Regulation of Merger and Acquisition in Pharmaceutical Sectors: A Comparative Study

DISSERTATION
Progress Report

SUBMITTED BY SUPERVISORS:

ASHUTOSH UTSAV

LLM (2023-24) DR. MAUSAM

(ASSISTANT PROFESSOR)

Mrs. SATYABRATA MISHRA

Roll No. LM 249. (ASSISTANT PROFESSOR)

 INTRODUCTION

Pharmacoeconomics can aid the policy makers and the healthcare providers in decision making in evaluating the
affordability of and access to rational drug use. Efficiency is a key concept of pharmacoeconomic, and various
strategies are suggested for buying the greatest amount of benefits for a given resource use. Pharmacoeconomic
evaluation techniques such as cost minimization analysis, cost effectiveness analysis, cost benefit analysis, and
cost utilization analysis, which support identification and quantification of cost of drugs, are conducted in a similar
way, but vary in measurement of value of health benefits and outcomes. This article provides a brief overview
about pharmacoeconomic, its utility with respect to the Indian pharmaceutical industry, and the expanding
insurance system in India. Pharmacoeconomic evidences can be utilized to support decisions on licensing, pricing,
reimbursement, and maintenance of formulary procedure of pharmaceuticals. For the insurance companies to give
better facility at minimum cost, India must develop the platform for pharmacoeconomic with a validating
methodology and appropriate training. The role of clinical pharmacists including PharmD graduates are expected
to be more beneficial than the conventional pharmacists, as they will be able to apply the principles of economics
in daily basis practice in community and hospital pharmacy.

Medical M&A activity in the pharmaceutical industry has been steadily increasing since the beginning of the past
decade, and more so since the start of global pandemic. M&A activity in the pharmaceutical include key trends
such as continued consolidation of the industry and the emergence of new technology-driven companies. The
consolidation is mostly driven by the need for larger, more efficient companies to respond to new challenges and
opportunities. M&As are not just limited to large companies, there’s always a race to acquire smaller companies
to gain access to their intellectual property and talent. Another trend in the medical M&A sector is the increasing
focus on specialized therapeutics that can effectively address unmet needs or fill gaps in the product portfolio.
Pharma majors also tend to acquire companies with expertise in areas such as genomics, diagnostics and digital
health. Synergy capture is one of the most effective ways to create value in medical M&A. Synergy capture is the
process of identifying and capturing the value of combining two or more companies. This can include cost
savings, revenue growth, and access to new markets and products. Companies can also look to identify and capture
revenue growth opportunities through leveraging existing customer relationships, expanding into new markets,
and launching new products and services.

The pharmaceutical markets in India are growing at an exponential rate. However, price competition among
retailers can be hardly witnessed. The Indian pharmaceutical market has three types of substitutable drugs being
sold. The first category includes originator drugs (patented or newly innovated) - they have a brand name. The
second category includes brand name generic drugs. The third category is generic-generic drugs- which are sold
without a brand name. As per ORG IMS research provisional estimates, India's pharmaceutical market may grow
24-25 percent in 2024; However, the pharmaceutical supply chain is beset with problems. Many problems may
occur, however, whenever consumers find it difficult to evaluate the qualities of the products, as is the case in the
pharmaceutical sector. The problem is that the information asymmetries may prevent effective brand name
generics from competing with innovator products, generic generics competing with brand name generics and
innovator drugs etc… In the pharmaceutical sector, it is known that the innovator drug is the standard of quality;
the issue is not whether the innovator is effective, the issue is whether the generic is as effective as the innovator.
There is a real danger, therefore, that consumers/ physicians who find it difficult/ costly to evaluate the qualities
of generics might develop a strong preference for innovator medication or have a brand preference among the
generics. This is true especially for the physician who has had a bad experience prescribing one generic
medication in the past and decided to shun all generic medication. Therefore, proper regulation by the regulatory
bodies is must.

BUSINESS AND INVESTMENT CLIMATE

India improved its Ease of Doing Business ranking from 142 in 2014 to 63 in 2019, a jump of 79 positions.
India has also been ranked number 1 in the Central and South Asian region in the Global Innovation Index, an
improvement of 33 positions, from number 81 globally in 2015 to number 48 in 2020.

India has been one of the fastest-growing emerging economies over the last two decades, receiving large FDI
inflows, which have grown from USD 2.5 Billion in 2000-01 to USD 50 Billion in 2019-20.1 In health, FDI has
been concentrated in pharmaceuticals, constituting approximately two-thirds of the total health-sector-related
FDI over the last two decades.9 Thus, there is considerable scope for more FDI in the medical devices
manufacturing segment, in particular, for discouraging import dependency.

Growth in multi-specialty and single-specialty hospitals in the country has taken place mainly on the back of
private equity (PE) funding. A flurry of investments happened post the year 2000, mainly from overseas funds,
when India allowed 100% FDI in the hospital sector.9,10 Till 2019, more than 110 PE and Venture Capital
investors had invested in the healthcare delivery space in India.10 The value of merger and acquisition deals in
hospitals jumped by a record 155% to INR 7,615 Crore (USD 1.09 Billion) in FY19.

OVERARCHING POLICY LANDSCAPE

India is committed to achieving Universal Health Coverage as part of the Sustainable Development Goals. In
the Union Budget 2021-22, the Government allocated a sum of INR 2,23,846 Crore for health and wellbeing, up
from the 2020-21 budgetary allocation of INR 94,452 Crore.12 Between FY15-FY21 BE, India’s public health
expenditure as a percentage of GDP increased from 1.2% to 1.8%.

India’s National Health Policy (2017) aims to increase Government spending on health to 2.5% of GDP by
2025.13 The Policy emphasises greater investment in preventative and primary healthcare, access to and
financial protection at the secondary and tertiary care levels as well as the provision of free drugs, diagnostics
and emergency care services at all public hospitals. Further, the Policy envisages private sector collaboration,
including the use of financial and non-financial incentives to encourage participation.

