MERGERS & ACQUISITIONS IN PHARMACEUTICAL INDUSTRY

MERGERS & ACQUISITIONS IN PHARMACEUTICAL INDUSTRYChetan Sadana (47)Parnita Warik (48)Sneha Walivadekar (49)Anjali Makhijani (50)Somya Rastogi (51)

INTRODUCTIONPharmaceutical industry in India is ranked 3rd in volume terms and 14th in value terms globally. Indian pharmaceutical industry is estimated to be worth US$4.5 billion, growing at about 8 to 9 per cent annually.

traditionally relied on reverse engineering

Types Of Mergers & Acquisition

M&As Deals (Outbound)Company (Acquirer)Company (Target)For AmountBioconAxicorp (German)$30 millionDr. Reddys LabsTrigenesis Therapeutics (USA)$11millionWockhardtEsparma (German)$11millionWockhardtC. P. Pharmaceuticals (UK)$17.9 millionWockhardtNegma Laboratories (France)$265 millionWockhardtMorton Grove Pharma (USA)$38 millionZydus CadilaAlpharma (France)Euros 5.5 million RanbaxyRPG Aventis (France)$70 millionNicholas PiramalBiosyntech (Canada)$4.85 millionSun PharmaTaro (Israel)$500 millionCadila HealthcareQuimica e Farmaceutica Nikkho$26 million

M&As Deals (Inbound)Company (Acquirer)Company (Target)For AmountDaiichi Sankyo (Japan)Ranbaxy (India)$4.2 billionAbbott (USA)Piramal (India)$3.72 billionSanofi AventisShantha (India)$783 millionMylan (USA)Matrix (India)$736 millionReckitt BenckiserParas (India)$724 millionHospiraOrchid (India)$400 millionFresenius Kabi (German)Dabur Pharma (India)$219 millionAbbott (USA)Wockhardt (India)$22.5 million

REASONS FOR MAKING MERGERS AND ACQUISITIONS To acquire complementary products, in order to broaden the line.To acquire new markets or distribution channels.To acquire technology, to complement or replace the currently used one.Lack of R&D productivity.Expiring patents.Generic Competitions.

LAW REGARDING MERGERS AND ACQUISITIONSThe Companies Act, 2013 (Section 391-394)The SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 2011The Income Tax Act, 1961 The Competition Act, 2002 (Section 5, 6, 20, 29, 30, & 31)

MAJOR MERGERS & ACQUISITIONS OF PHARMACEUTICAL INDUSTRY

PFIZER WYETH DEALOn 26 Jan 2009 Pfizer acquired Wyeth at $68 billion. Pfizer mission To become a premier biopharmaceuticalcompany in the world.REASON OF ACQUISITIONPatent expiration- Lipitor (atorvastatin). Norvasc (amlodipine) lost patent exclusivity The Zyrtec (cetirizine) franchise-indicated for allergic rhinitis. Sildenafil (Viagra) - Erectile dysfunction treatment

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 companyThe combined Pfizer-Wyeth entity would derive around 89% ofprescription pharmaceutical revenues from small molecules, 7%from therapeutic proteins and 5% from vaccines.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 ACQUISITIONRanbaxy 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 Ranbaxysleadership in the generics segment and acquired a broaderproduct base. 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 2010IMPACT OF DEAL ON PIRAMAL AND ABBOTT Piramal portfolio has 350 leading branded generics Establish a in multiple therapeutic leading areas , presence in Piramal give Abbott critical branded mass and a generics comprehensive leading 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 developed economies Growing importance of emerging markets Changing significance of Indias domestic market Positive Impact of M&A on pharmaceutical market Improve global competitiveness Move up the value chain 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, theworlds 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.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

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 the same 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 ON PERFORMANCEPositive 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.

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