Impact of mergers and acquisition of pharmaceutical industry in indian scenario
IMPACT OF MERGERS ANDACQUISITION OFPHARMACEUTICAL INDUSTRY ININDIAN SCENARIOPRESENTED BYTEENA PATIDAR
WHAT ARE THE MERGERS AND ACQUISITION? A merger is said to occur when two or more companies combineinto one company.Eg: Glaxosmithkline (By merging of Glaxowellcome andSmithkline Beecham)• Acquisition may be defined as an act of acquiring effectivecontrol by one company over assets or management of anothercompany without combination of companies.Eg: Abott- Piramal deal (17247 crore)
TYPES OF MERGERS AND ACQUISITION Congeneric mergers-Eg: Hospira (US)- Orchid labs. Conglomerate mergers- Vertical mergers-Eg: Merck- Medco merger Horizontal mergers: Acquisitions are classified as:Hostile-Friendly-
REASONS FOR MAKING MERGERS AND ACQUISITIONSINCLUDE To acquire complementary products, in order to broaden theline. To acquire new markets or distribution channels. To acquire technology, to complement or replace the currentlyused one. Lack of R&D productivity. Expiring patents. Generic Competitions
LAW REGARDING MERGERS AND ACQUISITIONS- In USA, there are both state laws and federal laws to administerMergers and Acquisitions. Indian Competition Act
BENEFITS OF MERGERS & ACQUISITIONSShareholdersvalueIncrease inmarket shareIncrease incostefficiencyIncrease valuegeneration
MAJOR MERGERS AND ACQUISITIONS OFPHARMACEUTICAL INDUSTRY
RECENT MERGERS AND ACQUISITION 09-Apr-2013 - Bristol-Myers Squibb accelerate its diabetes R&Djoint venture with AstraZeneca . 04-Mar-2013 - Mylan says its acquisition of Agila puts thegenerics company in a “leading position” in the injectablesmarket. 19-Feb-2013 - Mylan Laboratories has purchased a new finishedformulations facility in an Indian Special Economic Zone fromUnichem Laboratories. 11-Feb-2013 - Sun Pharmaceutical Industries has done efforts tobuy Israel’s Taro, explaining the move is in the best interest ofshareholders.
MAJOR DEALSPFIZER-WYETH DEALRANBAXY DAICHII SANKYO DEALPiramal abbott Deal
PFIZER WYETHDEALPfizer Wyeth Deal- On 26 Jan 2009 Pfizer acquired Wyeth at $68 billion. Pfizer mission “To become a premier biopharmaceuticalcompany in the world”.
IMPACT OF DEAL ON PFIZER AND WYETH Wyeth will expand Pfizers presence in non-prescriptionpharmaceutical markets. Pfizers diversification into therapeutic protein and vaccinemarkets. the merger will crucially allow Pfizer to retain its status as theindustrys biggest-selling company The combined Pfizer-Wyeth entity would derive around 89% ofprescription pharmaceutical revenues from small molecules, 7%from therapeutic proteins and 5% from vaccines.
CONTD.. Pfizer-Wyeth will initially have a negligible presence in the high-growth monoclonal antibodies market also. It would diversify Pfizer into vaccines and injectable biologicmedicines by adding Wyeths big-selling Prevnar vaccine forchildhood infections and Enbrel rheumatoid arthritis treatment
RANBAXY DAICHII SANKYODEAL Ranbaxy Laboratories on June11 2008 said it was giving upcontrol to Daiichi Sankyo, the No. 3 Japanese pharmaceuticalcompany.
REASON OF ACQUISITION Ranbaxy under FDA scrutiny As a culmination of this problem, Ranbaxy faced a ban inSeptember 2008. Daiichi Sankyo, at the other end, has suffered a heavy increasein selling, general and administrative (SGA) expenses to the tuneof 10% from 2006 levels to $3128.9 million.
IMPACT OF ACQUISITION ON RANBAXY AND DAIICHIDaichii can effectively use- Ranbaxy Low-cost manufacturing infrastructure and supplychain strengths. Strength in proprietary medicine complements Ranbaxy’sleadership in the generics segment and acquired a broaderproduct base.
