Top Ten Acquisitions In The

Pharmaceutical Sector In India

Why is there an increase in Mergers and Acquisition by Indian
Pharma Companies?

There are numerous reasons, which may be attributed to the increased Merger
and Acquisition activity by the Indian Pharma companies. Some of the reasons
are noted below:

1. Expanding the product range for building a good product portfolio The Pharma
companies find it lucrative to build a product portfolio inorganically, e., through mergers
and acquisitions rather than building it organically through research and development
activities, which involve an enormous amount of finance.
2. Gaining access to approved facilities outside India In the past, Indian companies had
come under the scrutiny of US regulatory authorities and have faced import bans and
penalties for irregularities in their manufacturing facilities, therefore the Indian Pharma
are always on a lookout for approved facilities overseas to evade such hurdles.
3. Access to distribution channels and gaining market presence Another focus area for
Indian pharma firms are intermediaries and distributors with established, large
distribution and marketing networks. Companies can market their products in
international geographies if they can acquire such a distribution network.
4. Pressure by governmental agencies, insurance companies various countries to reduce
cost of medicines, due to difficulty in meeting mounting healthcare costs, therefore
Indian companies are looking to acquire pharma companies overseas with their local
manufacturing and research facilities
Major Merger and Acquisition Deals in India

Some of the major merger and acquisition deals by Indian companies are noted
below.

Merger between Ranbaxy and SunPharma

The merger of Ranbaxy and SunPharma led to the emergence of one of the
biggest pharma companies in India. The deal valued at US$4 billion is also one
of the biggest Merger and Acquisition transactions in India. The transaction was
completed on 25 March 2015almost one year post its announcement in April
2014. As is the case with most high-value transactions, the transaction had to
overcome various hurdles as it came under the scanner of various legal and
regulatory authorities in India and overseas and required approvals from these
authorities to proceed with the transaction.

The primary motive for this acquisition by SunPharma was penetration into new
markets and increasing the product portfolio of the company as both Ranbaxy
and SunPharma complimented each other in areas of expertise SunPharma
was globally recognized as a major specialist pharma company while Ranbaxy
was known for its global presence in the generic segment. A combined Sun
Pharma and Ranbaxy was slated to have a diverse, highly complementary
portfolio of speciality and the generic products marketed globally.

The merger came at a very critical time for Ranbaxy who was facing financial
losses and import ban from the United States Food and Drug Administration and
various civil and criminal charges for irregularities in facilities in India.
Therefore, one of the key terms of the transaction was the indemnification
obligation of Daiichi (a Japanese company who owned a controlling stake in
Ranbaxy) to indemnify SunPharma and Ranbaxy, for among other things the
cost and expenses arising from a proceeding relating to a subpoena received
the United States Attorney for the District of New Jersey requesting that
Ranbaxy produce certain documents relating to issues previously raised by the
USFDA.

Instead of opting for direct acquisition of shares or business transfer, Sun

Pharma opted for a merger for various tax, legal and regulatory reasons. For a
direct acquisition, an acquirer needs to have cash surplus for buying the shares
of the target company from its shareholders. However, by opting for an
arrangement of the merger, Sun Pharma was able to retain its cash surplus,
while the shareholders of Ranbaxy received shares of Sun Pharma in exchange.
The shareholders of Ranbaxy will receive 0.8 shares of Sun Pharma for each
Ranbaxy share.

The transaction came under the scrutiny of anti-competition authorities both in

India and in the US as there were concerns that the merged entity could
prevent competition in the pharma product sector. The CCI Competition
Commission of India gave its approval for the transaction on December 5, 2014,
on the precondition that seven brands (constituting less than 1% of total
revenues of the merged entity in India) be divested. The Federal Trade
Commission in the US gave its approval on the precondition that Sun Pharma
and Ranbaxy divest Ranbaxys interests in generic minocycline tablets and
capsules to an external party.

There were also allegations of violations of Indias insider trading regulations by

an entity connected to Sun Pharma Sun Pharma cleared this big hurdle by
August 2014, by obtaining approval from BSE and NSE (stock exchanges in
India).

Acquisition OF Primal Healthcare by Abbott

US-based Abbott Laboratories acquired the domestic formulations business of

Primal Heath care at a consideration of $3.72 billion (Rs 17,500 crore) under a
Business Transfer Agreement (BTA) dated May 21, 2010. The acquisition was
part of Abbots strategy of penetrating into new emerging markets in the
pharma sector and moving beyond its patented product business.

