MERGERS & ACQUISITION IN

INDIAN PHARMACEUTICAL
INDUSTRY

Submitted By:
Harsanjeet Singh Bhangoo
Roll No: 56/08
Introduction
 One of the largest & biggest among the developing countries($22 billion)
 Ranks 13th in terms of export value of bulk actives and dosage forms &
3rd in term of volume
 Caters to 70% of country’s demand
 Adhere to highest quality standards and are approved by regulatory
authorities in USA and UK.
 Gradually shifted from traditional “Reverse Engineering” to original
research or regulated generic market
 High capital requirement, high technical requirement, high process skills,
high value addition prospects, high export volumes, high market
sophistication
Industry Structure
 Highly fragmented with 3,000 small/medium sized generic pharmaceutical
manufacturers, 20,000 units out of which 300 units are in the organized sector;
while others exist in the small scale/unorganized sector.
 The leading 250 pharmaceutical companies control 70% of the market with
market leader holding nearly 7% of the market share.
 5 Central Public Sector Units that manufacture drugs. These companies are:
Indian Drugs & Pharmaceuticals
Hindustan Antibiotics Ltd.
Bengal Chemical and Pharmaceuticals Ltd.
Bengal Immunity Ltd.
Smith Stanistreet Pharmaceuticals Ltd.
 India is largely self-sufficient in case of formulations, though some life saving,
new generation- technology-barrier formulations continue to be imported
Continue
 highest number of plants approved by the US Food and Drug
Administration outside the US. It also has the large number of Drug
Master Files (DMFs) filed which gives it access to the high growth generic
bulk drugs market.
 Setting up a plant is 40% cheaper in India compared to developed
countries and the cost of bulk drug production is 60-70 percent less.
 The strength of the industry is in developing cost effective technologies in
the shortest possible time for drug intermediates and bulk activities
without compromising on quality. In accordance with WTO stipulations,
India grants product patent recognition to all New Chemical Entities.
 Industry Segmentation
India is globally recognized as a low cost, high
•

quality bulk drugs and formulations manufacturer

and supplier.
Contract Research, a nascent industry in India has
•

witnessed commendable growth in the last few

years
•The bulk drug segment is a low-margin and
volume-driven business. The thrust is on
manufacturing. In manufacturing operation,
efficiency through better process skills to reduce
both manufacturing time and cost is critical. Low
cost manufacturing is a distinct advantage gained
by Indian companies over a period of time with a
steep learning curve.
Formulation segment
 rising population, increasing per capita income, increasing access to
medicine, especially in the rural areas and an increasing population of over
sixty years of age. Presently, the growth of a domestic pharmaceutical
company is critically dependant on its therapeutic presence. In terms of
end-use, the pharmaceutical industry is subdivided into several therapeutic
segments
 Indian formulation exports grew
at a CAGR of 23.2% touching around
USD 4 billion in 2007-08. The growth
has been spurred mainly due to the
focus on regulated markets by
most Indian companies,
thereby increasing revenues.
Contract Research and Manufacturing

 with more than 80 US FDA-approved manufacturing facilities, is one of the

most preferred locations for outsourcing manufacturing services in India by
the multinationals and global pharmaceutical companies.
 The Indian CRAMS market stood at USD1.21 billion in 2007, and is
estimated to reach USD3.16 billion by 2010.
 Over 15 prominent contract research organizations (CROs) are now operating
in India attracted by her ability to offer efficient R&D on a low-cost basis.
 Thirty five per cent of business is in the field of new drug discovery and the
rest 65 per cent of business is in the clinical trials arena. India offers a huge
cost advantage in the clinical trials domain compared to Western countries.
The cost of hiring a chemist in India is one-fifth of the cost of hiring a chemist
in the West.
 
Domestic Growth Drivers
 Growing population and Improving incomes
 Changing Lifestyles
 Research and Development
 Healthcare expenditure
 Insurance Sector giving a lift
 Domestic Exports

Pharmaceutical exports touched a level of Rs. 30759 crores during 2007-08. Exports constitute a substantial part of
the total production of pharmaceuticals in India
Pharmaceutical Regulatory Laws & Bodies in India

 National Pharmaceutical Pricing Authority (NPPA)

