have positive ramifications on markets, profitability and consumer base, it
has its flipside also. Takeovers may ensue in stifling of competition and thereby creating monopoly
in the market. The Patented drugs become available to the acquirer company and the R&D of those
drugs may also suffer in the process.
Page 28

Indian Scenario
The Indian Pharmaceutical industry is a favourite one when it comes to cross border M&A.
This is hugely due to the fact that such takeovers are beneficial in-house quick growth
strategies. The desire to gain foothold in the market of another country is another major reason
behind such mergers. Such transactions help the company save itself from the pain-staking
procedure of establishing a nouveau entity in an alien country. Entry into a domestic market is
a key driver of cross-border mergers. It helps companies save significant time that may be
needed to build the green-field businesses of similar scale. At times M&A also cater as ego
enhancers of MNCs. Other factors associated to such transactions include lack of research and
development, productivity, expiring patents and generic competition.
The Indian pharmaceutical industry is known for its generics, cost effectiveness and
competitiveness. The nature of diseases in India is varied and the market is ever expanding.
Large global pharmaceutical companies aim towards establishing a low-cost base out of the
country. A number of Indian companies have made acquisitions in the global market. With
domestic drug sales of almost $5 billion, Indian companies have also developed a considerable
service industry for the global pharmaceutical market. Approximately 32 cross border
transactions worth $2000 million have been executed by domestic pharmaceutical companies.
There are likely to be more acquisitions in regulated markets in the US and Europe.
Indian companies are also following the route of mergers and acquisitions to make inroads in
the foreign markets. They need to consolidate further in different parts of the world to become
trans-national players. Indian companies will have to rise above the statement of Michael Porter
(1990), that most multi-national firms are just national firms with international operations.
They shall certainly be at an advantage, as their strong national identities will give them a
competitive advantage in the global markets.
There can be two types of mergers and acquisitions:

Domestic Mergers and Acquisitions

Cross-Border Mergers and Acquisitions: Cross border mergers and acquisitions can be
further classified as Outbound and Inbound mergers and acquisitions

Domestic Mergers and Acquisitions:

One of the strategies being followed by the Indian pharmaceutical companies for their growth
in the pharmaceutical industry in India are domestic mergers and acquisitions. As stated earlier,
the incentives for such mergers and acquisitions by Indian companies include building a critical
mass in terms of marketing, manufacturing and research infrastructure, diversification into new
areas, expanding into other geographies/ therapeutic segments/ customers to enhance product
life cycle and build synergies for new products, enhancing product, technology and intellectual
property portfolio and increasing their market share.
Page 29

Some examples of the domestic mergers and acquisitions22 that took place in the year 2011-12
are as follows:

Deal Date

Company (Acquirer)

Company (Target)

02 Aug 2012

Elder Pharmaceuticals Ltd.

Elder Health Care Ltd.

26 Jul 2012

Biocon Ltd.

31 Jan 2012

Suven Life Sciences Ltd.

Biocon Biopharmaceuticals
Pvt. Ltd.
Suven Nishtaa Pharma Pvt.

07 Jan 2012

Orchid Chemicals &

Pharmaceuticals Ltd.

Orchid Research
Laboratories Ltd.

17 Sep 2011

IPCA Laboratories Ltd.

Tonira Pharma Ltd.

31 Mar 2011

Calyx Chemicals &

Pharmaceuticals Ltd.

Calyx Pharmaceuticals &

Chemicals Pvt. Ltd.

29 Mar 2011

Intas Pharmaceuticals Ltd.

Dolphin Laboratories Ltd.

Outbound Cross-Border Mergers and Acquisitions:

In the Indian pharmaceutical market there are a number of companies that have entered into
merger and acquisition agreements in the context of the global market scenario. These
companies would be selling off the non-core business divisions like Over-the-Counter. This is
expected to further the consolidation in the mid-tier as far as the pharmaceutical industry in
Europe is concerned. The sheer number of companies acquiring parts of other companies has
shown that the Indian pharmaceutical industry is ready to be a dominant force in this scenario.
In the recent times Nicholas Piramal has taken the ownership of 17% of Biosyntech that is a
major pharmaceutical packing organization in Canada. Torrent has got the ownership of
Heumann Pharma, a general drug making company and, formerly, a subsidiary of Pfizer.
Matrix has acquired Docpharma, a major pharmaceutical company of Belgium.
Sun Pharmaceutical Industries is set to make acquisitions in pharmaceutical companies in the
US and has set aside $450 million to execute these plans. In Bengaluru, Strides Arcolab has
aimed at acquiring 70 per cent in a pharmaceutical facility in Italy that is worth $10 million.