The Pharmaceutical Industry Landscape

Policy Context: The pharmaceuticals sector in India is currently open for 100% Foreign Direct Investment
(FDI) in both Greenfield (Initiation of new venture and facilities) and Brownfield (Purchasing of an existing
facility to begin new production) investments. Mergers and Acquisitions (M&A) can act as a source of capital,
productivity and innovation but can potentially jeopardize the capability of Indian pharmaceutical industry in
relation to ‘Access to Medicines’, which is one of the major goals of the health system. In order to objectively
evaluate impact of M&A on access to medicines, an analytic study was commissioned under the Government of
UK’s Department for International Development (DFID) supported Knowledge Partnership Programme (KPP).
Current Status: The opening of pharma sector for FDI has directed lots of capital and interest into Indian
pharmaceuticals. However, critics point out that more than 90% of FDIs are currently for Brownfield projects
E.g. $989 million during April 2012-April 2013 was Brownfield compared to just $87.3 million for Greenfield
investments. One of the primary reasons pointed out by industry is complex and time consuming approval
regime for Greenfield pharmaceutical investments. Concerns: There are concerns over the acquisitions in Indian
pharma sector around:
• Potential for price increase
• Limited availability of priority products
• Consolidation of market share; leading to anticompetitive behaviour
• Reduction in availability of generics
• Availability and affordability of off-patent/generics with patent cliff
• Lack of challenge to Multinational Corporation (MNC) patents

The Indian pharmaceutical industry ranks 13th in the world by value of pharmaceutical products and is highly
fragmented, currently having more than 20,000 registered companies. The top 1.25% companies (approximately
250) control 70% of the overall market. The Indian domestic pharmaceutical players enjoy certain advantages
which attracts M&A in the country: Lower cost of operations, R&D and capital expenditure, proven track
record in bulk drug and formulation patents, strong domestic support in production, from raw material
requirements to finished goods, and an attractive Indian market.

The rise of the competition, the financial liberalization allowing capital outflows and the rapid technological
advances are the main drivers of the globalization process extensively favouring the influence, presence and
participation of foreign owned, multinationals and new domestic companies in national economies.
The global pharmaceutical industry is witness to declining R&D productivity, expiring patents on blockbuster
products and relentless downward pricing pressure forcing companies to look closely at the bottom line. One
effect of this slowdown has been an upsurge in the level of M&A activity as players within the industry
consolidate to cut costs, expand research pipelines and lengthen geographic footprints.

Current Scenario

All pharmaceutical companies want to grow bigger, have better products and expand market share. Often,
companies acquire smaller companies, or form joint venture agreements, to gain control of their patent rights,
technologies, products, R&D (research & development) facilities, manufacturing facilities, and, at times, their
marketing/distribution channels. The pharma sector is currently open for 100 percent Foreign Direct
Investments (FDI) in both Greenfield and Brownfield projects. Greenfield investments are under the automatic
route of Department of Industrial Policy & Promotion (DIPP). The Government last introduced substantial
changes in the FDI policy in November 2011 whereby stating that “Brownfield investments (i.e. investments in
existing companies)” would require prior approval from the Foreign Investment Promotion Board (FIPB).
Invariably there is preference for Brown field investments so as to cut down perceived long gestation period.
One of the primary reasons pointed out by industry is the complex and time-consuming approval regime for
Greenfield pharmaceutical investment which at times takes up to 3-5 years and 30+ regulatory approvals.

The opening of pharma sector for FDI has directed lots of capital and interest into Indian pharmaceuticals from
foreign investment point of view. However, critics point out that more than 90% of FDIs are currently for
Brownfield Projects which has already led to the loss of local production of many important drugs. E.g. $989
million during April 2012- April 2013 was Brownfield compared to just $87.3 million for Greenfield
investments.

Concerns over the recent spate of M & A in Indian Pharma Industry by foreign investors have been articulated
at different forums.
Some of these concerns:
- Potential for drug prices to go up,
- Limited availability of high-priced specialty products
- Limiting the power of government to grant Compulsory License (CL)
- Reduction in availability of generics (of the acquired company) in the market.

M&A in Indian Pharma Industry

Advantages of the Indian pharma:
1. Low cost of innovation and capital expenditure
2. Proven track record in bulk drug and formulation patents
3. Strong domestic support in production
4. Hub for contract and clinical research
5. Focus on reverse engineering and development of processes

India had opened the sector to foreign investments up to 100 percent on the automatic route (without prior
approval either of the Government or the Reserve Bank of India) in 2002. However certain restrictions were
imposed after an intense debate following a spate of acquisitions of Indian companies by global drug makers
including the takeover of biggest domestic company Ranbaxy by Daichi Sankyo.
The government then introduced distinct norms for FDI in Greenfield and Brownfield projects amid fears that
consumers in India will be denied cheap medicines if foreign multinational companies continued to buy large
domestic pharma companies.

As a result, all forms of FDI including foreign portfolio investments in existing Indian pharma companies have
since required prior approval from the Foreign Investment Promotion Board and need to meet certain conditions
to ensure the local company continues to produce essential drugs.

Investors also have to give a commitment to manufacture and make available essential drugs post acquisition for
five years, besides increasing expenditure by five percent on research and development for diseases prevalent in
India.

Non-compete clause (agreement not to enter into or start a similar profession or trade in competition against
another firm) is not allowed either, except in special circumstances. Interestingly, Ranbaxy Laboratories, whose
acquisition had fuelled strong protectionist concerns, has since been acquired by another large Indian firm, Sun
Pharmaceuticals. The government recently moved medical devices sector out of the approval route even in case
of Brownfield investments, indicating it may not be averse to dropping some restrictions. India is keen to draw
investments into the sector to reduce the country's dependence on China for bulk drugs and is looking at measures
to boost productivity in the sector.

During the last decade, Indian pharmaceutical companies have become the main source of low-priced quality
generics for developing countries. For example, India has a dominant global market share of Antiretroviral
(ARVs) (80%), paediatric ARVs (90%), anti-TB drugs (70%-80%), and Artemisinin-based Combination Therapy
(ACTs) - (70%-80%).

