India has experienced a massive wave of change during the last two decades, including liberalization, technical developments, globalization, and sustainable development, to name a few. This involves a significant corporate development called Mergers and Acquisitions (M&A). Takeovers, as they are often known, are a constantly evolving field in the corporate sector.

Although the 1956 Companies Act includes the concept of amalgamation, mergers and acquisitions now have a broader meaning than a few provisions. Despite this, the premise stays the same. The Biggest pandemic of the 21st century, COVID-19, also significantly impacted India's pharmaceutical industry and globally.

The Companies Act of 2013, the Competition Act of 2002, and the Foreign Exchange Management Act of 1999 all control M&A transactions in the Indian pharmaceutical industry. Furthermore, sector-specific rules provided by regulatory authorities such as the Securities and Exchange Board of India (SEBI) and the Department of Pharmaceuticals (DoP) are critical in navigating the difficulties of pharmaceutical mergers and acquisitions.

Introduction:
A merger involves two or more commercial entities forming a single organization. It serves as a strategic approach to expanding a company's operations or enhancing its future profitability. The terms "Mergers" and "Acquisitions" are often used interchangeably. Still, there exists a distinction between them – a friendly takeover is typically labelled as a merger, whereas an aggressive takeover is referred to as an acquisition.[1]

Historically, takeovers predominantly focused on established and profitable industries such as steel, automobiles, and banking. However, recent years have shifted towards newer and more competitive sectors. The dawn of the 21st century marked a departure towards uncharted territories, notably the pharmaceutical industry. The Indian pharmaceutical business has grown worldwide, garnering significant investments and strategic partnerships.

Mergers and acquisitions are critical in determining the competitive dynamics of this industry. The legal structure governing M&A activity in the Indian pharmaceutical business is examined in this article, focusing on regulatory impediments, due diligence requirements, and post-transaction compliance.[2]

The Companies Act of 2013, the Competition Act of 2002, and the Foreign Exchange Management Act of 1999 all control M&A transactions in the Indian pharmaceutical industry. Furthermore, sector-specific rules provided by regulatory authorities such as the Securities and Exchange Board of India (SEBI) and the Department of Pharmaceuticals (DoP) are critical in navigating the difficulties of pharmaceutical mergers and acquisitions.[3]

The Competition Commission of India (CCI) monitors the competitive impact of mergers and acquisitions to ensure that they do not result in anti-competitive behaviour. Parties must notify the CCI if the proposed combination exceeds particular asset and turnover requirements. This monitoring is necessary to protect consumer interests and maintain a level playing field.

Goals of Mergers and Acquisitions:

Historically, Pharmaceutical companies have been motivated to pursue M&A for the following reasons:

• Innovations:
  The fragmented and isolated innovation in the pharma industry with many small compounds and processes must come together to make one big successful drug, prompt pharmaceutical companies to acquire smaller, more technologies, digital talent, regulatory and policy expertise.
   
• Regulatory Compliance:
  Given the pharmaceutical industry's demanding regulatory environment, adherence to drug approval and manufacturing standards is critical. To avoid post-transaction complications, parties must assess the target's compliance with Central Drugs Standard Control Organization (CDSCO) regulations.
   
• Data Privacy and Security:
  When pharmaceutical businesses are acquired, sensitive patient and research data is frequently transferred. To minimize legal obligations resulting from data breaches, parties must maintain compliance with data protection regulations such as the Personal Data Protection Bill.
   
• Considerations for the Supply Chain:
  To avoid disruptions in the availability of important pharmaceuticals, the supply chain's stability and the target company's sourcing arrangements must be assessed.
   
• Economies of scale:
  Pharmaceutical product development, manufacturing, and marketing are expensive. For this simple reason, industry players will constantly be under pressure to find ways to decrease costs or realize production, distribution, or other efficiency. Acquisitions, mergers, joint ventures, and strategic alliances, as they are in other industries, are ideal ways for organizations to accomplish these kinds of financial and operational improvements quickly.[4]

Major Merger and Acquisition Deals in India:

The merger between Ranbaxy and Sun Pharma

One of India's largest pharmaceutical firms was created as a result of the merger of Ranbaxy and Sun Pharma. One of the largest merger and acquisition transactions in India was the $4 billion deal. Almost a year after its announcement in April 2014, the transaction was finalized on March 25, 2015.