Page 30

Some examples of Outbound Mergers and Acquisitions

Company (Acquirer)

Company (Target)

For Amount


Axicorp (German)

$30 million

Dr. Reddys Labs

Trigenesis Therapeutics (USA)



Esparma (German)



C. P. Pharmaceuticals (UK)

$17.9 million


Negma Laboratories (France)

$265 million


Morton Grove Pharma (USA)

$38 million

Zydus Cadila

Alpharma (France)

Euros 5.5 million


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

Inbound Cross-Border Mergers and Acquisitions:

Nevertheless, in the last two years, there has been a slowdown in the out-bound M&A and more
MNCs are being seen acquiring Indian Pharmaceutical Companies. This is mainly done to gain
access to the generic drug market. Earlier the lack of patent protection made the Indian market
undesirable to the multi-national companies that had dominated the pharmaceutical market.
Since the multinational companies streamed out of the Indian Market, the Indian domestic
companies started to take their place and carved a niche in both the Indian and world markets
with their expertise in reverse-engineering new processes for manufacturing drugs at low costs.
Now the Indian companies face a threat of takeover under the new IPR regime which makes
product patents finally available for the Indian Pharmaceutical industry. The advent of
pharmaceutical product patent recognition in January 2005 changed the ground rules for Indian
companies. In the run up to the new post-patent era and since, the Indian industry has been
evolving. R&D departments are moving away from reverse-engineering in favour of
developing novel drug delivery systems and discovery research. This has resulted in the need
of new investments and R&D. It also provides for compulsory licensing which allows countries
to import cheaper generic versions of patented drugs in the interest of public health. This
reduces the profitability of the Indian drug
Page 31

companies. A few more takeovers in the generic industry will lead to neutralization of the
Indias generic revolution which in itself is a stumbling block for the Indian economy. The
reason for such interest of foreign companies in the generic market is the strategy for the
innovators to retain the innovation potential while acquiring huge generic potential.

Some examples of Inbound Mergers and Acquisitions

Company (Acquirer)

Company (Target)

For Amount

Daiichi Sankyo (Japan)

Ranbaxy (India)

$4.6 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


Orchid (India)

$400 million

Fresenius Kabi (German)

Dabur Pharma (India)

$219 million

Abbott (USA)

Wockhardt (India)

$22.5 million

Review of some Major Mergers and Acquisitions:

Daiichi-Ranbaxy Acquisition Deal25
Ranbaxy was formed as joint venture with a European Pharmaceutical company in 1961. It was
bought over in 1966 by Bhai Mohan Singh. Till 90s the company mainly concentrated on
reverse-engineering for its growth.26 The success of the company as a major generic player in
the world market is reflective of the policies adopted post-1970 by the Indian government. With
the opening up of the Indian economy and changing patent law landscape, including other
business factors forced the company to have a re-look at its strategies. The company then started
aggressively looking out for tie-ups/joint ventures with foreign pharmaceutical companies and
also to take over some good Indian companies in the same line of business. The company has
entered into licensing arrangements with international companies for marketing their patented
drugs in the country. Ranbaxy Laboratories is one of the top leading pharmaceutical companies
in the country. Almost half of its revenues come from antibiotics and antibacterial products.
However, of late, the company is slowly shifting its focus to
Page 32

