The document discusses mergers and acquisitions (M&A) in the pharmaceutical industry. It outlines problems faced by Indian pharmaceutical companies like pricing controls and fragmented markets. It also discusses trends in M&A activity, with multinational companies acquiring Indian firms for access to generic drugs and manufacturing. Reasons for M&A include expanding into new markets, cutting costs, and gaining access to biologics with longer commercial lifespans. The document also lists other inorganic growth strategies used in the industry like strategic alliances, outsourcing, and co-marketing agreements.

1. Mergers & Acquisitions
Pharma Industry
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Problems faced by the Indian Pharmaceutical Companies :-
•Rising power costs, pricing curbs and other policy uncertainties.
•Government wants to increase its ambit from 74 bulk drugs to over 640, thus
reducing the revenue generating medicines.
•Political stamp on the price, with United Progressive
•Alliance(UPA) planning free medicines for the poor.
•Fragmented and competitive market with difficulty in
gaining market share.
The Scenario:-
 High expectations by Indian promoters because of rising interest of MNC’s in local
pharmaceutical companies. (Mylan bought Agila by paying eight times its last year's
revenue)
Foreign proposals to invest in Indian drug makers are stuck at the government because
of the argument that MNC’s are buying local companies only to stifle competition.(100%
FDI allowed).
 Guidelines being formed to enable the Competition Commission to take certain drug
related decisions in case of the foreign investments in Indian pharmaceutical companies.
In the past, acquisitions in the Indian pharmaceutical market were driven by different
reasons. E.g. In Ranbaxy's case, the star attraction was the rights it had bagged from
USFDA to launch the generic version of Lipitor, the world's largest-selling medicine.

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MULTINATIONAL PHARMA COMPANIES
•To gain access to the pipeline of generic
drugs being developed by small and mid-
sized Indian companies in order to leverage
cost-effective R&D and low-cost
manufacturing having similar value.
•Patented foreign companies going off
patent in order to increase the number of
blockbuster drugs going off-patent & focus
on generics adoption globally.
•The manufacturing cost
is about 30% cheaper in
India than in the US.
•The cost of developing a
generic drug in India is
about half of that in the
US.
INDIAN PHARMA COMPANIES
•Indian Pharmaceutical Co’s lack marketing
their setup in local geographies. Tie ups with
MNC’s help Indian companies to develop
expertise outside India.
•The foreign companies help the Indian
companies create a base for infrastructure as
they are already well established in their
respective countries.
•MNC’s help commercializing the products of
Indian companies through well established
distributors and retail chains.

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Q1. Explain the trends of M&A activities in global pharmaceutical
industry since last 3 years?
Q2. Why do you think inorganic strategies are sometimes
irreplaceable for industries like pharmaceutical?
Q3. What is the M&A trend going forward in context with the
pharmaceutical companies?
Q4. What are the other popular inorganic growth strategies adopted
by pharmaceutical companies?

5. 5M&A in the Pharma Industry_ Group719-06-2013
•The pharmaceutical sector is currently battling with declining pipelines, patent
expirations and a clampdown on healthcare spending. As their troubles grow, the
sectors are being forced to increasingly engage in mergers and acquisitions (M&A)
activity.
•Three blockbuster deals happened in 2009. Pfizer acquired Wyeth for $68Bn, Merck
acquired Schering-Plough for $41B, and Roche acquired Gen0entech for $46B.
•In last 3 years, the pharmaceuticals and biotechnology sectors witnessed increased
M&A activity, including some big-ticket acquisitions of 72 deals worth $6bn. This
has been possible largely because the sectors have the necessary internal resources
and credit lines to finance such deals. Megamergers, which had been absent from
the sectors since 2004, made a dramatic comeback in 2009.
•The global pharmaceuticals and biotechnology sectors saw only a 1.7 percent
increase in the total number of deals. However, the total disclosed value of deals
increased by a staggering 185 percent, to US$226.2 billion. Due to the three
megamergers, valued at US$155.9 billion, the average size of the deals increased
drastically.

6. M&A in the Pharma Industry_ Group719-06-2013
In the period from June 08 to May 09 the pharmaceuticals sector witnessed
increased M&A activity, including some big-ticket acquisitions, compared with the
period from June 07 to May 08 . This has been possible largely because the sectors
have the necessary internal resources and credit lines to finance such deals

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•The total value of M&A deals targeting companies in Central Asia/Asia-Pacific
decreased by 43.8 percent to US$8.8 billion. This significant drop was due to decreased
activity in Japan, where the value of acquisitions fell from US$7.7 billion to a mere
US$87.1 million.
•However the global pharmaceuticals sector’s interest in China and India continued to
grow. These countries accounted for 146 and 38 deals, respectively, out of the 305 deals
within the region.
•India emerged as the top target country in terms of deal value, as a result of the Daiichi
Sankyo’s US$4.6 billion acquisition of Indian generics firm Ranbaxy Laboratories.
•With two large megamergers in the pharmaceuticals sector, pharmaceutical companies
accounted for more than 91 percent of the total deal value in the current review period.
•The deal value of acquisitions by pharmaceutical companies increased by 410.9 percent