The transaction for sale of the Formulation Business has been structured as a
slump sale / Business Transfer for an all cash consideration of USD 3.72 billion
(approx. INR 175 billion ). Under the BTA, all the intellectual property (IP) of
the formulation business including patents and 350 trademarks has been
assigned to Abbott. Since IP is one of the most valuable assets in the pharma
sector, it is believed that the high value of the transaction could be attributed to
consideration for the assignment of intellectual property by Primal to Abbott.

A part of the consideration (approximately 2% of the total consideration)

amount is also attributable to the non-compete obligation of Primal and its
affiliates to not engage in business competing with the Formulation Business
either in India or in emerging markets for eight years from the date of closing of
the Business Transfer. However, this restriction does not extend to investment
in shares of listed companies carrying on competing for business, provided that
such investment does not exceed 5% of the paid-up capital, and such an
investment is not accompanied by acquisition of control or influence in the listed
entity

Six years post the acquisition, the transaction is seen as seen as a clever
business transaction for both Primal and Abbott as Primal has efficiently utilised
the monetary consideration it received for sale in adding value to its remaining
business by significantly increasing its revenue, while it gave Abbott the much-
required access to the emerging markets.
Daiichis Acquisition of Ranbaxy

In June 2008, Daiichi Sankyo, Japans third-largest pharmaceutical company

acquired a controlling stake in Ranbaxy Laboratories, Indias biggest generic
drugs maker, in a cash deal of approximately $4.6bn. It was one of the biggest
acquisition by Indian public company.

The primary motive behind Daiichis acquisition of Ranbaxy was gaining access
to the low-cost research and production and manufacturing facilities in India
and diversifying its product portfolio in the generics sector, considering that
Daiichi was an innovator company and had a patent based product portfolio,
both businesses complimented each other.

However, complications soon arose after the acquisition, when Ranbaxys

facilities in India came under came under the scanner of the US Food and Drug
Administration (USFDA). USFDA alleged quality issues at Ranbaxys US-
dedicated manufacturing plants in Mohali, Dewas and Paonta Sahib resulted in
the USFDA, imposing an import ban on drugs produced at these sites and
withheld the companys first-to-file 6 months exclusivity on three unnamed
drugs. Then there was the agreement to plead guilty to 7 felonies and pay $500
million in penalties which led to a major decline in sales in the US, Ranbaxys
most important market.

It is widely believed that Daiichi should have conducted a proper due diligence
by sending its executives to inspect the plants, research and manufacturing
facilities of Ranbaxy in India before entering into the deal.

Daiichi also accused the Singh brothers (Malvinder and Shivinder Mohan Singh),
the former owners of Ranbaxy Laboratories Ltd for misrepresenting the
problems facing Ranbaxy when it acquired the company and in this connection a
Singapore arbitration tribunal ordered the Singh brothers to pay a penalty of
$385 million to Daiichi.
When Daiichi realized that deal is not profitable it did not make any further
investments in the venture and in April 2014, it sold Ranbaxy to Sun Pharma for
$3.2 billion. As a part of the deal, Daiichi got approximately 9% stake in the
new Sun Pharma (merged with Ranbaxy). It later sold its shares for $3.6 billion
and withdrew the Indian market. If we view the transaction purely from a
financial perspective, it recovered almost all its investment, but not the
opportunity cost of capital and hence this acquisition is touted failed business
deal as it fell flat in achieving its objectives.

Lupins acquisition of US-based Gavin

On 23 July 2015, the Indian Pharma company Lupin Limited entered into
definitive agreements and completed its outbound acquisition of the New
Jersey-based privately held company generic drugs company GAVIS
Pharmaceuticals LLC and Novel Laboratories Inc. (Gavis) for $880 million,
subject to certain closing conditions. This is one of the largest acquisitions by an
Indian pharma company in the US.

The transaction was finalised through a competitive bidding process. Lupin

funded the acquisition through cash reserves of $100 million and a bridge loan.

The main motive for Lupins acquisition is expansion in the US Pharma market.
The acquisition is also of paramount importance for Lupin has GAVIS strong
history of compliance with the USFDA since many Indian companies have faced
import bans and penalties by USFDA for non-compliance of their facilities.