The deal had to overcome a number of challenges because it was scrutinized by numerous legal and regulatory agencies in India and abroad and needed their permissions in order to move forward with the transaction, as is the case with the majority of high-value transactions. In order to expand into new markets and broaden the company's product offering, SunPharma acquired Ranbaxy. SunPharma and Ranbaxy had complementary areas of expertise; Ranbaxy was well-known for its global presence in the generic pharmaceutical market, while SunPharma was known for its major speciality pharmaceutical business. A merged Sun Pharma and Ranbaxy was expected to offer a wide range of speciality and generic products marketed internationally that were highly complementary to one another.[5]

Ranbaxy faced financial difficulties, an import prohibition from the US Food and Drug Administration, as well as numerous civil and criminal accusations for irregularities in facilities in India at the time of the merger, which occurred at a very crucial time for the company. Sun Pharma chose a merger over a direct acquisition of shares or a company transfer for a variety of tax, legal, and regulatory reasons.

A direct acquisition requires the acquirer to have extra cash on hand to pay the target company's owners for their shares. However, by choosing a merger plan, Sun Pharma was able to keep its cash surplus while giving Ranbaxy stockholders Sun Pharma shares in exchange. For each share of Ranbaxy, owners will receive 0.8 shares of Sun Pharma. Due to worries that the combined business would stifle competition in the pharma product market, the acquisition was investigated by anti-competition authorities in both India and the US.

On December 5, 2014, the CCI Competition Commission of India approved the merger subject to the divestiture of seven brands, which together accounted for less than 1% of the combined entity's Indian total revenues. On the condition that Sun Pharma and Ranbaxy relinquish Ranbaxy's interests in generic minocycline tablets and capsules to an outside entity, the US Federal Trade Commission granted its clearance.

Acquisition OF Primal Healthcare by Abbott

Under a Business Transfer Agreement ("BTA") signed May 21, 2010, US-based Abbott Laboratories bought the domestic formulations business of Primal Health Care for a price of $3.72 billion (Rs 17,500 crore). The acquisition was a part of Abbot's ambition to expand outside of its patented product business and into new, emerging pharmaceutical markets.

For an all-cash consideration of USD 3.72 billion (about INR 175 billion), the transaction for the sale of the formulation business has been structured as a slump sale/business transfer. All of the intellectual property (IP), including 350 trademarks and patents, that pertains to the formulation business has been given to Abbott under the BTA. Since one of the most precious assets in the pharmaceutical industry is IP.

A portion of the consideration (roughly 2% of the total consideration) is also attributable to Primal and its affiliates' non-compete agreement to refrain from engaging in business that would compete with the Formulation Business in India or in emerging markets for eight years following the date the Business Transfer was closed.

This prohibition does not apply to investments in shares of publicly traded firms that are still engaged in competitive business activities, provided that such investments do not exceed 5% of the paid-up capital and do not result in the acquisition of control or influence over the publicly traded organization.

Daiichi's Acquisition of Ranbaxy

In a cash transaction of roughly $4.6 billion in June 2008, Daiichi Sankyo, the third-largest pharmaceutical company in Japan, purchased a majority interest in Ranbaxy Laboratories, the largest manufacturer of generic pharmaceuticals in India. One of the largest purchases made by an Indian public corporation.

Daiichi bought Ranbaxy primarily for the purpose of expanding its product portfolio in the generics market and gaining access to low-cost research, production, and manufacturing facilities in India. Given that Daiichi was an innovative company with a patent-based product portfolio, both companies were complementary to one another. However, problems quickly developed after the acquisition when the US Food and Drug Administration (USFDA) began to investigate Ranbaxy's facilities in India.

The USFDA allegedly discovered quality problems at Ranbaxy's US-specific manufacturing facilities in Mohali, Dewas, and Paonta Sahib. As a result, the USFDA banned the import of medicines made at these facilities and denied the business the first-to-file six-month exclusivity on three unidentified pharmaceuticals.

Then there was the deal to admit guilt to seven felonies and pay $500 million in fines, which had a significant negative impact on Ranbaxy's sales in the US, its biggest market. It is commonly accepted that before finalizing the acquisition, Daiichi should have sent executives to evaluate the factories, research centers, and production facilities of Ranbaxy in India.[6]

Malvinder and Shivinder Mohan Singh the owners of Ranbaxy Laboratories Ltd., were also accused by Daiichi of lying to the company about its problems at the time it acquired them. A Singapore arbitration tribunal ruled as a result that the Singh brothers must pay a $385 million fine to Daiichi. After the realization that the deal was not profitable, Daiichii ceased all future investments in the venture and in 2014 sold Ranbaxy Pharmacutical to Sun Pharma for $3.2 billion as a part of the deal, Daiichi got approximately 9% stake in the new Sun Pharma and later sold it for $3.6 billion and withdrew from the Indian market, recovering all its investments.

Implications of the Competition Act, 2002

There is a need for control on merger and acquisition deals through a regulatory framework by which regulatory authorities review and assess M&A to prevent anti-competitive activities and harm to market competition. Through its provisions relating to merger control, the Competition Act of 2002 in India plays a crucial role in regulating M&A transactions.