India also provides up to 70% of vaccines procured by UNICEF for developing countries. Thus any disruption in
pricing, availability and R&D efforts for low cost drugs have a potential impact on global public health especially
in developing countries.

However, there is a need to strike a balance between public health concerns of India and developing countries
and attracting FDI in the pharmaceutical sector.

The Indian pharmaceutical industry has developed through a range of governmental incentives and, foreign firms
that have invested in the industry, have additionally contributed to the growth.
Firms with foreign ownership have been seen to experience higher productivity levels. Also, there is expectation
that this will lead to quicker access to patented medicines for patients in India and developing countries since
many of these acquirers may be holding patents. Also, possible technology transfer and quality focus of large
MNC’s can potentially raise profile for Indian pharma industry.

The cumulative effect of all these drivers makes the Indian pharma industry attractive to the foreign
pharmaceutical majors.

Impact of M&A in pharmaceutical sector on public health and society depends on four key levers - Pricing,
Availability, R&D focus and social commitments. The overall impact based on our analysis is positive in terms
of availability and affordability but some considerations and concerns on monopolization of certain molecules
after these transactions. Key findings from study across these areas are:

Pricing

Pricing or affordability is one of the major attributes of access to medicines, which can be explained in terms of
the ability of the patients to pay for the medicines. As per the relevance of the study, following indicators have
been chosen to evaluate the impact of M&A on price of medicines:

- Changes in price levels across portfolio: The analysis of price variation on the products existing in the company
portfolio suggests that all the companies included in the analysis have shown a decrease in price growth across
portfolio during post acquisition period.

- Therapeutic Area (TA) price change for acquired company in comparison to market: The analysis suggests
that the price levels at therapeutic area have decreased in overall context during post acquisition period.

- Trends in price change for molecules where acquired companies have high market share: The analysis of
molecule wise price growth data suggests shown a negative impact of M&A i.e. price growth of molecules where
acquired companies had high market share is higher during post acquisition period. E.g Losartan Potassium for
high blood pressure.

Availability

Availability of required medicines by the patients at the right time is a critical element to ensure the access to
medicines in India and other developing countries. To evaluate the impact of M&A on medicine availability,
following parameters have been analysed:

- Product Profile (Focus on API): Sales of APIs have increased in post-acquisition period with a faster growth
rate compared to pre-acquisition. This can be critical in reducing dependency on for raw materials

- Domestic vs. Export focus: Domestic sales and exports have both grown in post-acquisition period for
companies under acquisition. However, during post acquisition; growth rate for exports has increased at a higher
rate in all cases indicating higher focus on export.

- Pace of new launches (new brands but non innovative molecules - incl. NLEM (National List of Essential
Medicines) & Non-NLEM new launches): The overall impact of M&A over the pace of new launches in India is
positive as companies have added new products in portfolio.
- Discontinuation of products: The impact of M&A on discontinuation of product has shown a positive impact.
Post-acquisition, number of overall and essential medicine discontinuations has both decreased. The products that
were discontinued were having small market share and therefore did not impact availability.

- Availability and sales of drugs in different town class levels: (classification of towns and cities as per Census
based on population) (Town class coverage): Post M&A, rate of growth for companies has increased for tier 1-2
towns; whereas, a lower growth rate is seen in lower town class as compared to pre-acquisition period. This can
be attributed to industry view that lower tier markets are much more complex to penetrate and present less
profitable opportunities in short term.

Research & Development

Investment in Research & Development and Innovation is one of the critical aspects of ‘access to medicine’. To
understand the impact of M&A on research and development following parameters have been studies during pre
and post-acquisition period for companies:

• R&D Expenditure: R&D expenditure as a percentage of sales during pre and post-acquisition has been used
to evaluate the impact of M&A on research and development. The analysis suggests that the overall impact of
M&A over R&D is negative during post acquisition period, as most companies have reduced share of investment
on R&D.

• R&D - Local market orientation: Couple of companies under consideration have launched a New Chemical
Entities (NCE’s) / newer drugs from their global portfolios based on local disease pattern. However, largely, the
impact of M&A over R&D orientation has not been as per expectations but still can be termed as positive due to
extremely low/negligible base of earlier locally oriented innovations.

• Innovative drug (new molecules) launches: The number of patented drugs introduced after acquisition is used
to evaluate the impact of M&A on this areas. This has been found to be neutral as none of the companies under
study have launched any innovative drug in post-acquisition phase.

• Transfer of technology: One of the critical expectations at time of allowing FDI into a particular sector is
around potential technology gain that local companies receive from global acquirers. However, in case of Pharma
M&A, there is no evidence that post acquisition, acquiring company has transferred process improvement,
operation management practices, IT system and quality control measures to Indian companies. None of the studied
parent companies have brought any significant technology pertaining to drug discovery in India. Social
Consequences M&A brings a structural change in the organization that leads to consequences for individuals,
productivity and quality. To understand social consequence of M&A in Indian pharmaceutical industry, following
parameters have been studied:

• Employment Generation: The impact of M&A over the employment generation has been found positive. Post-
acquisition companies have generated new job opportunities and appointed manpower from India which posed a
positive impact.

• Salaries and other employees’ related expenditure per employee: Post acquisition the average salary of the
employees has been increased, but the analysis also found that the employee expenditure per employee has
reduced. So the overall impact was found to be neutral for this parameter.
RECOMMENDATIONS
Key principles for designing any policy for minimizing negative and maximizing positive impact of M&A should
be based on the desired outcome for patients in India and other developing countries and industry. From a patient
perspective the desired outcome is better access to medicine.

From an industry perspective, the desired outcome is commercial sustainability and incentive for future
innovation. The broader objective is around better health outcomes for all, a stronger economy and equitable
access.

