Healthcare deals: what to expect for the rest of the year

Healthcare M&As broke records and more than doubled from the first half of last year to reach $4.32 billion and exceed its 2021 total deal value.

Large and medium-sized Indian companies took over smaller domestic and foreign companies. Mankind Pharma agreed to pay $249 million for Panacea Biotec’s formulation business in India and Nepal. Such deals help in direct access to established product domains in specific therapeutic segments.

Biocon Biologics has agreed to buy Vytris’ global biosimilar portfolio for $3.34 billion. This is an example of brand acquisition to fill product gaps and consolidate weak divisions.

Pharma M&A is how players maintain market share while driving performance. Acquiring disruptive technology helps them stand out from the competition. For example, Dr Reddy’s Laboratories acquired select Wockhardt businesses to strengthen its presence in the domestic market.

Mankind Pharma also acquired select brands of Dr Reddy’s. In addition, Cipla recently bought the Novartis Vysov and Vysov M brands for India.

Healthcare is another strong market for data M&A.

Fragmentation, legacy systems, require a remodel for quality of care, cost and reimbursement. The private equity market is very well poised to address many of these pain points.

A lot of health tech companies that support PE are point-solution companies. They solve one of many problems, such as increasing capacity, streamlining processes, and providing easy access to data and patient records.

Private equity is interested in merging various point-of-solution providers into a single solution for customers. This prompts consolidation, in addition to requiring more analysis and insight into the market as a whole.

Digital healthcare platform mfine is going to merge with the diagnostic business of Lifecell International Pvt Ltd. Ltd. The merged entity – Lifewell – has secured $80 million from health-focused global investment firm OrbiMed.

Digital health platform MediBuddy this year acquired online doctor consultation startup Clinique in its first acquisition following a fresh $125 million funding round. The acquisition will help MediBuddy enter the domestic rural market, a statement said.

A buyer could potentially fail to meet their business objectives, especially in a heavily regulated sector such as healthcare. However, some innovative deal structures are designed to pre-empt and address those risks.

M&A deals in pharma and biotech are prompted by large pharma and biotech companies to buy smaller ones to complement their R&D efforts. Promising early-stage product candidates make it up for this kind of acquisition. License-and-collaboration agreements, joint ventures and strategic alliances, options agreements and investment agreements are a number of risk reduction structures that are not outright purchases. They are responsible for the risk of Target’s products (or often its only product) not reaching the market. Structures that are often used in such transactions include, among others, licensing agreements, contingent price rights and option agreements.

For a hospital ongoing to acquire a hospital that is a separate legal entity, the transaction may be structured as a stock (or other equity) purchase or an asset purchase.

Similarly, ownership of a pharmacy operating out of hospital premises can be transferred to a separate legal entity to facilitate FDI in the hospital company with the need for approval and avoid the “multi-brand retail” issue.

Conversely, if the target company owns several hospitals that are not separate subsidiaries and the buyer is interested in purchasing one, a merger or stock purchase may not be possible. In that case, the transaction may need to be structured as an asset purchase or business transfer of an undertaking or, alternatively, as a two-stage acquisition, in which the seller transfers the target business to a controlling subsidiary. “Leaves” and then transfers control of that subsidiary to the buyer.

Another emerging framework in healthcare M&A is the takeover of hospitals undergoing corporate bankruptcy. The implications of lesser liabilities, taxes and stamp duty for successful applicants are immense.

M&A transactions involving producers of health care or health care products and technologies raise a variety of complex regulatory, governance, financing, taxation and other issues that require careful structure and documentation. Accordingly, parties to a health care transaction should consider these factors to achieve their business objectives while minimizing their exposure to potential liabilities and simplifying the winding up process.

Rachna Jain is the Senior Partner of Desai and Dewanji.

first article