M&A trends to watch out in pharma

India’s pharmaceutical sector is on a growth trajectory. In 2023, while the deal volume declined, the deal value grew1, due to strategic megadeals in the pharma sector.

Pharma services have witnessed extensive innovation from contract development and manufacturing organisation (CDMO), contract research organisation, pharma information technology (Pharma IT). The CDMO segment and Pharma IT have observed exponential growth, driven by Indian companies moving up the value chain building high-quality, low-cost manufacturing capability geared to deliver and bulk volumes and international pharma giants shifting away from China against global interest rates fluctuations and price pressures.

In the CDMO space, India Is the world’s second largest CDMO player, just behind China, for small molecules2. There has been a distinctive surge in India’s prominence over the last few years, propelled by India’s fast growing economy, low geo-political risks and disruptions, and companies keen on developing diversified supply avenues beyond China (which is facing sanctions), coupled with China’s inward-looking policy. India’s ability to manufacture medicines at 1/4th the cost and the existence of greater number of US FDA-approved manufacturing plants in India outside US3, and the presence of a resilient, English speaking, digitally enabled Indian workforce have reinforced this transition. India’s nine globally integrated CDMO facilities offer end-to-end manufacturing and development solutions. As a direct corollary, India today has an ever-expanding list of fast-growing CDMOs all of whom have robust order inflows from global MNCs.

India’s technological proficiency has aided health tech innovation backed by ‘innovation hubs’ by international pharma companies’ like Novartis, Merck, and AstraZeneca’s, India global capability centers.

Superior quality omnichannel interactions though video chat and integrated platforms and teams are being developed to propel a seamless experience across digital channels accounting for customer-driven requirements. Large pharma companies like GSK and Mankind Pharma etc. are rendering integrated services to promote economies of scale.

Digital transformation and generative artificial intelligence facilitating use of new technologies have enabled greater performance with lesser headcount, increased quality, patient convenience, and customer experience by providing care at a single touchpoint. Digital health applications like e-diagnostics, e-pharmacy, telemedicine, wellness, and software as a service-based hospitals are growing.

Pharma sector has experienced an increased focus on innovative medical devices with strengthening of the regulatory requirements and quality checks, coupled with stringent price and margin caps. 

Covid-19 promoted India to the centre stage of global vaccines export as consumerisation of health providing an impetus for vaccines and prompt approvals.

Big pharma companies are engaging in divestitures to accumulate prolific dry powder from freed up capital permitting investment in their core focus areas. For e.g. Merck, GSK and Novartis have spun off their consumer groups.

Taking a cue from Pfizer’s acquisition of cancer drugmaker Seagen for $45.7 billion in 2023, there is compelling investor interest in medtech and biotech companies. With additional firepower, the pharma companies are looking to acquire innovative technologies specifically in precision medicine, cell and gene therapy, cancer and rare diseases, diabetes, auto-immune diseases, and weight loss which will hurl additional M&A activity.

While innovation and availability of medicines is essential, to ensure uniform access to vital life-saving drugs for all individuals irrespective of their socio-economic status, taking a cue from the judgement of the Supreme Court of India in the case of Novartis AG v. Union of India4 (2013 (6) SCC 1), the Division Bench of Delhi High Court in the case of F. Hoffmann-LA Roche and Ors. Vs. Cipla5. (ILR(2009)Supp.(2)Delhi 551) held that “public interest in greater public access to a lifesaving drug will outweigh the public interest in granting an injunction to the patent holder.”

India’s other enabling processes like compulsory licences facilitate access and surge M&A deal-activity in the pharma sector, by removing a patent if the drug meeting the public health requirement is exorbitantly overpriced, thereby enabling generic drug manufacturers to develop the patented drug at a miniscule fraction of the price.

The Draft Patents Amendment Rules 2023 prevents evergreening of a patent which would not be granted unless the innovation causes a significant enhancement of efficiency in the product or the process, thereby providing opportunities for other players in the market.

Other policy initiatives aiding India’s medtech and pharma sectors are the National Medical Device Policy 20236, Make in India, production-linked incentive (PLI) scheme for encouraging domestic manufacturing of critical key starting materials, drug intermediates and active pharma ingredients in India7 as well as for medical devices, the creation of bulk drug parks, the research and development policy and innovation in pharma-medtech. Stringent drug safety norms by Central Drugs Standard Control Organisation have maintained the quality parameters thereby encouraging investors. Additionally, the Department of Pharmaceuticals, Government of India, directive requires strict compliance with the Uniform Code for Marketing Practices 2024. The pharma sector ranks among the top 10 sectors for foreign direct investment (8). For medical devices 100 per cent foreign investment is allowed under the automatic route. In greenfield pharma projects, 100 per cent foreign investment is permitted under the automatic route, while for brownfield pharma projects, foreign investment beyond 74 per cent up to 100 per cent require government approval. The ‘Pradhan Mantri Bhartiya Janaushadhi Pariyojana’ (9) promotes retail outlets to provide quality generic medicines at affordable prices.

There is record-breaking undeployed dry powder available in private equity (PE) owned pharma assets requiring monetisation. Intensified PE investment in the pharma sector is poised to fuel accelerated M&A activity. All these trends consequently boost investorand consumer confidence,which is predicted tospur M&A activity in thepharma industry.

References

1. https://www.bain.com/insights/healthcare-and-life-sciences-m-and-a-report-2024/

2. https://www.bain.com/insights/healthcare-innovationin-india/

3.https://www.fortuneindia.com/long-reads/contract-manufacturing-pharmas-newgrowth-pill/116286#:~:text=India’s%20ability%20to%20develop%20drugs,at%20%24224.6%20billion%20in%202023.

4.file:///C:\Users\Achint.kaur\Downloads\J_2013_6_SCC_1_2013_3_SCC_Civ_227_2013_SCC_OnLine_librarydel_khaitancocom_20240508_202818_ 1_231.pdf

5.file:///C:\Users\Achint.kaur\Downloads\F_HoffmannLA_Roche_Ltd_and_Ors_vs_Cipla_Ltd_240420d090328COM901872. pdf

6. https://pharmaceuticals. gov.in/ policy/national-medicaldevice- policy-2023

7. https://pharmaceuticals. gov.in/ sites/default/files/ Gazettee%20notification%20of %20bulk%20drug%20schemes_ 0_0.pdf

8. C://Users/Achint.kaur/Downloads/ ey-oppi-report-reimagining- pharma-and-healthcare.pdf

9. https://janaushadhi.gov.in/ pmjy.aspx