Interventions are required from industry on:

• Pricing of Molecules with High Market Share for Acquired Companies: Industry and enabling policy
environment needs to be much more considerate to public health needs of India and other developing countries
when it comes to setting prices of medicines especially in molecules where competition is lower and acquired
companies have high market share.
• Availability in Lower Town Classes: From a commercial standpoint, lower income countries, lower tier
markets and rural areas provide a tremendous opportunity for pharmaceutical companies. However, these require
long term view and investment and are much tougher markets to penetrate due to lack of supporting infrastructure,
supply chain and prescribing specialist doctors. Industry needs to participate in developing and sharing supporting
infrastructure to ensure availability of medicines in rural areas is not impacted even after strategic shifts such as
M&A.
• Launch of Patented Drugs: Industry needs to engage government in a dialogue to ensure commercial viability
and premium is maintained on innovator drugs and at the same time access to critical drugs is not denied to
patients in India and other developing countries. This will ensure one of the arguments in favour of M&A with
regards to faster availability of patented drugs is validated.
• Focus on R&D Specific to Developing Country Needs: Industry should ensure that development of innovation
ecosystem must be prioritized and areas such as nurturing R&D talent, supporting research education institutes
must be top priority so that R&D focus is locally relevant.

Suggested Policy Roadmap to Maximize Positive Public Health Impact of M&A

in Pharmaceuticals Sector
This roadmap can serve as a framework for supplementing the existing mechanisms such as Competition
Commission of India and FIPB and their respective guidelines to ensure specific issues related to pharmaceuticals
are taken under consideration at the time of acquisition. For successful implementation of the framework it is
suggested that a joint committee comprising of Government Officials, drawing from the likes of the Ministry of
Health and Family Welfare, Department of Pharmaceuticals, National Pharmaceutical Pricing Authority (NPPA),
Department of Industrial Policy and Promotion (DIPP) and Competition Commission of India can be formed.
This committee should take the framework forward to develop the detailed policy interventions for the country
in consultation with the key stakeholders. Following are the suggested key items that the committee may consider:

• Promote competition in molecules with high market share of one or two companies: Identify molecules
where competition is lower and public health priority of India and other developing countries is higher so that
adequate incentives can be provided for private sector to increase competition in selected molecules with the
expectation that adequate competition under existing pricing policy will ensure affordability.

• Molecule level price monitoring post-acquisition for a defined time period: In consultation with NPPA and
Competition Commission of India (CCI), adequate capabilities and capacities are built to ensure molecule level
price monitoring is possible for a defined time period after acquisition. This will ensure any molecule specific
pricing shocks are minimized for India and other developing countries.
• Incentivize Lower Town Class and Rural Availability: Establish cost-effective methods to incentivize and
support private sector (in terms of necessary supply chain and infrastructure requirements) to ensure quality
medicines are available across India and in other developing countries.

• Incentivize Availability of Innovator Drugs: Even though price setting mechanisms of patented innovator
drugs needs to be clearly laid out and in favour of ensuring affordable access, there should be adequate room for
industry to ensure commercial viability and incentive for innovation. A representation mechanism should be
formulated so that dialogue can be initiated with industry on this issue.

• Harmonization among National Drug Regulatory Agencies in Developing Countries: To ensure there is
incentive and commercial pressure on pharmaceutical companies, there should be harmonized efforts from all
developing countries to ensure new patented specialty products are timely launched at affordable prices in all
countries.

• Incentivizing Exports to Meet Medicine Access Needs across the Globe: With increasing focus of China to
penetrate generic formulations market across developing countries, India has to incentivize exports and focus on
export promotion to maintain market leadership and ensure access to medicines in these countries.

Very recently Government of India has allowed 100 percent FDI in medical devices sector to give a boost to
manufacturing of medical devices in country. This along with policy initiatives for attracting FDIs is likely to
give further impetus to M&As in India. Universal Health Coverage is going to one of the major sustainable
development goal and access to quality essential medicines at affordable costs is going to be key element. Also,
further market monitoring is required to understand implications of domestic acquisitions as well on access of
medicines.
Recommendations as above should be taken on board for calibrating policy measures to minimize negative and
maximize positive consequences.
 Regulatory and Operational Issues Affecting M&A in
Pharmaceuticals and Healthcare Industry

There is no denying that India is one of the most significant players in the global pharmaceuticals space,
especially in the generic and affordable vaccines segment. Emerging markets such as India are expected to
become further crucial in the foreseeable future, given the global supply chain disruptions and discontinuities.
Fifty percent of the global demand for various vaccines is met by the Indian pharmaceuticals industry and as per
the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. It is expected
to develop at an annual rate of 11% over the next two years, possibly exceeding $60 billion in value. India’s
healthcare market is expected to reach $372 billion, driven by rising income, better health awareness and
increasing access to insurance. India’s healthcare public expenditure stood at 2.1% of GDP in 2021-22 against
1.8% in 2020-21. Furthermore, in Union Budget 2022-23, Rs 86,200.65 crore ($11.28 billion) was allocated to
the Ministry of Health and Family Welfare (MoHFW).

Hot on the heels of these predictions, M&A activity in India picked up momentum in 2022 and reports indicate
that Indian healthcare entities spent approximately $4.32 billon during January-June 2022 on mergers and
acquisitions. Companies with innovative capabilities, such as telehealth or innovation in the medical devices
space, are also attracting significant investor attention. 2023 is expected to witness more capability-driven deals,
providing access to newer technologies as large pharma companies are looking to divest non-core assets and
optimise their portfolio. Private equity players are also expected to continue to look for attractive opportunities
in the sector and also exit opportunities through secondary sale.

Challenges
Given that the pharmaceutical and healthcare industry is heavily regulated, with multiple licences required to be
obtained by industry players, challenges around change in ownership and transferability of licences and
approvals play a crucial role during such transactions. Such change can require intimation, approval, surrender
and/ or requirement to obtain fresh licence. Nature of transactions has a direct impact on the strategy to be
adopted for business continuity and keeping disruptions to a minimum. The regulatory regime and operational
lacunas pose unique challenges to such transactions. Such challenges include:

• Consequences of Change in Constitution:

Transactions may take the form of mergers, acquisitions, slump sales, demergers, change in name, change in
management, etc., and each such transaction would be dealt with differently under applicable sectoral
regulations. In every such transaction in this sector, investors are left to navigate the complex maze of change in
control requirements under sector specific laws. The requirements may be mentioned in either the principal
legislations, rules and regulations framed thereunder or the actual licences and approvals issued. Much time,
effort and money is spent on assessing the requirements for transactions and preparing strategies to ensure
business continuity. However, in certain instances, the practices followed by local or state level authorities may
override any other consideration and this mandates a continuous dialogue with such authorities. If not
strategised carefully, possibility of periods with operational blackouts exist.

