NATIONAL LAW SCHOOL OF INDIA UNIVERSITY BANGALORE

Mergers & Acquisition in Pharma sector in India

SUBMITTED TO: DR. VERSHA VAHINI

November 24, 2013 Authored by: Ronak Karanpuria I.D. no: 534 LL.M. 2nd year

INDEX

S. No. 1 2 3 4 5

Particulars Introduction Pharma sector in India Corporate restructuring in pharma sector Legal framework for pharma sector Conclusion

Mergers & Acquisition in Pharma sector in India | 24-Nov-13

Introduction
The pharma sector in India is the worlds 3
2 rd

largest in terms of volume. The total turnover of India's

pharmaceuticals industry between 2008 and September 2009 was US$21.04 billion while the domestic market was worth US$12.26 billion. Indian Pharma sector is currently valued at Rs 72,069 crore as against Rs 65,654 crore in 2012.
3

The market is likely to grow at a compound annual growth rate (CAGR) of 14-17 per cent in between 2012-16, that is due to number of factors like government started encouraging the growth of sector by certain amendments in Patent act 1970, economic liberalisation in 90s and then to further allure the multinational amendments in conformity with TRIPS as international obligation brought Patent act 2005 which mandated patent protection on both products and processes for a period of 20 years. Another reason may be due to WTO commitments and liberal policy towards export-import of drugs or finished products. Liberalisation and globalisation encourage the foreign investor to invest heavily in this highly returnable sector. This can be done either by foreign investment in India companies or incorporation of an Indian company subsidiary of foreign company. The modes to achieve this is either by Mergers and acquisition of pharma industry or by takeovers. A foreign investment could be a direct or portfolio investment. A direct investment is an acquisition or construction of physical capital by a firm from one (source) country in another (host) country. The FDI is an investment that involves a long - term relationship and control by a resident entity of one country, in a firm located in a country other than that of the investing firm. Foreign Investment in these sectors lead to innovation of new techniques and low cost quality product and possibility is increase its dependence on imports. Another ways of achieving the same result is by the way of mergers and acquisitions in the pharmaceutical and healthcare sectors both in the Indian and the global market. Increasing global interests in the pharmaceutical & biotechnology sector and ultimately cheap availability of land, labor and capital in the developing countries has given a tremendous boost to mergers and acquisitions. This paper try to analyse M&A in pharma sector, trend and strategies involve in pharma sector, FDI in pharma & legal hurdles in M&A and restructuring and current scenario in Indian Pharma market.

http://economictimes.indiatimes.com/News/News-By-Industry/Jobs/Pharma-engineering-to-topple-IT-as-bigpaymaster/articleshow/6022202.cms?curpg=1 last visited 22 nov 2013 2 http://www.cci.in/pdf/surveys_reports/indian-pharmaceuticals-industry.pdf 3 http://timesofindia.indiatimes.com/business/india-business/Pharma-market-valued-at-Rs-72069-crore-CII-PwCreport/articleshow/24990961.cms 4 http://www.careratings.com/Portals/0/ResearchReports/BrochureIndianPharmaceuticalIndustry.pdf

Mergers & Acquisition in Pharma sector in India | 24-Nov-13

Pharma Sector in India

t thetime ofindependencein1947,Indiaspharmaceutical marketwasdominatedbyWestern MNCs that controlledbetween 80 and 90 percent of the market primarilythrough importation. Approximately99percent of all pharmaceutical products under patent inIndia at the time were held by foreign companies and domestic Indian drugpriceswere amongthe highest inthe world. The Indian pharmaceutical market remained import-dependent through the1960s until the government initiated policies stressingself-reliance through local production. At that time, 8 of Indias top 10 pharmaceutical 5 firms, basedonsales,were subsidiaries of MNCs.To facilitate an independent supplyof pharmaceutical products in the domestic market, the government of India founded 5state-owned pharmaceutical companies. Today, India is the worlds fifth largest producer of bulkdrugs. 6 Government policyculminated in various actions including: the abolitionof product patents on food,chemicals,anddrugs;the institution ofprocesspatents; thelimitation ofmultinationalequityshare inIndiapharmaceutical companies,andthe impositionof price controlson certain formulationsandbulk drugs. Subsequently, most foreign pharmaceutical manufacturers abandonedthe Indian market due to the Mergers & Acquisition in Pharma sector in India | 24-Nov-13 absence oflegalmechanisms toprotecttheir patentedproducts.Accordingly,the share ofthe domestic Indian market held by foreign drug manufacturersdeclined to lessthan20 percent in2005. As the MNCs abandonedthe Indian market, local firms rushed into fill the void, and by1990,India was self-sufficient in theproductionof formulations and nearlyself-sufficient in theproductionof bulkdrugs Pharma sector comprised of involved in developing, researching, marketing and distributing drugs or medicines (branded or generic), cosmetics, medicinal devices and household or industrial chemical for living organism. It is a vast market, source of costly IP products which overall increase the brand value of company. Big corporate house are in a hurry to capture these IP licence which can be possible either Mergers, Amalgamation, Takeovers or foreign investment in shares of these companies which is basically a corporate restructuring which further needed approval of respective regulators. The main ways of obtaining control of a public company are (i) a merger or amalgamation under a scheme of arrangement; (ii) the acquisition of a companys shares; (iii) the reconstruction of a sick company. Merger in corporate business means fusion of two or more corporations by the transfer of all properties and liabilities to a single corporation. The term amalgamation is used synonymously with the term merger, and has the

same verbal meaning as that of merger. The main purpose of these activities is to acquire complementary products, acquire new markets or distribution, acquire new technology, patents or copyrights put them in the leading position in the market. Sometimes these M&A activities lead to restructuring of the market which further leads to competition among competitors and advanced the technology and produce high quality low cost product which finally benefits the consumer. The M&A proposals are looked by CCI regulator to check for any anti-competitive issues. Companies should clearly define their market share as well as possible anti-competitive effects due to the proposed transaction. For foreign investment in these sector they need either RBI or FIPB or Ministry of Finance subject to acquisition of shares.

Mergers & Acquisition in Pharma sector in India | 24-Nov-13