NEW DELHI: The government has recently stopped giving permission to foreign companies and overseas investors to buy into Indian drugmakers till clear guidelines regarding foreign direct investment in the sector are finalised.
The Foreign Investment Promotion Board (FIPB), the nodal agency that approves investments in India, deferred four proposals at its March 30 meeting on the grounds that specific conditions for considering cases of brownfield foreign investment in the pharma sector were under formulation.
There have been no restrictions on foreign investments in pharma for the past decade, but a series of high-profile acquisitions in the sector has prompted the government to tinker with the approval process, resulting in delays.
“Foreign direct investment (FDI) of 100% through the automatic route in the pharma sector was opened just a decade back…and there was no tangible reason to revisit it so soon. It is unfortunate that recent policy changes, primarily based on unfounded apprehensions, are causing avoidable delays in FDI approvals,” said Tapan Ray, director-general of industry body Organisation of Pharmaceutical Producers of India.
The new foreign investment norms being considered include asking the buyer to give a commitment to continue manufacturing the drugs that were produced by the local company prior to the takeover. The buyer will also have to take approval before discontinuing production of any drug included in the national list of essential medicines.
The authority to approve acquisitions of Indian companies by MNCs will shift to the competition watchdog, Competition Commission of India (CCI), from the FIPB. But industry experts said it will be several months before necessary amendments are made to empower the CCI to approve buyouts.
In the past 3-4 years, there has been a series of takeovers of Indian companies by foreign drug makers, including Daiichi Sankyo’s acquisition of India’s largest drug company Ranbaxy Laboratories, Sanofi Aventis’ buyout of Shanta Biotech and Abbott Laboratories’ purchase of Piramal Healthcare’s domestic formulations business.
These developments had triggered fears among health groups and Indian drugmakers that MNCs were poised to dominate the local industry and they would substantially increase the cost of medicines in the country.
Some Indian drug companies demanded that the foreign investment cap in the sector be pared to 49% from 100%. While the health ministry and Department of Industrial Policy & Promotion backed local drugmakers, it was opposed by the Planning Commission and finance ministry.
Following a directive from the prime minister in October 2011, a middle path was worked out. An inter-ministerial group decided that while 100% foreign direct investment in the sector would stay, acquisitions of Indian firms by overseas drug companies would be vetted by the Competition Commission of India with riders to ensure that medicines remain available in India at affordable prices.
In the same meeting, the inter-ministerial group had asked the FIPB to clear mergers and acquisition proposals of foreign drug companies and investors for six months till necessary amendments were made to empower the Competition Commission of India to approve such deals.
Indian Drug Manufacturers’ Association Secretary-General Daara Patel said the FIPB does not want to take any decisions in the interim period. “The Competition Commission of India is going to approve all future cases. Why would they want to take a chance?”
At the March 30 meeting, the FIPB deferred Mauritius-based Ambrose Pvt Ltd’s proposal to buy 40% stake in Sutures India for Rs 199 crore. Similarly, Spain’s Chemo Group’s plans to buy a 100% stake in Ordain Healthcare Global for Rs 58 crore, Ankur Drugs plans to raise about Rs 40 crore from NRIs and Plethico Pharma’s plans to raise Rs 490 crore by diluting 22% stake via FCCBs also did not get the go-ahead.
“Lack of regulatory guidelines is among the biggest challenges faced by overseas companies in entering a market,” said Ankit Suri, who heads the pharmaceuticals vertical at TecnovaIndia, a consultancy firm that specialises in cross-border market entry. “While making the guidelines, authorities should do a thorough study and set clear guidelines for investors,” he said.