The Indian pharmaceutical sector is the world’s third largest in volume and 14th in value; it stands at $21 billion-plus and expected to grow at 13 per cent CAGR. Drugs estimated at $116 billion are going off-patent in the next five years (Source: India Pharma IIFL Report 1Q 2009). This presents a huge opportunity for Indian generics players. With an eye on global business, ensuring brand integrity and reputation becomes paramount for Indian pharmaceutical industry.

The industry faces regulatory constraints at both national and global level. A large body of laws and regulations governs each stage of operations, from evaluation and selection of compounds to manufacturing standards, packaging, distribution, and sale and promotion of medicines and vaccines.

For pharmaceutical companies with global presence, the issues are multi-fold and the legal requirements are onerous enough for significant action by US regulatory agencies. There are several instances of action taken by regulatory agencies against companies.

Adequate preventive and detective systems are needed to address issues such as

Reducing the risk of fraud in clinical trials;

Investigating parallel imports, counterfeiting and diversion of products or research work;

Effectively managing contract manufacturing operations to mitigate fraud risks and environmental issues;

Preventing corrupt acts by employees, agents and partners under territorial anti-bribery legislations;

Reducing the risk of fraud and misconduct;

Ensuring sales and marketing compliance with industry codes of conduct across different regulatory frameworks;

Avoiding or resolving disputes related to mergers and acquisitions or joint ventures;

Ensuring access to critical off-balance sheet information for assisting in M&A decisions.

With fraud- and misconduct-related incidents being major impediments to global ambitions and reputation, pharmaceutical companies face numerous potentially damaging operational challenges. In order to mitigate legal exposures, companies must adopt high standards of preventive fraud risk management measures.

The pharmaceutical industry must assess the business environment and establish a robust compliance programme, conduct due diligence on third parties and subsidiaries, as well as train employees and agents to understand and identify ‘red flag’ situations. In addition, industry participants should ensure transparency and accuracy when recording financial transactions.

(Sandeep Dhupia, Head of Forensics, and Arjun Vaidyanathan, Partner and COO Forensics, KPMG in India)

Sluggish deal market

The continuing lack of activity in transaction markets worldwide is having an inevitable impact on deals involving the high-growth markets, says KPMG International’s High Growth Markets Acquisition Tracker.

Although there have been suggestions that market confidence and optimism are returning to the deals market, the latest HGM transaction figures do not bear this out.

The following regions saw a significant fall-off in M&A:

China saw a significant reduction in inbound M&A, with 69 deals in H1 2013, which is 16 per cent fewer than the 83 deals completed in H2 2012 — perhaps a reflection of the rising costs of doing business in China;

Central and Eastern Europe saw inbound M&A down 25 per cent on H2 2012;

South America saw inbound acquisitions fall from 66 to 44; and

South and East Asia saw inbound M&A deal volumes dropping by 19 per cent, from 108 transactions in H2 2012 to 88 in H1 2013.

In India, we saw a significant decline in outbound M&A with only 18 deals completed with developed markets in H1 2013, as compared to 33 deals in H2 2012. The inbound M&A activity with developed markets showed a marginal increase with 45 deals completed — one more than in H2 2012.

— KPMG

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