cardio-vascular and anxiety-related drugs (Life style drugs). The company has been focusing
more on international markets, new tie-up, new products and R&D activity. Ranbaxy has come
under close scanner of the US FDA which banned many of its products due to non-compliance
of standards. However, similar investigations in other countries found no such violations.
In November 2008, Daiichi Sankyo of Japan acquired Ranbaxy Laboratories at US$4.6 billion
for a controlling stake of 63.92% of Ranbaxys equity shares (position as of December, 2008).
Daiichi paid Rs. 737 ($15.42) per share. Pursuant to the change in the ownership of the
Company, the Board of Directors of the Company was re-constituted on December 19, 2008
(Annual Report 2009). As per the Companys 2009 annual report the coming together of
Ranbaxy and Daiichi Sankyo is a path-breaking confluence that, in one sweep, catapults the
new, empowered entity to the status of the world's 15th largest pharmaceutical Company.
Individually, the two pharmaceutical giants are formidable-one, India's largest generics
Company and the other, among the largest innovator companies in
Japan. This possible motive for the acquisition seems strategizing market position, combined
with strengths of both generic market networks and skills in innovation.
Many dubbed the deal as panic selling by Ranbaxy unable to visualize and strategize its
position in the changing market landscape. Others noted that the deal was not about creating
synergies but about creating the best out of the then prevailing share prices. However, this deal
has raised a lot of questions about future competitiveness of the Indian generic industry in the
light of possible change in generic pharma strategy by Daiichi. Some commentators have
suggested that Ranbaxy being a firm that immensely benefited out of national policies should
not have been allowed to be acquired by a foreign stakeholder (Kumar Nagesh, 2008). Citing
regulations for protecting domestic industries by other countries, it is argued that Ranbaxy
being a national industry, a law prohibiting such acquisitions is much needed. They remark
that considering that Indias fledgling technological capabilities are attracting global attention,
blocking such deals would be desirable. It is feared that Ranbaxys case may become a
trendsetter for many such future deals. On a broader industrial policy perspective, a couple of
deals have the potential to jeopardize the national capability in the industry.
Post-acquisition, it has been a rough ride for Ranbaxy. It posted a huge loss in 2009 and ended
its financial year with a loss of Rs. 915 crore, against a profit of Rs. 787 crore it posted last
year. Ranbaxy Laboratories will launch in India an anti-hypertensive drug, Olvance - the first
product from its parent Daiichi Sankyos portfolio to be introduced through it. It is noted that
the launch of Olvance marks the beginning of a productive engagement that will harness the
respective strengths of Daiichi Sankyo and Ranbaxy to establish a much stronger platform for
Ranbaxy in India (Mint. 2009).

Page 33

Abbott-Piramal Acquisition Deal26

At $3.72 billion, its the second largest pharma deal in India, after the $4.6 billion DaiichiRanbaxy deal in 2008.
On May 21, 2010, Piramal Healthcare declared the execution of definitive agreements with
Abbott Lab for sale of its Formulation Business to AHPL (Abbott Healthcare Private Limited).
It was not an easy catch for Abbott Lab that had to outbid a number of prospective acquirers to
win this Formulation Business from the Piramal Healthcare.
Piramal is a leader in the branded generics market of India, and the buyout made Abbott the
top player in the Indian pharmaceutical market one of the biggest areas of growth potential
in the world.
What it means for Abbott?27

Rights to 350 brands and trademarks of generics, including Phensedyl cough syrup
Market share close to 7% in the Indian generic market
Strong presence in India (growth rate 13-17%)
Complete product portfolio
Access to other emerging market

The Business Transfer is being undertaken for an all cash consideration of USD 3.72 billion.
Out of the said amount USD 2.12 billion would be payable by AHPL (Abbott Healthcare
Private Limited) to Piramal Healthcare on closing of the sale and a further USD 400 million is
payable upon each of the subsequent four anniversaries of the closing commencing in 2011.
The assets transferred include Piramal Healthcares manufacturing facilities at Baddi,
Himachal Pradesh and rights to approximately 350 brands and trademarks and the employees
of the Formulation Business.
The Piramal group has agreed that for eight years after the deal's closing, it will not enter the
business of generic pharmaceutical products in India, or make or market them in emerging