CONTD.. Ranbaxy could bypass a lot of European and U.S. companies thatare finding it difficult to enter the Japanese market, wheresafety and testing requirements are a lot higher. This deal will make the combined company the 15th largestpharma company in the world.
PIRAMAL-ABBOTT DEALAbbott acquired Piramal at May 2010
IMPACT OF DEAL ON PIRAMAL AND ABBOTT -Piramal portfolio has 350 leading branded generics Establish a inmultiple therapeutic leading areas , presence in Piramal giveAbbott critical branded mass and a generics comprehensiveleading portfolio of branded generics.
IMPACT OF MERGERS AND ACQUISITIONS ONPHARMACEUTICAL MARKETIndian pharmaceutical market is changing under the light of thebelow three aspects- Cost effective manufacturing being implemented by developedeconomies Growing importance of emerging markets Changing significance of Indias domestic marketPositive Impact of M&A on pharmaceutical market Improve global competitiveness Move up the value chain
CONTD…. Creation and entry to new markets Increase their product portfolio Acquire assets (including research and contract manufacturingfirms, in order to boost their outsourcing capabilities) and newproductsNegative Impact-Indian firms face some challenges such as decreasing profits inthe generics market, competitive threats from bigpharmaceutical MNEs fierce competition from Chinese andEastern European manufacturers.
IMPACT OF MERGERS AND ACQUISITIONS ON R&DDEVELOPMENT- One of the most obvious reasons to merge or acquire is ashortfall in the R&D pipeline. This was the position Glaxo faced in 1995 when Zantac, theworld’s best-ever selling drug at the time was coming to the endof its lifespan. Following its timely acquisition of Wellcome,thecompany renewed its pipeline to create a substantial andinnovative asset. To diversity of knowledge from successfull industry resultinginovation new drug.
CONTD….Negative impact- R&D seems to be especially vulnerable to the negative impact ofmergers and acquisitions. For example, comparing data from Pfizers pipeline updates(which are posted on its website every 6 months) before theWyeth merger in February 2008, and in February 2011, revealsthat 40% of the compounds (not including those from Wyeth)have been in Phase II development for more than 3 years.
MERGERS AND ACQUISITION AND NEW MOLECULARENTITY DRUGSWhen research-based pharmaceutical companies performmergers and acquisitionsSales revenue increaseFunds for research increaseProductivity increasNew product comes in market
CONTD..Mergers and Acquisition year No of deals NME2003 173 212004 171 322005 128 182006 138 172007 180 162008 140 212009 140 18total 1070 143
IMPACT OF MERGERS AND ACQUISITION ONSHAREHOLDER VALUE The main motive behind mergers and acquisitions is that theycreate value for both shareholders of the target and acquiringcompanies
IMPACT OF MERGERS AND ACQUISITIONS ON WORKERSOR EMPLOYEESIn the event when a new resulting company is efficient businesswise, it would require less number of people to perform thesame task. Under such circumstances, the company wouldattempt to downsize the labor force.When daichii sankyo acquires ranbaxy many employee havelosed their jobs
IMPACT OF MERGERS AND ACQUISITIONS ONPERFORMANCEPositive impact- One is through an increase in the scale factor, which in turn willreduce the total cost of production of the merging firms, whichwill result in the better performance. mergers and acquisitions may give monopoly power to themerging firms in the market and this will give them powers toincrease the ‘mark-up’ which again lead to high prices andultimately to high profits.Negative impact-Sometimes mergers will reduce the performanceof the merging firms if it acquires loss-making firms and are notable to derive the expected synergies.
PRODUCT DIVERSIFICATION AND MERGERS ANDACQUISITION Product Diversification through Consolidation Firms may opt formergers in order to reduce the risk and uncertainty. If a firm ismore diversified, then there is greater possibility of obtainingstable return. Any losses in one particular market can be offset by profit insome other market.therapeutic categories and thereby not onlyreduce risks, but also expand their market size.Pfizer Wyeth deal
CONCLUSION The key principle behind buying a Strong company is to createshareholder value over and above that of the sum of the twocompanies. to create a more competitive, cost-efficientcompany 75% of large mergers fail to create shareholder value greaterthan industry averages Productivity drops 50% following the announcement of amerger. Employee satisfaction drops 14% following mergers.