8. 8M&A in the Pharma Industry_ Group719-06-2013
•Opportunity for cost cutting earnings boost :–
Drug companies “create value” by M&As and fire a lot of people. While some costs
are unavoidable, others are duplicative. With the lower number of approvals,
especially for large-market, general practitioner drugs, the large selling organizations
have capacity.
•Developed market companies:-
The developed market companies deployed M&A to bolster their product portfolio
and expand their product offerings to customers in their existing markets of focus.
For example, Shire Pharmaceuticals(Irelands) maintained their focus on the United
States and Europe, respectively.
•Focus on biologics:-
Biotech drugs are not subject to the same risks of generic drugs as regular small
molecule drugs, so their commercial life tends to be longer. Drug companies are
looking to monoclonal antibodies not just because of their advanced science, but
because they can get paid for the innovation.

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•Buying a sales force:-
Companies try & partner away their drugs to different territories in order to
capture more of the value chain – or own more of the distribution. If a company
has a hot new product soon to be approved in the US then an established sales
force helps the company to commercialize it’s product more easily due to
enhanced marketing power
•Economies of Scale :-
Horizontal mergers between equals often do not result in efficiencies and
savings in the pharmaceutical sector. While activities such as commercialization
and distribution are often scalable, R&D efficiency often suffers during a
horizontal merger of two large pharmaceutical companies. E.g. Pfizer's
acquisition of Warner Lambert and the Glaxo Wellcome and SmithKline
Beecham’s merger.
•Emerging market companies:-
Companies based in emerging markets see M&A as a way to gain access to
developed markets, which offer stable operating environments, relatively higher
price points for drugs, and high growth rates in the specialty and generics
segments. Thus helping the companies to get a shift from a relatively small,
highly fragmented domestic market to the developed one.

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1. Establishment of new strategic alliances and joint ventures:-
R&D process for each drug take years and requires significant investments,
and the outcome of these investments of time and financial resources
remains unclear until the final approval of the drug. Hence pharmaceutical
companies are constantly looking for synergies that they can get from
cooperation with their competitors.
2. Several global pharmaceutical MNCs have entered into licensing
arrangements with Indian companies:-
In order to be able to dip into a ready basket of generic products, these deals
are likely to accelerate the launch of products in various generic markets
while offering the MNCs the advantage of cost effective manufacturing
3. Most of the pharmaceutical MNCs have outsourced significant portion of
manufacturing to verified third party vendors:-
They act as marketing and sales organization resulting in less capital
intensive nature of operations. The outsourcing of manufacturing to
multiple third party vendors leads to better inventory management and
consequently lower working capital engagement.

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4. Bio-Pharma Convergence:-
Biopharmaceuticals are projected as potential drugs curing many diseases. Many
researches have proved that chemistry based medical innovations need to be
replaced by advances in biopharmaceutical research that will boost the growth
of revenues and profits in the years to come.
5. Contract Manufacturing
New start-up companies are increasingly getting international exposure through
the contract manufacturing (of patented drugs, custom synthesis and scale-ups,
specialized generics and old molecules) route. It is estimated that about 50% of
global bulk drugs / API manufacturing and around 15% of formulations
manufacturing are outsourced to low cost destinations.
6. Co-Marketing Alliances
Another growth strategy adopted by Indian firms is entering into co-marketing
alliances with foreign firms to market their products. Co-marketing alliances are
taking place not only between Indian and foreign producers, but also amongst
Indian producers. Such alliances are proven to be beneficial to both the parties.

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•The megamergers of 2009 have put pressure on other large pharmaceutical and
biotechnology companies. The likely candidates for the next wave of
consolidation are Astra Zeneca, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson
and Sanofi-Aventis.
•However, executives of several companies have indicated they will not join the
megamerger bandwagon, and will instead rely on their own research and
development (R&D) or enter into smaller partnerships or M&A deals.
•It is still not clear whether the sectors are heading towards more megamergers
or whether they will move towards smaller strategic acquisitions. Deals in the
biotechnology sector could increase further as small and mid-size biotechnology
companies become increasingly willing to enter into deals at value prices. Large
pharmaceutical and biotechnology companies are scouting around for deals at
much lower valuations, and the current trend of M&A in generics is one to watch
for in the future.

13. M&A in the Pharma Industry_ Group719-06-2013
•Executives from the global pharmaceutical industry expect to see
increased levels of consolidation, with 61% of respondents
anticipating either a significant increase or an increase in M&A
activity in 2013.
• The need for new product pipelines, new product acquisition,
patent expiries, cost containment, and credit availability are
identified as the key drivers for increase in M&A activities in the
global pharmaceutical industry.
•Larger companies have cash piled in their accounts books, while
their product line is limited to few market leading products. These
companies find it as an opportunity to acquire and leverage on
promising portfolios from smaller organizations.

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MADE BY:
1. Utkarsh Garg (121)
2. Sangam Lalsivaraju (138)
3. Sugandha Arora (140)
4. Dhruv Mahajan (141)
5. Nitish Dubey (177)