A crucial goal of merger control is to prevent mergers and acquisitions that could significantly reduce market competition, abuse a dominating position, or raise entry barriers for new competitors. The Competition Commission of India (CCI) can examine and approve mergers and acquisitions that comply with specified criteria under the Competition Act of 2002.[7]

If a merger or acquisition complies with the Act's requirements, such as having combined assets or a turnover that exceeds specific limits, the CCI may assess the transaction.

Role of the Competition Commission of India:

• Notification:
  CCI must be notified about the transaction before implementing the deal. The notification should consist of information about the nature of the transaction, the market affected, and the involved parties.
   
• Assessment Of Competitive Effects:
  The CCI investigates how a merger would affect market competition, including the likelihood of establishing or strengthening a dominating position, getting rid of viable competition, or raising obstacles to entry.
   
• Market Definition:
  To effectively predict the merger's possible consequences, the CCI identifies the pertinent market that would be impacted. This entails determining the market for the good or service and the region where competition may be impacted.
   
• Competitive Analysis:
  Based on variables like market concentration, market shares of the merging businesses and their rivals, entry obstacles, and countervailing buyer power, the CCI assesses the merger's potential implications on competition.

Conclusion:
The tides of change, technical developments, and global dynamics over the past 20 years have had a significant impact on the landscape of the Indian pharmaceutical business. Amid this transition, mergers and acquisitions (M&A) have become crucial vehicles for the industry's strategic growth and transformation.

Historically, only conventional industries were the focus of M&A activity. However, more competitive businesses, most notably the pharmaceutical industry, have become more prevalent in recent years. Exploring the complex interactions between mergers and acquisitions has highlighted the subtle distinctions between friendly and aggressive mergers. The strategic objective behind each purchase, whether it be to promote collaboration or pursue a forceful market takeover, is highlighted by this distinction.

The growth of the Indian pharmaceutical business on a global scale has been fueled by several significant M&A transactions, each of which reflected unique goals and results. The pursuit of complementary expertise, international expansion, and diversification are all demonstrated by the merging of Ranbaxy and Sun Pharma. Along with other significant transactions like Abbott's purchase of Primal Healthcare and Daiichi's investment in Ranbaxy, this game-changing one explains the intricate factors, difficulties, and legal frameworks that influence such transactions.[8]

The growth of the Indian pharmaceutical business on a global scale has been fueled by a number of significant M&A transactions, each of which reflected unique goals and results. The merging of Ranbaxy and Sun Pharma demonstrates the pursuit of complementary expertise, international expansion, and diversification. Along with other significant transactions like Abbott's purchase of Primal Healthcare and Daiichi's investment in Ranbaxy, this game-changing one explains the intricate factors, difficulties, and legal frameworks that influence such transactions. In today's Digital age, data privacy is also of the utmost importance. Assessing post-transection compliance underscores the industry's commitment to ethical and legal practices.

Lessons from both successful and challenging agreements offer priceless insights as India navigates the tricky world of pharmaceutical M&A. While each deal has its own story to tell, taken as a whole, they highlight the necessity of strategic planning, meticulous due diligence, and a clear awareness of regulatory dynamics. M&A will continue to be a pillar of growth as the pharmaceutical business develops, encouraging innovation, competitiveness, and global leadership in this crucial industry.

Post covid, the pharma sector has kept growing, and it is estimated that the Indian Pharmaceutical Sector will reach the 130 billion USD mark by 2030 in such a competitive environment; when pharmaceutical companies want to expand their market, mergers are the most common outcome due to patented drugs and vaccines one of such example is the Merger of Ranbaxy and Sun Pharma and acquisition of primal healthcare by Abbott.

End-Notes:

1. legalserviceindia, https://www.legalserviceindia.com/ (last visited Aug. 9, 2023).
2. Journals.Sagepub, https://journals.sagepub.com/ (last visited, 9, 2023).
3. Blog.Ipleaders, https://blog.ipleaders.in/ (last visited Aug. 10, 2023).
4. Pharmasalmanac, https://www.pharmasalmanac.com/ (last visited Aug. 11, 2023).
5. Furtado, R. (2019) Top ten acquisitions in the pharmaceutical sector in India, iPleaders. Available at: https://blog.ipleaders.in/top-ten-acquisitions-in-the-pharmaceutical-sector-in-india/ (Accessed: 10 August 2023).
6. Livemint, https://www.livemint.com/ (last visited Aug. 11, 2023).
7. Corpbiz, https://corpbiz.io/ ((last visited Aug. 12, 2023).
8. Cliffedekkerhofmeyr, https://www.livemint.com/ (last visited Aug. 11, 2023).