The acquisition enhances Lupins scale in the US generic market and also
broadens Lupins pipeline in dermatology, controlled substance products and
other high-value and niche generics. With this acquisition, Lupin acquires a
highly skilled US based Manufacturing & Research organisation which would
complement Lupins Coral Springs, Florida-based R&D centre for Inhalation.
GAVISs New Jersey-based manufacturing facility also becomes Lupins first
manufacturing site in the US.

According to a news report, the combined company is said to have a portfolio of

over 120 in-market products, more than 185 cumulative filings pending
approval and a broad pipeline of products under development for the US.

The acquisition creates the 5th largest pipeline of ANDA filings with US FDA,
catering to a $63.8-billion market.

Lupinacqusition of Russian Biocom

On July 02, 2015, Indian Pharma Major Lupin Limited announced its acquisition
of 100% equity stake in ZAO Biocom in Russia subject to certain closing
conditions. The acquisition marks Lupins entry into the Russian pharmaceutical
market, which is among the top pharma markets in the world. According to a
news report, The Russian drug market had annual sales of 765 billion roubles
($14 billion) and was one of the worlds top 10 pharmaceutical markets in
2014.

The entry into Russian market is seen as a strategic move. According to

industry analysts, Oat, the consultancy firm EY India 80% of the drugs sold
in Russia were imported, the government of Russia on local manufacturing of
these products to cut healthcare cost. Indian companies which rely on exporting
drugs to Russia prefer to acquire companies with manufacturing facilities as well
as strong distribution network. The deal did not come as a surprise to industry
analysts.

Established in 1991, Biocom is a fast growing generic pharmaceutical company

with a major focus on therapies such as cardiovascular, central nervous system
and antimicrobials for systemic use and also does contract manufacturing and
secondary packaging. The Company recorded sales of RUB 861.2 million in the
financial year 2014 and had 118 employees. Biocom operated a modern
European GMP compliant plant and was also one of the first Russian
pharmaceutical manufacturing companies to receive an approved manufacturer
status from the World Health Organization (WHO) in 2013.

The acquisition also provides Lupin with a robust platform for Lupins to enhance
its global research, technology, manufacturing and commercial and their global
high-quality product pipeline.

Sun Pharma acquisition of Taro

In 2007, Indian pharma major Sun Pharmaceutical Industries Ltd entered into a
merger agreement with, Alkaloida Chemical Co. Exclusive Group, to take control
of the Israeli company Taro for $454 million, or $7.75 a share. As part of that
agreement, Taro received an equity infusion of about $60 million from Sun
Pharma, which led to an improvement in the ailing Israeli companys fortunes
and sent its stock above the offer price.

Taro later terminated the merger agreement in May 2008, saying that Suns
original offer was too low. This led to a long dream legal battle between the two
companies.

In 2010, Sun Pharmaceutical Industries Ltd. acquired a controlling stake in Taro

Pharmaceutical Industries Ltd., ending a three-year battle for control of the
Israeli drug maker, Israeli Supreme Court ruling, which rejected an attempt by
the Israeli company to block Suns offer to increase its stake. At that time, Sun
Pharma had a 36% equity stake in Taro with 24% voting rights.

In addition to generic drugs to treat cardiovascular and neuropsychiatric

diseases and inflammation, Taro has an established franchise in skin treatment
products in the U.S.It also has strategic sales and marketing operations in Israel
and Canada.
Sun Pharmas units have increased their equity stake in Taro to 48.7% and their
voting rights to 65.8%, the Indian company said. Its chairman, Dilip
Shanghvi, has been appointed the chairman of Taros board.

On acquiring the controlling stake, Sun Pharma intended to on Taros market

presence in U.S., Israel and Canada and on its expertise in dermatology and
paediatric products. The U.S. accounts for almost a quarter of Sun Pharmas
total annual sales.

Dr Reddys Laboratories acquisition of UCB

In 2016, Telangana based Dr Reddys Laboratories acquired a select portfolio of

Belgium-based pharma company UCB in India for R800 Cr ($128.38 million) on
a slump sale basis. The acquisition was part of Dr Reddys Lab strategy of
strengthening its domestic portfolio; the parties entered into definitive
agreements for the transaction, which covers the territories India, Nepal, Sri
Lanka and Maldives. The deal also entails the transfer of 350 employees
engaged in the operations of India business.

