Listen to this post


There is no denying that India is one of the most significant players in the global pharmaceuticals space, especially in the generic and affordable vaccines segment. Emerging markets such as India are expected to become further crucial in the foreseeable future, given the global supply chain disruptions and discontinuities. Fifty percent of the global demand for various vaccines is met by the Indian pharmaceuticals industry and as per the Indian Economic Survey 2021, the domestic market is expected to grow 3x in the next decade. It is expected to develop at an annual rate of 11% over the next two years, possibly exceeding $60 billion in value.[1] India’s healthcare market is expected to reach $372 billion, driven by rising income, better health awareness and increasing access to insurance. India’s healthcare public expenditure stood at 2.1% of GDP in 2021-22 against 1.8% in 2020-21. Furthermore, in Union Budget 2022-23, Rs 86,200.65 crore ($11.28 billion) was allocated to the Ministry of Health and Family Welfare (MoHFW).

Hot on the heels of these predictions, M&A activity in India picked up momentum in 2022 and reports indicate that Indian healthcare entities spent approximately $4.32 billon during January-June 2022 on mergers and acquisitions.[2] Companies with innovative capabilities, such as telehealth or innovation in the medical devices space, are also attracting significant investor attention. 2023 is expected to witness more capability-driven deals, providing access to newer technologies as large pharma companies are looking to divest non-core assets and optimise their portfolio. Private equity players are also expected to continue to look for attractive opportunities in the sector and also exit opportunities through secondary sale.


Given that the pharmaceutical and healthcare industry is heavily regulated, with multiple licences required to be obtained by industry players, challenges around change in ownership and transferability of licences and approvals play a crucial role during such transactions. Such change can require intimation, approval, surrender and/ or requirement to obtain fresh licence. Nature of transactions has a direct impact on the strategy to be adopted for business continuity and keeping disruptions to a minimum. The regulatory regime and operational lacunas pose unique challenges to such transactions. Such challenges include:

  • Consequences of Change in Constitution:

Transactions may take the form of mergers, acquisitions, slump sales, demergers, change in name, change in management, etc., and each such transaction would be dealt with differently under applicable sectoral regulations. In every such transaction in this sector, investors are left to navigate the complex maze of change in control requirements under sector specific laws. The requirements may be mentioned in either the principal legislations, rules and regulations framed thereunder or the actual licences and approvals issued. Much time, effort and money is spent on assessing the requirements for transactions and preparing strategies to ensure business continuity. However, in certain instances, the practices followed by local or state level authorities may override any other consideration and this mandates a continuous dialogue with such authorities. If not strategised carefully, possibility of periods with operational blackouts exist.

Additionally, there are no standardised triggers, timelines, or processes prescribed under the laws applicable to this sector. For instance, even the various rules promulgated under the same Act, i.e. Drugs and Cosmetics Act, 1940 (“D&C Act”), vary to a large extent with regard to the timelines and deemed validity of existing licences. The Drugs Rules, 1945 (“Drugs Rules”), fails to define what ‘change in constitution’ means. The timelines for making intimations and applications also vary across the Drugs Rules, Medical Devices Rules, 2017 (“MD Rules”), and Cosmetics Rules, 2020 (“Cosmetics Rules”). The Drugs Rules and Cosmetics Rules impose a hard cap on deemed validity of existing licences, whereas the MD Rules is more pragmatic in this sense and provides deemed validity of licences till the licencing authority takes its decision. The MD Rules and Cosmetics Rules also lay down the process to change the name of the licensee, and for other changes such as in labelling/ composition, etc., whereas the Drugs Rules do not. Under many other legislations, the trigger for intimations and approvals is not ‘change in constitution’. Instead, these legislations impose requirements on the licensee in case of ‘change in ownership’, or ‘change in management’ or ‘modifications or additions or changes in …any other material information, based on which the license was granted’ or ‘change that alters the information contained in the license certificate’, while conveniently not defining any of these terms. Other legislations remain silent on this aspect. This results in investors struggling with a veritable Ship of Theseus paradox.

A brief snapshot of the compliance requirements[3] in cases of control change, name change, etc., under various pharma/ healthcare regulations is as follows:

S. No.RegulationChange in ConstitutionChange in NameChange in Ownership/ Management
 1.Drugs Rules
 2.MD Rulesx
 3.Cosmetics Rulesx
 4.New Drugs and Clinical Trials Rules, 2019[4]x[5]
 5.Food Safety and Standards Act, 2006x
 6.Clinical Establishments (Registration and Regulation) Act, 2010[6]xx
 7.Atomic Energy (Radiation Protection) Rules, 2004xxx
 8.NABL Accreditation
 9.Pre-conception and Pre-natal Diagnostic Techniques (Prohibition of Sex Selection) Act,1994xx
 10.Medical Termination of Pregnancy Act, 1971xxx
 11.Transplantation of Human Organs and Tissues Act, 1994xxx
 12.Assisted Reproductive Technology (Regulation) Act, 2021xxx
 13.Surrogacy (Regulation) Act, 2021xxx

