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THE PHARMA REVIEW (NOVEMBER - DECEMBER 2010)

Mergers and Acquisitions in the Pharmaceutical Industry in India:
A Review

B.G. Shivananda, Kusum Devi, Nimisha Jain, Uday Bhosale

Introduction

"One plus one makes three" this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that’s the reasoning behind mergers and acquisitions. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.
The latest Pharma Insights report from Price Waterhouse Coopers (PWC) indicates that as pressures on the pharmaceutical industry increase, global consolidation will continue. According to the study, the consolidation will lead to the creation of new ‘big biotech’ companies in the Asia-Pacific region. The lack of research and development (R&D) productivity, expiring patents, generic competition and high profile product recalls are driving the mergers and acquisition (M&A) activity in the sector.
In India a number of companies have made merger and acquisition in global markets. For the moment, the big Pharma companies will be divesting non-core divisions such as Over-the-Counter (OTC), furthering mid-tier consolidation in the European pharmaceutical sector. India’s changing therapeutic requirements and more relaxed price control will provide new opportunities for big Pharma, indicates the PWC report. India’s strong manufacturing base will stand some global companies in good stead as well. An industry analyst at the Confederation of Indian Industry (CII) opines that the domestic Pharma companies have forayed into mergers and acquisitions in order to gain access to global markets.
The Indian Pharma industry is known for generics, cost-effectiveness and competitiveness that give it an edge. The Indian market is huge and the varied nature of diseases in India interests international companies. We can see more and more acquisitions by the Indian companies especially in the regulated markets of the US and Europe.

 

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