Additionally, there are no standardised triggers, timelines, or processes prescribed under the laws applicable to
this sector. For instance, even the various rules promulgated under the same Act, i.e. Drugs and Cosmetics Act,
1940 (“D&C Act”), vary to a large extent with regard to the timelines and deemed validity of existing licences.
The Drugs Rules, 1945 (“Drugs Rules”), fails to define what ‘change in constitution’ means. The timelines for
making intimations and applications also vary across the Drugs Rules, Medical Devices Rules, 2017 (“MD
Rules”), and Cosmetics Rules, 2020 (“Cosmetics Rules”). The Drugs Rules and Cosmetics Rules impose a
hard cap on deemed validity of existing licences, whereas the MD Rules is more pragmatic in this sense and
provides deemed validity of licences till the licencing authority takes its decision. The MD Rules and Cosmetics
Rules also lay down the process to change the name of the licensee, and for other changes such as in labelling/
composition, etc., whereas the Drugs Rules do not. Under many other legislations, the trigger for intimations
and approvals is not ‘change in constitution’. Instead, these legislations impose requirements on the licensee in
case of ‘change in ownership’, or ‘change in management’ or ‘modifications or additions or changes in …any
other material information, based on which the license was granted’ or ‘change that alters the information
contained in the license certificate’, while conveniently not defining any of these terms. Other legislations
remain silent on this aspect. This results in investors struggling with a veritable Ship of Theseus paradox.

While recent changes in some regulations such as the promulgation of MD Rules and Cosmetics Rules have
brought in some modicum of clarity, the issues, by and large, remain. For instance, asset transfers have not even
been dealt with in these regulations. Similarly, changes in case of partnership firms are also not adequately dealt
with. In the case of demergers, the next steps and approvals are to be determined on an ad-hoc basis, frequently
involving liaison with Government officials. While demerger scheme sanction orders of the National Company
Law Tribunals (“NCLT”) invariably contain provisions that allow for continued validity of all licences and
approvals, due to the inherent disconnect between the company law regulations and sectoral legislations such as
the D&C Act, licencing authorities insist upon the demerged entities obtaining fresh licences and approvals in
their own name. This creates multiple points of friction – for instance, many of the licences and approvals are
issued by State licencing authorities, and for an entity with operations across India, this implies liaising with
multiple authorities, each with their own set of documentation and timeline requirements. The cost of
transaction of such nature, therefore, increases, especially, if there is any possibility of an operations blackout
period.

• Greenfield Projects under the FDI Policy

The Consolidated Foreign Direct Investment (“FDI”) Policy of India currently allows 100% FDI in the
pharmaceuticals sector in both Greenfield (under the automatic entry route) and Brownfield (automatic entry
route up to 74% and Government route beyond 74%) investment categories. However, critics observe that more
than 90% FDI is currently for Brownfield projects and one of the primary reasons pointed out by the industry is
the complex and time consuming approval regime for Greenfield pharmaceutical investments. The Department
of Pharmaceuticals approved 21 FDI proposals worth Rs 46.8 billion for Brownfield pharmaceutical projects
during the first nine months of 2022. Further, FDI from an entity of a country sharing land border with India, or
where the beneficial owner of an investment into India is situated in or is a citizen of any such country
continues to require prior government approval.

• Drug Price Fixation under DPCO

Ceiling price for essential drugs is capped by the NPPA, in terms of the Drug Price Control Order, 2013
(“DPCO”). It may be noted that the DPCO also restricts price increases related to ‘non-scheduled
formulations’ i.e. a formulation that is not included in the National List of Essential Medicines and medical
devices. The Government monitors the maximum retail price (“MRP”) of all drugs, including non-scheduled
formulations to ensure that no manufacturer/ importer increases drug price by more than 10% (ten percent) of
the MRP during the preceding 12 months.
Irrational price ceiling and restrictions threaten the structure and long-term health of the pharma and healthcare
industry, harm the investment climate, hamper investor confidence in choosing India as a potential location for
market expansion and runs contrary to the ‘Ease of Doing Business’ policy decision adopted by the Indian
Government. This is especially true since the price control regime is based on the Essential Commodities Act,
1955. However, all drugs are subject to price control in some way or the other, and some of the drugs on which
ceiling prices are imposed, may not always be considered ‘essential’. This also impacts FDI in the sector due to
its direct link with maintenance of prescribed production levels of drugs, which are under the National List of
Essential Medicines. Further, there are mandates to maintain minimum levels of production of essential drugs
and investors need to be mindful of such requirements especially in cases of asset transfers and where
production of such drugs is spread across multiple plants or manufacturing
units.

EU regime
The European Commission has power under the EU Merger Regulation (139/2004/ EC) (EUMR) to examine
significant cross-border M&A, and to prohibit them when they are incompatible with the internal market (for
example, because they would significantly impede effective competition in all or a substantial part of the internal
market, in particular as a result of the creation or strengthening of a dominant position). The EUMR applies to
any "concentration" with an "EU dimension". The concept of concentration is broadly defined to cover not just
mergers and acquisitions of control, but also the creation of "full-function" joint ventures (see Practice note, EU
mergers and acquisitions: What is a concentration?). A transaction has an EU dimension when certain turnover
thresholds are satisfied (see Practice note, EU Mergers & acquisitions: EU dimension).

Generally, the European Commission has exclusive jurisdiction over concentrations with an EU dimension.
Transactions that are subject to review by the Commission under the EUMR are not, as a general rule, subject to
parallel inquiries under the national merger control rules of member states (see Practice note, EU mergers and
acquisitions: One-stop shop principle). Articles 4, 9 and 22 of the EUMR provide for procedures that allow
jurisdiction to be transferred between the Commission and the national competition authorities of member states
in certain circumstances (see Practice note, EU mergers and acquisitions: Referral back to member states and
Referral to the Commission). As discussed in more detail below in Jurisdictional aspects of EU merger control:
the Article 22 referral mechanism, in March 2021 the Commission issued new guidance on the Article 22 referral
mechanism, encouraging national competition authorities to refer certain transactions to the Commission for
review even where they do not meet the EU or national merger control thresholds.