While recent changes in some regulations such as the promulgation of MD Rules and Cosmetics Rules have brought in some modicum of clarity, the issues, by and large, remain. For instance, asset transfers have not even been dealt with in these regulations. Similarly, changes in case of partnership firms are also not adequately dealt with. In the case of demergers, the next steps and approvals are to be determined on an ad-hoc basis, frequently involving liaison with Government officials. While demerger scheme sanction orders of the National Company Law Tribunals (“NCLT”) invariably contain provisions that allow for continued validity of all licences and approvals, due to the inherent disconnect between the company law regulations and sectoral legislations such as the D&C Act, licencing authorities insist upon the demerged entities obtaining fresh licences and approvals in their own name. This creates multiple points of friction – for instance, many of the licences and approvals are issued by State licencing authorities, and for an entity with operations across India, this implies liaising with multiple authorities, each with their own set of documentation and timeline requirements. The cost of transaction of such nature, therefore, increases, especially, if there is any possibility of an operations blackout period.

  • Greenfield Projects under the FDI Policy

The Consolidated Foreign Direct Investment (“FDI”) Policy of India currently allows 100% FDI in the pharmaceuticals sector in both Greenfield (under the automatic entry route) and Brownfield (automatic entry route up to 74% and Government route beyond 74%) investment categories.[7] However, critics observe that more than 90% FDI is currently for Brownfield projects and one of the primary reasons pointed out by the industry is the complex and time consuming approval regime for Greenfield pharmaceutical investments.[8] The Department of Pharmaceuticals approved 21 FDI proposals worth Rs 46.8 billion for Brownfield pharmaceutical projects during the first nine months of 2022. Further, FDI from an entity of a country sharing land border with India, or where the beneficial owner of an investment into India is situated in or is a citizen of any such country continues to require prior government approval.

  • Drug Price Fixation under DPCO

Ceiling price for essential drugs is capped by the NPPA, in terms of the Drug Price Control Order, 2013 (“DPCO”). It may be noted that the DPCO also restricts price increases related to ‘non-scheduled formulations’ i.e. a formulation that is not included in the National List of Essential Medicines and medical devices. The Government monitors the maximum retail price (“MRP”) of all drugs, including non-scheduled formulations to ensure that no manufacturer/ importer increases drug price by more than 10% (ten percent) of the MRP during the preceding 12 months.[9]

Irrational price ceiling and restrictions threaten the structure and long-term health of the pharma and healthcare industry, harm the investment climate, hamper investor confidence in choosing India as a potential location for market expansion and runs contrary to the ‘Ease of Doing Business’ policy decision adopted by the Indian Government. This is especially true since the price control regime is based on the Essential Commodities Act, 1955. However, all drugs are subject to price control in some way or the other, and some of the drugs on which ceiling prices are imposed, may not always be considered ‘essential’. This also impacts FDI in the sector due to its direct link with maintenance of prescribed production levels of drugs, which are under the National List of Essential Medicines. Further, there are mandates to maintain minimum levels of production of essential drugs and investors need to be mindful of such requirements especially in cases of asset transfers and where production of such drugs is spread across multiple plants or manufacturing units.


The Government should encourage private and public investment in pharma and healthcare innovation, development through a mix of fiscal and non-fiscal measures and building an ecosystem designed to support innovation and cross-sectoral research and to facilitate sustainable growth in the sector. Bureaucratic red tape must be reduced and regulatory approvals must be optimised. There is no reason why entities and units that are already duly licenced under the applicable regulations must be made to run from pillar to post to ensure business continuity after acquisitions, asset transfers and demergers. The objective must be to ensure minimal disruption to existing businesses.

The best way forward in this regard, would be to amend the D&C Act itself to grant legitimacy to existing licences for entities undergoing corporate restructuring or acquisitions. Orders of the NCLT, related to the continued validity of licences, may be made binding on all authorities under the D&C Act as well. Provisions could also be made for transfer of inventory and raw materials, which are already in various steps of the manufacturing process.

Furthermore, the Covid-19 pandemic has shown how data-driven, digitally enabled business models can be adopted in the healthcare sector to enhance quality of care in India. The future of healthcare ecosystem will be about efficient and effective healthcare delivery over the next decade and what it means for both patients and healthcare providers. This will maximise the clinical, financial, and operational value of these new digital offerings and services. Tier-I cities may have benefitted from the adoption of digital health, while access and integration of healthcare services remained low in Tier-II and Tier-III cities, as well as rural and remote areas of the country, which fall on the wrong side of India’s digital, economic and literacy divide.

The Government is already considering bringing in a new legislation to regulate drugs, medical devices, etc. This is a golden opportunity to make the desired changes in the requisite provisions. Focused efforts by the Government to bridge the digital divide in India will ensure smoother transition from conventional modes of healthcare delivery to technology-enabled solutions, thereby optimising costs, timeframe and bringing in more people within the healthcare net.



[3] Any descriptions, requirements and compliances stated herein are for illustration purposes only and may be subject to changes or revision without notice. Please note that specific licenses / compliances may still need to be reviewed for asserting exact nature of change and compliances therein on a case to case basis.

[4] Only in case of registration of BA/ BE study centre.

[5] Ibid.

[6] Some States have their own legislations dealing with registration and regulation of clinical establishments. The compliance requirements in terms of these States may, accordingly, vary.



[9] Refer Clause 20 of the DPCO.