Higher cap in pharma sector raises questions

In 2010, alarm bells went off when the government found that the pharmaceutical industry had witnessed about six local acquisitions by foreign drug makers in just five years.

Ministries like Commerce and Health started wondering aloud if investment caps were required in a sector that was integral to keeping the “health security” of the country.

In fact, multiple departments evaluated these concerns, including the DIPP (Department of Industrial Policy and Promotion), the Arun Maira committee and a Parliamentary Committee on Foreign Direct Investment (FDI) in the pharmaceutical sector. The resounding view was that new or greenfield projects could attract 100 per cent FDI, while brownfield investments (into existing operations) would go through a gate-keeper, a task bestowed on the FIPB (Foreign Investment Promotion Board), again after much discussion.

This being the backdrop, the Centre’s latest move to relax foreign investments in domestic pharmaceutical operations up to 74 per cent has raised the question as to what gave confidence for such a decision, and whether concerns raised by several agencies in the past have been allayed. The move would have met with greater approval if the Centre was transparent with the rationale behind the decision.

Stable policies

But not everyone is worried that a domestic sell-out is imminent. Hitesh Sharma, EY’s Partner and National Head (Life Sciences), observes the move may not be a “game-changer”, though it does reduce the uncertainty and waiting period of three-six months that every deal took while being reviewed by the FIPB.

Beyond the 74 per cent cut-off, a buy-out deal will be put through checks on its overall size and the impact on market share, etc, he points out, referring to concerns on whether the latest move would change the ability of local drug makers to make medicines.

In fact, he adds, the FDI breather, in isolation, would not see foreign drug makers line-up to buy operations in India, until greater stability comes into the local environment in terms of clinical trial norms, intellectual property protection, and medicine price control. Indian Pharmaceutical Alliance’s DG Shah feels the “acid test” for the government is in how the pharmaceutical landscape fares over the next three years. It will show up whether investments come into small drug companies making generic medicines, or into those making specialty products like injectables, vaccines, and biotech products, he says.

A similar concern had been raised in the Parliamentary committee report on the subject that found FDI went largely into brownfield projects.

The concern of “family silver” leaving the country had reached a shrill pitch when big-guns in the industry like Ranbaxy sold out to Daiichi Sankyo and Piramal Healthcare sold domestic operations to Abbott.

The Parliamentary report also stated that investments needed to go into segments like Active Pharmaceutical Ingredients (bulk drugs), etc.

Source: http://www.thehindubusinessline.com/economy/higher-cap-in-pharma-sector-raises-questions/article8756737.ece