FDI Strides ahead as PM clears Mylan

Written by fe Bureau | New Delhi | Updated: Aug 17 2013, 09:18am hrs
All brownfield pharma foreign direct investment (FDI) proposals currently before the Foreign Investment Promotion Board, including the February 2013 bid by Nasdaq-listed Mylan to acquire Bangalore-based Strides Arcolabs injectables arm for $1.85 billion, are likely to be cleared at the boards next meeting on August 27. Of course, the buyers will have to comply with existing conditions for such takeovers, relating to retaining production levels, R&D investments and technology transfer.

Future cross-border takeovers of Indian drug companies, however, might come under a new, more stringent policy dispensation, with the department of industrial policy and promotion putting its foot down at a meeting convened by Prime Minister Manmohan Singh

According to official sources, Singh directed the ministries concerned not to put on hold pending brownfield pharma FDI proposals before the FIPB citing an attempted re-formulation of the policy. He also said that any new policy should apply to only proposals coming up in the future and not to the current ones.

The Mylan deal would be the third largest in the Indian pharma space, after Daiichi Sankyos $4.6-billion acquisition of Ranbaxy Labs in 2008 and Abbotts $3.7-billion takeover of Piramal Healthcare in 2010. Fridays decision will also mean a go-ahead for another proposal by Indore-based Symbiotec Pharmalab (a cortico-steroids bulk drug manufacturer) to sell a 25% stake to private equity fund Actis for around R330 crore.

Symbiotec Pharmalabs stake sale was put in abeyance till the DIPP finalised the policy on FDI in brownfield pharma projects involving transfer of control.

Meanwhile, the health ministry and DIPP are discussing a slew of options for future regulation of brownfield pharma FDI including a ban on such proposals that could hit the production of sensitive segments like oncology drugs, vaccines and injectables.

In todays meeting, there were two dimensions. Proposals that have come under the existing policy and the other related to concerns about takeover of oncology, injectables, and vaccines where we feel that critical needs must be met at all costs and that the policy will ensure, said commerce and industry minister Anand Sharma after the meeting with Singh. Sharma and DIPP had argued that allowing multinationals to take over domestic drug firms would deny Indians access to affordable medicine.

India allows 100% FDI for greenfield pharma projects through the automatic route whereas in existing pharma businesses, while 100% FDI is allowed, the proposals will have to be routed through the FIPB. In the case of brownfield FDI, the government can impose three riders on the foreign firms acquiring domestic pharma firms. First, the acquirer will have to maintain the quantitative level of essential medicines produced at the time of induction of foreign investment into the domestic unit for a period of five years. The level is defined as the highest annual production level of the medicines in any of the three years preceding the induction of foreign investment. Second, the highest of the annual expenses incurred by the Indian company on R&D in the preceding three years have to be maintained for the five years following the induction of FDI. Third, the foreign company will also have to provide complete information on technology transfer to the FIPB.

At present, about 28 % of the market is controlled by pharma MNCs, said DIPP officials. If another top three Indian companies are acquired by MNCs, their share would rise to 41% and on acquisition of the next rung of eight companies, their share will go over 55%. In the last five years, the share of pharma MNCs has grown from 15% to 25%, the official said

And if there are safeguards required, that will be discussed. As to what should be the nature of those safeguards so that affordable life saving medicines are available to the people and that the policy ensures, added Sharma.

The Prime Minister, sources said, agreed to overhauling the FDI policy in the pharma sector if all stakeholders are on board.

As part of the proposed changes, the health ministry would be asked to suggest whether any specific critical verticals in the sector should be retained only with the Indian companies in case of M&As.

Among the main concerns that were raised in the meeting is how to prevent MNCs from changing the product mix from generics to branded generics or patented ones after acquiring Indian companies, which could impact the cheapest price generics for the Indian population.