US generic-drug maker Mylan Inc’s $1.6 billion acquisition of a Strides Arcolab Ltd unit is set to be taken up for clearance by the Cabinet on Thursday.
The deal, once cleared, would be the first major brownfield FDI to cross all regulatory hurdles after hanging fire for nearly five months on account of opposition from the department of industrial policy and promotion (DIPP). Pittsburgh, Pennsylvania-based Mylan had announced its purchase on February 28 of Bangalore-based Strides’ Agila Specialties, which makes injectable cancer medicines.
The proposal going through would mean an inflow of much-needed foreign exchange, something that could help the government partially bridge the current account deficit that has triggered an over 9.5 per cent drop in the value of the rupee against the US dollar this calendar year.
The Mylan-Strides deal -- the third-largest acquisition in the country’s pharma sector after the Daichii Sankyo-Ranbaxy ($4.6 billion announced in June 2008) and Abbott-Piramal ($3.72 billion in September 2010) deals - had faced delays due to a tussle between the DIPP and the finance ministry over the issue of allowing 100 per cent FDI in brownfield projects in the pharma sector. The DIPP, which had been opposing FDI in brownfield projects on the grounds that it is likely to make generic life-saving drugs expensive, is learnt to have given its nod, enabling the proposal to be taken up by the Cabinet for final clearance tomorrow.
The DIPP had opposed the deal citing concerns that the acquisition could have an “adverse impact” on the supplies of some critical cancer drugs, the production of which, in the wake of the deal, would fall into the hands of a non-Indian company. While India allows 100 per cent FDI in the pharma sector, any foreign investment in existing pharma companies requires an FIPB nod. The Competition Commission of India had, on June 20, approved the proposal, saying “the proposed combination is not likely to have an appreciable adverse effect on competition in India”.
Announcing the deal in February, Strides Arcolab said it had entered into a “definitive agreement” for the sale of its specialties subsidiary, Agila Specialties, and simultaneously its overseas specialties subsidiary, Agila Specialties Asia Pte. Ltd, Singapore, to Mylan Inc. Under the terms of the agreement, Strides and its subsidiary were to receive an aggregate sum of $1.6 billion in cash on closing and a potential additional consideration of up to $250 million