Concentrations falling within the scope of the EUMR must be notified to the European Commission and generally
cannot be implemented unless the Commission determines that they are compatible with the internal market. Once
a proposed transaction is formally notified, the Commission typically has 25 working days to make its initial,
Phase I assessment of whether the transaction can be expected to "significantly impede effective competition" in
the internal market (see Practice note, EU Mergers & acquisitions: Commission's assessment). If the Commission
decides to open indepth, Phase II proceedings (which happens in a minority of cases), it will have at least 90
working days to complete its investigation. At the end of the Phase II period, the Commission may either clear
the transaction (unconditionally or subject to "commitments") or prohibit it.
UK regime
The UK merger control rules are contained in the Enterprise Act 2002. Generally, mergers qualify for review
under the UK rules if either of the following tests is satisfied:

• The "turnover test": the UK turnover of the business being acquired exceeds £70 million.
• The "share of supply test": the transaction results in the creation or enlargement of a share of at least 25% of the
supply or purchase of goods or services of a particular description in the UK or a substantial part of it

The share of supply test is not a market share test: it is not necessary to define the relevant product and geographic
markets to determine whether the test is satisfied. The CMA has a wide discretion to describe the relevant goods
or services, and to choose the criteria for determining whether the 25% threshold is met. In Roche/Spark
Therapeutics, the merger was deemed to meet the share of supply test even though the US-based target, Spark,
was not engaged in the commercial supply of any goods or services in the UK and did not generate any other UK
turnover. The CMA found that Spark's global R&D activities relating to the potential treatment of haemophilia A
(Hem A) in the UK contributed to the supply of goods or services in the UK, on the basis that advanced-stage
R&D activities are integral to the process of supplying pharma treatments. It also found that the 25% threshold
was satisfied on the basis of the number of UK-based employees engaged in activities relating to the treatment of
Hem A and the number of UK and EU patents held by the parties relating to the treatment of Hem A. For further
analysis of the CMA's decision,

Unlike under the EUMR, there is no system of mandatory notification and clearance in the UK. In practice,
however, mergers are often notified on a voluntary basis, usually before completion. The CMA has the power to
review mergers regardless of whether they are notified and has a dedicated Mergers Intelligence Committee that
monitors UK merger activity. If the CMA hears about a non-notified merger, whether through being informed via
a third party bringing the transaction to its attention or through its own monitoring of the financial press, it may
choose to contact the parties and ask them for the information necessary to establish whether the jurisdictional
thresholds are satisfied and to assess the merger's impact on competition.

Transactions that meet the jurisdictional thresholds may be assessed by the CMA in an initial Phase I investigation
(whose assessment period is 40 working days). The CMA must refer a transaction for an in-depth Phase II
investigation if it considers that the transaction may result in a "substantial lessening of competition" (SLC) on
the market(s) in question. The SLC test is effectively the same as the substantive test under the EU merger regime
and is applied by the CMA at both Phase I and Phase II. At Phase I, the CMA applies the "reasonably held belief"
test. At Phase II, the threshold is higher as the CMA decides based on a balance of probabilities (that is, whether
an SLC is more likely than not). The Phase II investigation may result in a prohibition decision, a decision that
the merger may proceed subject to commitments, or clearance.

Recent decisional practice suggests that, as well as taking an expansive approach to jurisdiction, the CMA is now
taking an increasingly thorough approach to Phase I investigations and is also referring a higher proportion of
deals to Phase II. In the year to March 2022, 18% of all mergers assessed by the CMA in Phase I were referred
for a detailed investigation, compared with an average of 13% in the years 2015-2018. And in 75% of Phase II
cases in the year to March 2022, the transaction did not go ahead as originally notified, either because of
abandonment, remedies, or prohibition (CMA: Annual Report and Accounts 2021/2022, page 9).

Particularities of the pharma sector

Competition authorities recognise that for their antitrust enforcement and merger control in the pharma sector to
be effective, they need to take account of the particularities, and resulting competitive dynamics, of the sector.
These particularities include:
• Specific structures of demand and supply (involving a wide variety of stakeholders). The demand side in
pharma markets is shaped by a number of stakeholders whose interests are not necessarily aligned: patients;
doctors (who are responsible for effective treatment of patients but not for the cost); and national and private
health insurance schemes (which seek to ensure medicine expenditure is sustainable). The supply side is
characterised by manufacturers with various business models (supplying originator medicines, generic medicines
or both); wholesalers; and different types of pharmacies.

• Comprehensive legislative and regulatory frameworks. The pharma sector is highly regulated. As well as
fulfilling marketing authorisation requirements, manufacturers typically have to undergo pricing and
reimbursement procedures before marketing prescription drugs. UK and EU member state pricing and
reimbursement rules can have a significant impact on competition between such drugs. Over-the-counter (OTC)
products are subject to different competitive dynamics. They are less subject to reimbursement rules and
prescription guidance, which shifts the decision-making role to end-users and pharmacies. Success of OTC
products tends to rely more on advertising and branding strategies.

• High levels of R&D and innovation. The pharma sector is one of the most R&D-intensive in the world.
Innovation is driven by demand for new, more effective and safer treatments for patients and the threat of
competition (especially generic competition after loss of exclusivity). Development cycles for innovative drugs
are typically risky and lengthy, and entail high development costs. Only a small minority of candidate drugs
survive the development stage and finally make it to market.

• Exclusivity mechanisms. Given the high development costs and the fact that, once a new drug has been
developed, it is relatively simple for rivals to copy, legislation grants originator firms exclusivity mechanisms
which are designed to incentivise investment in R&D. Examples of such mechanisms include intellectual property
rights (such as patents and supplementary protection certificates), regulatory data protection and market
exclusivity.
Literature Review

BOOKS and JOURNALS

"US Antitrust Law and Enforcement: A Practice Introduction by Douglas Broder” - Provides a comprehensive
overview of US antitrust law, including its application to the pharmaceutical industry and recent developments.