 Central Drugs Standard and Control Organization (CDSCO)
 Department of Chemicals & Petrochemicals (DCP)
 Drug Policy Control Order (DPCO),1995
SWOT Analysis
 Strengths
1. Large untapped population(healthcare expenditure as low as $93)
2. Growing middle class open gates for lifestyle drugs
3. Lowest cost manufacturers
4. Highly skilled labor(115000 chemist graduates and 12000 PhD's every
year)
5. Possesses excellent chemistry and process reengineering skills. This
adds to the competitive advantage of the Indian companies. The strength
in chemistry skill helps Indian companies to develop processes, which
are cost effective.
 Weaknesses
1. Marred by the price regulation
2. Marred by lack of product patent, which prevents global pharmaceutical
companies to introduce new drugs in the country and discourages
innovation and drug discovery. But this has provided an upper hand to
the Indian pharma companies.
3. one of the least penetrated in the world. However, growth has been slow
to come by. As a result, Indian majors are relying on exports for growth.
To put things in to perspective, India accounts for almost 16% of the
world population while the total size of industry is just 1% of the global
pharma industry.
4. Due to very low barriers to entry ,it is highly fragmented. The industry
witnesses price competition, which reduces the growth of the industry in
value term. To put things in perspective, in the year 2003, the industry
actually grew by 10.4% but due to price competition, the growth in
value terms was 8.2% (prices actually declined by 2.2%)
 Opportunities

1. migration into a product patent based regime is likely to transform

industry fortunes in the long term. The new patent product regime will
bring with it new innovative drugs(thereby increasing profitability), will
force domestic pharma companies to focus more on R&D. This
migration could result in consolidation as well
2. Large number of drugs going off-patent in Europe and in the US
between 2005 to 2009
3. Opening up of health insurance sector and the expected growth in per
capita income are key growth drivers from a long-term perspective.
4. Being the lowest cost producer combined with FDA approved plants;
Indian companies can become a global outsourcing hub for
pharmaceutical products.
 Threats

1. concerns over the patent regime regarding its current structure. It might
be possible that the new government may change certain provisions of
the patent act formulated by the preceding government.
2. Threats from other low cost countries like China and Israel exist.
However, on the quality front, India is better placed relative to China.
So, differentiation in the contract manufacturing side may wane.
Ratio Analysis (Inter Firms)
 Top Five Firms  Bottom Three Firms
1. CIPLA 1. MOREPEN LABS
2. RANBAXY 2. SIRIS Ltd.
3. SUN PHARMA 3. KERBS BIOCHEM
4. PIRAMAL
HEALTHCARE
5. Dr. REDDY’S
LABORATORIES
Interpretation of Key Financial Ratios
Interpretation of bottom three
Mergers & Acquisitions
 Companies across the world are reaching out to their counterparts to take
mutual advantage of the other’s core competencies in R&D,
Manufacturing, Marketing and the niche opportunities offered by the
changing global pharmaceutical environment.
 global trend towards consolidation
 Main drivers for M & A activities are
1. The lack of research and development (R&D) productivity
2. expiring patents
3. generic competition
4. high profile product recalls
5. Easy availability of capital
 Three levels of integration that are currently being sought in the generics
industry

1. Back-end manufacturing capability (API/formulation)(US AND

EUROPEAN FIRMS)
2. Product integration (ANDA pipeline)
3. Front-end (marketing and distribution) in the developed world(INDIAN
COMPANIES)
 The product side integration is common to both sides, with weaker
US/European generics companies looking at anyone that could offer a
basket of products. This is because the US/European pipeline is weak
while Indian companies are aspiring to grow rapidly, want to achieve
critical mass quickly, and are looking for geographic expansion.
Incentives for Mergers and Acquisitions by
Indian companies
 Build critical mass in terms of marketing, manufacturing and research
Infrastructure
 Establish front end presence
 Diversification into new areas: Tap other geographies / therapeutic
segments / customers to enhance product life cycle and build synergies for
new products
 Enhance product, technology and intellectual property portfolio
 Catapulting market share

What the Indian companies are short of is the front-end distribution and
marketing infrastructure in the developed world. The current stress is on
bridging this gap
 Acquisitions are the quickest way to front end access. Apart from market
access – i.e. marketing and distribution infrastructure, the acquiring
company also gets an established customer base as well as some amount
of product integration (the acquired entities generally have a basket of
products) without the accompanying regulatory hurdles.
 Can overcome entry barriers for companies from the developing countries
and acquisitions make it easy for these organizations to find a foothold in
the developed markets.
Challenges
 stretched valuations of acquisition targets and the ability to turn them
around within a reasonable period of time. Acquisitions of RPG Aventis
(by Ranbaxy) and Alpharma (by Cadila) in France are clear examples
 In several other cases acquisitions by Indian generic companies are small
and have been primarily to expand geographical reach while at the same
time, shifting production from the acquired units to their cost effective
Indian plants. A few have been to develop a bouquet of products.
 Takes more than 4 years to see break even in most of the cases
 Acquiring companies have to pay greater attention to post merger
integration as this is a key for success of an acquisition and Indian
companies have to wake up to this fact.
IMPLICATIONS OF THE MERGER OF
RANBAXY AND DAIICHI

 Why did Ranbaxy go in for a merger with Daichii?

