Foreign pharma cos may need FIPB nod for brownfield buys

Written by Himani Kaushik | Soma Das | New Delhi | Updated: Jul 25 2012, 05:41am hrs
The inter-ministerial group on pharma FDI is understood to have decided in favour of making it mandatory for foreign drugmakers to go through the FIPB route if they plan to take over existing pharma companies in the country.

Even though not every ministry representative has signed on the decision yet, we think it is appropriate that all MNCs planning brownfield acquisition should be routed through FIPB, an official present in the IMG meeting said.

Further, a set of riders in the interest of public health has also been made mandatory for foreign pharma multinationals planning for takeover of domestic pharma companies. This could include an original condition put forth by health ministry and DIPP which stressed on the need for foreign drug maker making brownfield acquisition in the country to seek approval from the government before curtailing or discontinuing production of bulk drugs or finished dosages listed in the National List of Essential Medicines (NLEM). Another contentious condition which mandates foreign drug makers to promise that they would increase R&D spend in the company acquired by five percentage points within three years of acquisition, may be retained in the rider list.

According to sources, a clear bone of contention was whether foreign drug makers seeking to acquire stakes of 49% or below should be allowed through automatic route or would need an FIPB approval. A section of IMG have been arguing that allowing 49% of FDI in brownfield acquisition through automatic route could increase the chances of 'creeping acquisitions' in the pharma sector, defying the purpose of public health. There is a clear consensus that companies seeking to acquire over 50% in existing domestic drug firms would need FIPB clearance.

The original list of riders proposed by health ministry and DIPP was for ensuring that the acquiring company shall not decrease the production of generic medicines in the manufacturing facility below the five years average production figures. Health ministry also wanted that the acquired manufacturing facility should be continued to be used for supply of medicines to the domestic tariff areas not to get disturbed post deal and transfer technology to the acquired company.

We have concluded our decision on the issue, managed to get a consensus. The recommendation would now be sent to PMO which would take a final view on FDI norms in the pharmaceutical sector, said a finance ministry official said. The meeting of the IMG on Tuesday was attended by officials from the departments of pharma, health, DIPP and department of economic affairs. Ministry of external affairs and ministry of overseas affairs were also part of the IMG.