Revenues of the acquired business were Rs. 150 crore in 2014. This acquisition
has enhanced DRLs presence in the fast growing chronic segments. The
transaction increases Dr Reddys presence in the rapidly growing chronic
segments and dermatology, respiratory and paediatrics segments.

Revenues of the acquired business were Rs. 150 crore in 2014. This acquisition
has enhanced DRLs presence in the fast growing chronic segments. The
transaction increases Dr Reddys presence in the rapidly growing chronic
segments and dermatology, respiratory and paediatrics segments.
Dr Reddys Laboratories acquisition of Betapharm

In 2006, Dr Reddys Laboratories acquired the fourth-largest German generic

drug maker BetapharmArzneimittel GmbH for euro 480 million (approximately
Rs 2,550 crore). Dr Reddys Laboratories signed a definitive agreement with the
private equity house that controls Betapharm to acquire 100 per cent equity of
the German drug major.

This acquisition was considered to be one of the biggest overseas acquisitions

by an Indian pharmaceutical company. The transaction was funded using a
combination of the companys internal cash reserves and committed credit
facilities.

The acquisition was part of Dr Reddys lab strategy to expand its presence in in
all key pharmaceutical markets.

The acquisition was the most expensive foreign acquisition by an Indian

company in 2006, and Dr Reddys Lab visualized that a strategic investment
would generate substantial opportunities for long-term value creation for both
the companies, lay a strong foundation to leverage Dr Reddys global product
development and marketing infrastructure and to build a significant generics
business in Europe in the long term. However, ten years later the acquisition is
seen as one of the biggest failures resulting into major fall of Betapharms
valuation.

The reason for the failure was that within months of the acquisition, the German
government changed its procurement policy, shifting to a tender-based system
for a substantial number of drugs. This reduced drug reference prices therefore
what was aimed at securing access to the second-largest generics market after
the US turned into a liability.
Domestic acquisition of Elder Pharma by Torrent Pharma

In 2014, Torrent Pharma acquired the branded domestic formulations business

of Elder Pharma in India and Nepal on a slump sale basis for all cash
consideration of Rs. 2,004 crore (around USD 324 million). This was one of the
biggest domestic merger and acquisitions in India. The business was sold as a
going concern on a slump sale-bases, and the transaction also involved the
transfer of employees engaged in sales, marketing and operations of the
identified India business of Elder. The deal was be funded mainly via borrowings
and partly by internal accruals

The deal worked well both businesses who were earlier rivals, for Elder it was a
step to restructure its operations as Torrent bought out Elders products in the
categories of womens healthcare, pain management, wound care and
nutraceuticals products while Elder continued to manufacture, facilitate contract
manufacturing operations, which include an active pharmaceutical plant, a liquid
drug production plant and an R&D lab.anti-infective, in-licensing and exports
business as also its overseas subsidiaries. Elder utilised the consideration
amount of the deal to clear a debt worth Rs 1,300 crore, accumulated after
multiple acquisitions.

The deal helped Torrent in expanding its market share by adding a portfolio of
30 brands addressing the womens healthcare, wound care and nutraceutical
segments and its foothold in womens healthcare and pain management
segment. The deal also helped Torrent to substantially increase its turnover,
resulting in a sizeable gain for its investors.

Ciplas acquisition of two US-based pharma companies

In 2016, Cipla, one of the biggest pharma companies in India acquired two US-
based generic companies InvaGen and Exelan, worth $550 million in an all cash
transaction. The development marks an important step for Cipla in expanding
its foothold in one of the biggest pharma markets in the word.

The acquisition was carried out by the Cipla wholly-owned special purpose
vehicle Cipla (EU). The deal was approved by US regulatory agencies.

With the closure of the deal, Cipla intends to launch as many as 10 products in
2017. Cipla expects to file 3 to 4 products cumulatively each quarter through
this acquisition.

According to the representatives of Cipla, the acquisition of InvaGen

Pharmaceuticals also provides Cipla with about 40 approved ANDAs, 32
marketed products, and 30 pipeline products which are expected to be
approved over the next 4 years. They represent a balanced, diversified and
growing portfolio targeting highly attractive, large and niche markets.

The Invagen deal enables Cipla to get access to manufacturing sites in the US
and also reach to a large network of wholesalers and retailers in the US.
Through Exelan, Cipla will be able to access government and institutional
market in the US.
With this acquisition, Cipla aims to reap around 25% of its total revenues from
the US over the next five (5) years.