• Daiichi Sankyo Co. Ltd. signed an agreement to acquire 34.8% of Ranbaxy
Laboratories Ltd.
• Ranbaxy continued to operate as Daiichi Sankyo’s subsidiary but was
managed independently.
• The main benefit for Daiichi Sankyo from the merger was Ranbaxy’s low-cost
manufacturing infrastructure and supply chain strengths.
• Ranbaxy gained access to Daiichi Sankyo’s research and development
expertise to advance its branded drugs business. Daiichi Sankyo’s strength in
proprietary medicine complemented Ranbaxy’s leadership in the generics
segment and both companies acquired a broader product base, therapeutic
focus areas and well distributed risks.
 Ranbaxy gained a smoother access to and a strong foothold in the Japanese
drug market
Continued…
 The immediate benefit for Ranbaxy was that the deal freed up its debt and
imparted more flexibility to its growth plans. Most importantly, Ranbaxy’s
addition is said to elevate Daiichi Sankyo’s position from 22 to 15 by
market capitalization in the global pharmaceutical market.
Synergies
 Combined presence in the developed and emerging markets
 Ranbaxy’s strengths in the 21 emerging generic drug markets can allow
Daiichi Sankyo to tap the potential of the generics business, Ranbaxy’s
branded drug development initiatives for the developed markets will be
significantly boosted through the relationship.
 Daiichi Sankyo will be able to reduce its reliance on only branded drugs
and margin risks in mature markets and benefit from Ranbaxy’s strengths
in generics to introduce generic versions of patent expired drugs,
particularly in the Japanese market.
 the companies have a set of pain points that can pose a hindrance to the
merger being successful or the desired synergies being realized
Post acquisition challenges
 Managing the different working and business cultures of the two
organizations
 Undertaking minimal and essential integration
 Retaining the management independence of Ranbaxy without hampering
synergies.
Benefits
 enabled the company to gain the best of both worlds without investing heavily into
the generic business.
 Daiichi Sankyo’s portfolio has broadened to include steroids and other technologies
such as sieving methods, and a host of therapeutic segments such as anti-asthmatics,
anti-retroviral, and impotency and anti-malarial drugs.
 Daiichi Sankyo now has access to Ranbaxy's entire range of 153 therapeutic drugs
across 17 diverse therapeutic indications.
 Ranbaxy has become part of a Japanese corporate framework, which is extremely
reputed in the corporate world. As a generics player, Ranbaxy is very well placed in
both India and abroad.
 Ranbaxy can leverage the vast research and development resources of Daiichi
Sankyo to become a strong force to contend with in the global pharmaceutical
sector. A smooth entry into the Japanese market and access to widespread
technologies including, plant, horticulture, veterinary treatment and cosmetic
products are some things Ranbaxy can look forward as main benefits from the deal.
Research Findings
 Industry was earlier growing at a rate of 14% annually but like all other
industries it is also hit by recession. Because of this presently, the growth
of this industry is expected to be at 7%-8% and is expected to rise to 13%
of GDP by 2015.
 Indian pharma industry registered a growing trend post 1970 because of
the existence of merely process patents and the absence of product patents.
 Being a member of WTO, India had to amend its patent law in compliance
with the TRIPS agreement; thus Product patent became an integral part of
Indian patent law in 2005.(gave rise to many controversies)
 This amendment is bound to encourage more investments in R&D by the
Indian pharmaceutical Companies. Thus we can very well expect that
Indian pharma industry will better its position globally which is presently
13th in terms of value.
Bibliography
1. Drugs and Pharmaceuticals: International Pharmaceutical Industry-A
Snapshot, Jan 2004, ICRA
2. www.expresspharmaonline.com
3. www.pharmainfo.com
4. www.etintelligence.com
5. www.pharmainfo.net
6. www.kpmg.de
 7. http://www.pharmaceutical-drug manufacturers.com/pharma-
industry-statistics/
Thank you