Govt may relax norms for brownfield pharma FDI

Written by Jayati Ghose | Kirtika Suneja | New Delhi | Updated: Jul 5 2013, 10:52am hrs
In a climb-down that could make it easier for foreign drug-makers to use the faster, inorganic expansion route by lapping up their robust Indian counterparts, the government might relax the criteria for approval of brownfield pharma FDI. Toning down its opposition to M&As in the drug industry, the department of industrial policy and promotion (DIPP) is learnt to have informed the Cabinet secretariat that it would favour approval of brownfield FDI proposals if the target Indian company's domestic market share is below a threshold. The limit would be defined in order to facilitate approval for acquisition of most Indian drug companies, except half a dozen or so at the top.

We are not against 100% FDI in brownfield pharma; however, we will be cautious if frontline generic drugmakers are involved with a sizeable market share, a senior DIPP official told FE. He, however, stressed that all brownfield investments will have to go through the approval (FIPB) route.

Such a rider based on market share threshold, for brownfield pharma investments, is likely to help the Mylan-Strides deal get Foreign Investment Promotion Board (FIPB) approval since the Competition Commission of India has already found that both firms have insignificant presence in the relevant Indian market. The FIPB will take up 10 pharma proposals on Friday, including the $1.6-billion buyout of Strides Arcolab's injectables arm by US major Mylan Inc.

Top 10 domestic pharma companies hold around 32% market share of the R74,117-crore Indian pharmaceutical market. This means the softening of stance by the DIPP could open up a large section of the Indian drug industry for acquisitions by foreign giants.

The DIPP, the nodal agency for FDI policy, has insisted on rigorous regulatory assessment of brownfield pharma investments, saying foreign takeover of domestic drug companies would be detrimental to India's healthcare and lead to an increase in drug prices as well as shortage of essential medicines.

While India allows 100% FDI in the pharma sector, any foreign investment in existing pharma companies requires an FIPB nod. The DIPP had asked FIPB to put most brownfield pharma proposals at abeyance till a clear policy on who can be allowed to buy Indian drug companies can be chalked out.

As global Big Pharma faces the prospect of a flurry of patent expirations, along with a drying up of new blockbuster discoveries, it is eyeing strong generic players in India and elsewhere to stay afloat. "Around 98% of pharma FDI proposals that we receive are of the brownfield category, with only 2% being greenfield investments. This is at a time when treatment of complicated diseases continue to be expensive. We need to put in place a policy that addresses public health concerns as well as business needs, said Saurabh Chandra, secretary, DIPP.

Sources said that even though the government might throw open the acquisition of relatively smaller Indian drug companies, the conditions for the approval of such deals could be modified. Currently, a drug company accepting FDI needs to maintain the quantitative level of essential medicines produced at the time of induction of foreign investment 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.

On research and development (R&D), the condition states that expenses incurred by the Indian company, on a yearly basis, at the highest level in the three preceding years to induction of foreign investment will be maintained in value terms annually over the next five years, following the induction of FDI.

While the current pharma FDI policy does not specify any conditions, it states that the "government may incorporate appropriate conditions for FDI in brownfield cases, at the time of granting approval".

On Tuesday, the DIPP had a detailed discussion with the health ministry and the department of pharmaceutical (DoP) officials on foreign investments in brownfield pharma. The industrial policy department is awaiting some clarifications from the DoP and the health ministry and will soon send a detailed note on riders for brownfield pharma investments for the Prime Minister's consideration.