"EU Law of Competition and Trade in the Pharmaceutical Sector by Pablo Figuero” - Offers a detailed analysis
of EU competition law, including the Merger Regulation and its application to the pharmaceutical sector.

"The Competition Issues in the Indian Pharmaceuticals Sector by Aditya Bhattacharjea and Fiyanshu Sindhwani”
- Provides in-depth analysis of the Indian Competition Act and its application to M&As, including case studies
from the pharmaceutical sector.

“Pharmaceutical M&A Activity: Effects on Prices, Innovation, and Competition by Barak Richman, Will
Mitchell” - Explores the specific considerations and challenges of M&As in the healthcare sector, including
pharmaceuticals.

“The Pharmaceutical Industry and the Future of Drug Development by David Taylor” - Analyses the global
pharmaceutical industry, including regulatory frameworks and policies relevant to M&As.

“Application of Competition Law: Exemptions and Exceptions by R. Shyam Khemani” - An International and
Comparative Perspective by Daniel Sokol: Compares competition law regimes and their application to
pharmaceutical M&As across different jurisdictions.

“East-Meets-West: Mergers and Acquisitions challenges and opportunities in and out of Asia by Yipeng Liu, Ralf
Bebenroth and Yi Yang” - Investigates the dynamics of M&As in the global pharmaceutical industry, analysing
the motivations, challenges, and regulatory contexts across different countries in Asia.

“Pharmaceutical Industry Restructuring and New Marketing Approaches: Enforcement Responses by Stephen
Paul Mahinka, Kathleen M. Sanzo” - Focuses on vertical mergers in the pharmaceutical sector, analysing their
anti-competitive potential and regulatory responses.

Regulatory Frameworks:

• United States: The Antitrust Division of the Department of Justice (DOJ) and the Federal Trade
Commission (FTC) enforce antitrust laws, reviewing M&As for potential harm to competition. The Hart-
Scott-Rodino Antitrust Improvements Act of 1976 mandates pre-merger notification for transactions
exceeding certain thresholds.
• European Union: The European Commission (EC) enforces EU competition law, assessing M&As based
on their impact on the common market. The Merger Regulation establishes thresholds for notification and
empowers the EC to block or impose conditions on mergers that raise competition concerns.
• India: The Competition Commission of India (CCI) reviews M&As under the Competition
Act, 2002. Like other jurisdictions, notification is mandatory for transactions exceeding certain
thresholds, and the CCI can prohibit or modify mergers found to harm competition.
 OBJECTIVES

• Identify and compare the key features of the regulatory frameworks governing M&As in the
pharmaceutical sectors of jurisdictions (US, EU and India). This includes:

o Notification thresholds and procedures

o Assessment criteria for potential harm to competition
o Remedies available to address anti-competitive concerns
o Role of regulatory agencies and stakeholders

• Assess the impact of M&A regulations on various stakeholders in the pharmaceutical sector:

o Evaluate the impact of M&As on competition, innovation, and drug prices in different jurisdictions.
o Analyse the effects on pharmaceutical companies, including access to resources, research and
development, and market share.
o Consider the implications for healthcare providers, patients, and public health systems

• Identify emerging trends and challenges in the regulation of M&As in the pharmaceutical sector. This
include:

o The increasing role of vertical mergers and their implications for competition.
o The impact of globalization and international cooperation on M&A regulation.
o The challenges of balancing competition with the need to address public health concerns, such as
pandemics.

• Develop recommendations for improving the effectiveness of M&A regulation in the pharmaceutical
sector. This involve suggestions for:

o Enhancing transparency and stakeholder engagement in the regulatory process.

o Harmonizing regulatory frameworks across different jurisdictions.
o Addressing specific challenges posed by new technologies or market dynamics.
 SCOPE
Geographical Scope:

• Comparison between two or more countries: Comparing the M&A regulations in India with other major
pharmaceutical markets like the US and Europe. This would allow us to analyse the similarities and
differences in regulatory frameworks, their impact on M&A activity, and potential lessons for India.
• Focusing on a specific region: Delving deeper into the M&A regulations and trends within India, USA
and EU.

Regulatory Focus:

• Competition law: Analysing how competition laws in different countries or regions assess M&A deals in
the pharmaceutical sector and the impact on market dynamics.
• Intellectual property law: Examining how intellectual property rights are treated in M&A deals and the
implications for innovation and access to medicines.
• Foreign investment regulations: Investigating how foreign investment regulations affect M&A activity
in the pharmaceutical sector, particularly in emerging markets like India.

HYPOTHESIS

• Hypothesis 1: Vertical mergers in the pharmaceutical sector (e.g., manufacturers acquiring distributors)
are more likely to harm competition and stifle innovation compared to horizontal mergers (e.g.,
consolidation among manufacturers).

• Hypothesis 2: Regulatory frameworks that prioritize access to essential medicines in M&A reviews (e.g.,
India) lead to improved affordability and availability of drugs compared to those focused solely on
competition.

• Hypothesis 3: Countries with regulatory frameworks that prioritize access to essential medicines in M&A
reviews experience a 10% lower average increase in drug prices for essential medicines compared to those
with solely competition-focused frameworks.

• Hypothesis 4: Horizontal mergers between pharmaceutical companies with complementary technology

platforms (e.g., drug discovery vs. delivery) lead to a higher rate of innovative drug development
compared to mergers within similar areas. (Track the number of novel drug candidates entering clinical
trials or approved within a set timeframe.)

• Hypothesis 5: Increased international cooperation and knowledge sharing on M&A regulation in the
pharmaceutical sector leads to a decrease in regulatory arbitrage strategies employed by companies to
circumvent stricter regimes. (Tracking the number of cross-border M&As involving countries with
differing regulatory stringency.)
 RESEARCH DESIGN AND METHODOLOGY

1. Research Design:

This research will likely employ a mixed-methods approach, combining qualitative and quantitative methods to
gain a comprehensive understanding.