Page 34

Section 5 of the Competition Act, 2002 prescribes the thresholds under which combinations
shall be examined. Section 6 states that No person or enterprise shall enter into a combination
which causes or is likely to cause an appreciable adverse effect on competition within the
relevant market in India and such a combination shall be void. These sections were notified
earlier this year and came into effect as of June 1, 2011. Besides this, The CCI also has the
power to order a division of enterprise, if the merged entity is abusing its dominant position.
This means that if the merged entity engages in any form of exploitative or exclusionary
practice, the CCI can take suitable action including asking the merged firm to break up. So far,
no case of a demerger has come up before the CCI.
Mergers and Takeovers in the pharmaceutical sectors have grown considerably in the past few
years. It has been a common trend that large pharmaceutical companies which enter into
transactions with effectively or potentially competing companies, in many cases are found to
do so patents are about to expire, so as to maintain their market share and try to reduce
competition with other new generation drugs.
New trends of mergers and acquisitions in the transnational pharmaceutical market may suggest
that, for the drug industry, this may be a good way of neutralizing competition and getting high
market shares. Given the peculiarities of the market, it is important to pay particular attention
to whether such mergers are creating barriers to generic entry or causing potential harm to
innovation. The former issue of generic entry is of particular relevance to developing countries
where generic competition is necessary to ensure low cost medicines to the public at large.
It is apprehended that mergers would lead to increased prices of drugs. Similar concerns were
raised by the health ministry that acquisition of Indian pharmaceutical companies by
multinationals could orient them away from the Indian market, thus reducing the domestic
availability of drugs produced by them. The ministry argued the trend of takeovers may result
in cartelisation and concentration of market shares by few and a clutch of companies dictating
prices of drugs critical for addressing public health concerns.
Nonetheless, to add to this is the grave issue that many mergers and takeovers in this sector
would not attract CCI scrutiny as they may not meet the prescribed financial threshold
requirements. Under the existing law, only M&As that involve target companies with a
turnover of above Rs. 750 crore and assets worth more than Rs. 250 crore need to be vetted by
the CCI.
A High Level Committee was constituted to study the recent acquisitions of Indian pharma
companies by large foreign MNCs by the Planning Commission on June 30, 2011 under the
Chairmanship of Mr Arun Maira. The report submitted by the Committee in September
mentions that the threshold criterion for target companies is on the higher side. This is
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especially true when compared to small pharmaceutical companies. Therefore it is likely that
a strict compliance with the rules may not catch many of the small pharmaceutical mergers and
take overs. This can be a serious problem. From the consumer perspective, whose interests the
antitrust laws are supposed to safeguard, medicines are among the most important products
consumed. Given the potentially serious implications of overlooking the loss or delay of new
and improved medical treatments as a result of a merger, it is submitted that the law should
specifically empower and require the antitrust enforcement agencies to review and respond to
concerns arising from combinations in the pharmaceutical industry, whatever the current size
of the merging companies happens to be (Dror Ben-Asher, 1999).
Consistent with this argument is the Committees recommendation that pharmaceutical
companies be exempt from such threshold requirements for these reasons. This would bring
about two thirds of the pharmaceutical mergers under the careful scrutiny of the CCI.
Furthermore, it is important also to assess the impact of combinations on innovations. An
innovation market consists of the research and development directed to particular new or
improved goods or processes, and the close substitutes for that research and development (U.S.
Antitrust Guidelines on Licensing of IP, 1995). Mergers and acquisitions in innovations
markets such as pharmaceuticals, pose a threat for subsequent entry of products by stifling
competition at the R&D and product development stage. It is a concern that acquisitions that
involve takeover of generic companies may lead to change in priorities of these companies and
adversely impact the competition in generic markets. This has been well noted by competition
agencies in other countries such as USA and EU.
The USA and EU competition authorities have reviewed several mergers of large multinational
pharmaceutical companies that took place in the last decade. Their reviews examined whether
the mergers would reduce competition in research and development, including clinical trials in
particular therapeutic areas, as well as whether the mergers would lead to excessive
concentration of the markets for particular therapeutic groups and products. For example, the
review of the 2004 merger between Sanofi-Synthlabo and Aventis was found to reduce
competition in three pharmaceuticals in the USA. As a condition of the merger, the FTC
required divestment of products that were still at the clinical trials stage of development. It
required divestment of manufacturing facilities to a competitor (GlaxoSmithKline), and
required the companies to help GlaxoSmithKline to complete clinical trials and gain regulatory
approval. The FTC also required divestment of clinical studies, patents and other assets related
to cytotoxic colorectal cancer medicines to Pfizer (FTC, 2006). In the words of Arun Maira:
We must pay attention to the acquisitions and mergers taking place in the pharmaceutical
sector. We do not want to be in a position where acquisitions are distorting the industry and
oligopolistic or monopolistic conditions are created, We have created sophisticated
mechanisms like the CCI where the necessary gate-keeping could be done before such
takeovers or acquisitions take place. Therefore, we no longer need to follow the FIPB (Foreign
Investment Promotion Board) route when there are other instruments to scrutinise a
deal.(Matthew and Basu, 2011). While CCI is relatively new, concerns remaining regarding
its capacity to scan such mergers.
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Reports and Articles

Nishith Desai Associates Report on Piramal Abbott Deal

Natasha Nayak Report on Competition Impediments in the Pharmaceutical Sector in


RBI Circular No. 56 Dated Dec 09, 2011

India Biznews article on Indian Pharma Industry- April 13, 2012


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