In recent years, there have been various mergers and acquisitions, specifically in the field of Pharmaceutical Sector. No other industry or field has witnessed such a wide variety of mergers and Acquisition activity both in terms of the number of deals and the amount of money involved.

Various M&A activities hold vital importance in the business of the Pharmaceutical Industry in order to direct their pattern of business. This business model not only helps in strategizing business moves to meet future requirements and challenges but also gives the companies access to innovations. Pharmaceutical Industry based in India provides services not only in India but even across the borders and even they are involved in various M&A activities that go across the Indian borders as well.

There are various reasons as to why there is a huge increase in the number of mergers and acquisitions by Indian Companies. In order to evade import bans and penalties, companies try to look out for facilities outside India. Another reason being that companies want to expand their range of products and for them, mergers and acquisitions stand in a better way as compared to Research and Development which involves a lot of capital; this also gives them access to various distribution networks.

Role and powers of Competition Commission of India

The Competition Commission of India is an Indian government body which came into effect in May 2009; The duty of the Commission is to eliminate any kinds of practices which have an adverse effect on competition, sustain and promote competition, protect the interests of consumers and ensure freedom of trade in the markets of India.1 This body acts as a market regulator and prevents any kinds of practices that restrain competition in a market. They look after the interests of the customers and promote commerce.

Apart from the duties and responsibilities, CCI has been granted several powers such as regulating its procedure and calling the experts from various fields during the inquiries. But specifically talking about the powers concerning the Mergers and Acquisition, there are certain powers granted to CCI which are discussed below and Section 6 of the Competition Act2 talks about the prevention of the combinations which adversely affect the market.

If the value of the total assets and the turnover of the enterprises entering into combination crosses the certain threshold limit which is specified in Section 5 of the Competition Act, then it is necessary for the enterprises to notify about it to the CCI and this should be notified within the duration of 30 days.

It is also mentioned in the Competition Act that a combination can only take place when a duration of 210 days have been passed from the date when the commission was notified about the combination or when the date of the order was passed, whichever is earlier.

CCI also has the power of issuing show-cause notices to the parties if the commission is of the view that the combination might affect the competition adversely.
Some of the deals of pharmaceutical mergers and acquisitions are listed below where the enterprises were required to notify CCI about the combination and were required to get its approval. This highlights the ongoing trend in this industry.

The merger of Ranbaxy and Sun Pharma 3

This deal was one of the biggest Merger and Acquisition deals in India. The completion of this deal happened on the 25th of March, 2015. Because the transaction was of great value, it attracted various regulatory and legal authorities towards itself.

The Anti-competition authorities of both the countries i.e. India and the USA were of the opinion that this deal would cause the prevention of competition in the sector of Pharmaceuticals.
The Competition Commission of India approved this transaction on 5th December 2014 but with a condition that the other seven brands which constituted less than 1% of the revenue generated by the merged entity had to be divested. Even the Federal Trade Commission of USA approved the deal with the condition of divesting the interest of Ranbaxy in minocycline tablets to other third parties.

The merger of Orchid Chemicals and Hospira Health Care

This was a merger between Orchid Chemicals and Pharmaceuticals Limited and the subsidiary of Hospira Inc, USA i.e., Hospira Healthcare India Private Limited. In this case of Vertical transaction, the business of Orchid Chemicals which consisted of Betlactum API business and other Research and Development facilities were of great importance for the injectable formulations of Hospira Health Care.4 The business mainly consisted of exports and its presence was very negligible in the domestic markets.

Here, in order to get CCI’s approval, both the parties were ready to offer various commitments. Starting with the non-compete clause which was reduced to 4 years in the Business Transfer Agreement i.e., BTA in the view of Indian domestic markets. The other commitment was that there was an amendment in the Business Transfer Agreement where Research and Development were allowed in the Penicillin and Penem APIs for the Injectable formulations.

Acquisition of Agila by Mylan

This was an acquisition of Agila by Mylan Inc. Agila was a subsidiary (Wholly Owned) of Strides Acrolab Ltd. and Mylan is a generics company that originated in Pennsylvania.5 Both parties had a limited presence in the Indian market.6 Here, the main concern of CCI was with the Restrictive Covenant Agreement (RCA) because of which the promoters of the acquired company were not allowed to indulge, engage or invest in any kind of pharma products such as oncology, ophthalmic, parenteral or injectable at any level and in any part of the world.

Here, in order to receive the approval of CCI, various commitments were offered by the parties. First being, reducing the duration of NCAs to four years with respect to the Indian markets. Second, limiting the scope of NCAs to pipeline products and manufactured products. Third, the promoters of Agila to be allowed to indulge in Research and Development of new injectable formulations.7

Acquisition of Elder Pharmaceuticals by Torrent Pharmaceuticals

Torrent acquired some domestic formulations business of Elder in India and Nepal.8 There was also a Manufacturing and Supply Agreement present between both the parties where Elder was to exclusively manufacture certain products for Torrent for a duration of three years.

The main motive behind this transaction was to strengthen and expand the product portfolio of Torrent in the Therapeutic areas. Because of this merger, there was a horizontal overlap in sixteen categories and, this led to the combined share of the parties to exceed 10% in the product markets.9

Here, the CCI’s main concern was the “Non-Compete Agreement” and, in order to find a solution for the CCI’s concerns, there was a deletion of eleven therapeutic categories in the Promoter and Semit NCA by the parties and creation of a “carve-out” of 36 pre-existing products of Elder from the range of NCAs and this, in turn, allowed the company to continue the manufacturing and distribution of the products. Second, there was a reduction of NCAs from five to four years for the Primary Therapeutic Areas in the Promoter and Semit NCA. Also, some provisions of Semit NCA and Promoter NCA which might have been adverse for the competition were deleted.10

Conclusion
With all the global level Mergers & Acquisitions practices, Indian companies find themselves on a global scale and these activities play a vital role in the global pharmaceutical industry as well as for the Indian pharmaceutical giants.

M&A activities provide the Indian Companies to cope up with the global pharmaceutical standards and this in turn also gets advantageous for the Indian companies as it increases the expansion of market share, increases the count of patented products, helps in getting funding by various companies, increases R&D laboratories and even increase exports and profitability.

The global industry gets benefited through the various cost-effective strategies used by the Indian companies and the vast market provided by India in this sector which helps in enhancing research and development of much better quality drugs.

There are various technicalities involved in these kinds of transactions and here CCI plays a vital role by having a watch on these transactions and acting as a guardian for healthy market competition. Through the various cases of M&A activities presented above, it is clear that the approval of CCI is necessary for a big combination to happen and can issue various regulations if it is of the view that the combination can harm the market competition.

There might be a huge risk of individual identity loss of these companies or the exposure of the whole industry to widespread takeovers but, if looked at from a bigger perspective, the M&A activities help in elevating the economic growth of a country.


References:

1. Admin, About CCI Competition Commission of India, Government of India (2019), https://www.cci.gov.in/about-cci (last visited May 9, 2020).
2. The Competition Act, § 6 (2002).
3. Combination Registration No. C-2014/05/170, dt 5 December 2014.
4. Competition Commission of India, Orchid/Hospira, dt. 21 December 2012, paras 1, 5, 8.
5. Combination Registration No. C-2013/04/116 dt 20 June 2013, paras 1-10.
6. Ibid., para 14.
7. Ibid., para 21.
8. Competition Commission of India, Torrent/Elder, C-2014/01/148, para 6.
9. Ibid., paras 9-10.
10. Torrent/Elder, C-2014/01/148, para 17.