• Qualitative methods:
o Literature review: Analysing existing academic literature, policy documents, and media reports on
M&As and their regulation in the pharmaceutical sector.
o Case studies: Conducting in-depth analysis of specific M&As in different jurisdictions (US, EU
and INDIA) to illustrate the application of regulations and explore their practical implications.
• Quantitative methods:
o Database analysis: Analysing data on M&As in the pharmaceutical sector, including deal
values, market share changes, and R&D spending, to identify trends and assess the impact of
regulations.
o Statistical analysis: Employing statistical techniques to test hypotheses and quantify the
relationships between M&As, regulatory interventions, and various outcome variables like
competition, innovation, and drug prices.

2. Methodology:

• Defining the scope of the study: Specifying the countries or regions to be compared, the timeframe for
analysis, and the specific aspects of M&A regulation to be focused on.
• Selecting and refining research questions: Developing clear and focused research questions that guide the
data collection and analysis process.
• Identifying data sources: Precisely outlining the sources of literature, interview participants, case
studies, and datasets to be used for both qualitative and quantitative data collection.
• Developing data collection instruments: Designing interview guides, surveys, or coding schemes for
analysing qualitative and quantitative data consistently.
• Conducting data collection: Carefully collecting data through interviews, document analysis, database
access, and other selected methods.
 • Data analysis and interpretation: Analysing qualitative data through thematic analysis, discourse
analysis, or other appropriate methods. Analysing quantitative data using statistical software and
techniques.
• Triangulation and validation: Combining and comparing findings from different data sources to ensure
the accuracy and validity of the research findings.
• Dissemination: Presenting the research findings through academic publications, reports, presentations, or
other suitable channels to reach relevant stakeholders and contribute to the field.

LIMITATIONS

Focus and scope:

• Limited number of jurisdictions: Comparing only a few countries might not fully capture the diversity of
regulatory approaches and M&A dynamics across the globe.
• Specific areas of regulation: The research might focus on certain aspects of M&A regulation (e.g., market
share thresholds) while neglecting other relevant factors (e.g., intellectual property considerations).
• Temporal constraints: Analysing M&As within a short timeframe might overlook long-term trends and
the evolving impact of regulations.

Data limitations:

• Incomplete or inaccurate data: Regulatory data on M&As, market share, R&D spending, and drug prices
may be incomplete or inconsistent across different jurisdictions, making comparisons challenging.
• Data availability restrictions: Access to confidential company data or sensitive government information
related to M&As and pricing may be limited, hindering comprehensive analysis.
• Temporal and spatial constraints: Analysing data within a specific timeframe or geographic scope may
not capture the full picture of long-term trends or global dynamics.

Methodological limitations:

• Choosing appropriate metrics: Selecting accurate and reliable quantitative metrics to represent complex
concepts like competition, innovation, and access to medicines can be subjective and influence
conclusions.
• Modelling challenges: Building econometric models that accurately capture the causal relationships
between M&As, regulations, and various outcomes can be complex and susceptible to confounding
factors.
• Generalizability of findings: Research findings based on specific case studies or limited comparisons may
not be generalizable to the entire pharmaceutical sector or other jurisdictions.
Conceptual limitations:

• Complexity of M&As: M&As are driven by diverse motives beyond regulatory considerations, making it
difficult to isolate the pure impact of regulations on their outcomes.
• Dynamic regulatory landscape: Regulations evolve over time, and attributing observed changes solely to
specific regulatory interventions can be challenging.
• Multifaceted impact of M&As: M&As can have both positive and negative consequences for
competition, innovation, and access, making it difficult to reach definitive conclusions about their overall
impact.

Tentative Chapterisation.

1. Introduction
- Background and Significance
- Research Objectives and Questions
- Definition of Mergers and Acquisitions
- The Pharmaceutical Industry Landscape
- Literature Review
- Methodology

2. Global Regulatory Landscape

- Overview of Global M&A Regulations
- International Organizations and Guidelines
- Comparative Analysis of Major Jurisdictions

3. Case Studies
- Notable M&A Cases in the Pharmaceutical Sector
- Regulatory Responses and Outcomes
- Lessons Learned from Previous Cases

4. Challenges in M&A Regulation & Future Prospects

- Identified Challenges and Issues
- Regulatory Gaps and Ambiguities
- Comparative Study of M&A Regulations in Selected Countries
- Key Differences and Similarities
- Evaluating the Impact of M&A Regulations on Market Dynamics
- Economic and Social Impacts

5. Conclusion
- Summary of Key Findings
- Implications for Industry and Policy
- Recommendations for Future Research and Regulatory Adjustments
 REFERENCE/ BIBLIOGRAPHY

1. US Antitrust Law and Enforcement: A Practice Introduction by Douglas Broder.

2. EU Law of Competition and Trade in the Pharmaceutical Sector by Pablo Figuero.
3. The Competition Issues in the Indian Pharmaceuticals Sector by Aditya Bhattacharjea and Fiyanshu
Sindhwani.
4. Pharmaceutical M&A Activity: Effects on Prices, Innovation, and Competition by Barak Richman, Will
Mitchell.
5. The Pharmaceutical Industry and the Future of Drug Development by David Taylor.
6. Application of Competition Law: Exemptions and Exceptions by R. Shyam Khemani.
7. East-Meets-West: Mergers and Acquisitions challenges and opportunities in and out of Asia by Yipeng
Liu, Ralf Bebenroth and Yi Yang.
8. Pharmaceutical Industry Restructuring and New Marketing Approaches: Enforcement Responses by
Stephen Paul Mahinka, Kathleen M. Sanzo.
9. The Competition Act, 2002.
10. EU Merger Regulation (139/2004) and Commission Regulation (EC) No 802/2004.
11. The Securities Act of 1933 (the Securities Act) and the Securities Exchange Act of 1934 (the Exchange
Act).
12. The Companies Act, 2013.
13. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
14. Insolvency And Bankruptcy Code, 2016.