Infusion by a parent company in its existing facilities to expand capacity shouldnt ideally be mixed up with issues of public health, considering the need to safeguard public health has essentially arisen out of foreign multinationals acquiring domestic drug firms. By asking those companies, which want to augment capacities to go through additional clearances, we would be sending a wrong signal to investors while the main aim of the inter-ministerial group (IMG) is to address concerns of public health without in any way discouraging investments in the pharma sector, an official closely associated with the IMG on pharma FDI said.
The official said a mechanism may be devised so that small sized deals may not have to seek FIPB clearance. Many of the deals in past few months that FIPB has been considering in the pharma sector were much below R50 crore, and these by no means would threaten public health. This unnecessarily increases the burden of FIPB, he said.
Also, foreign multinationals planning to takeover domestic drug firms would have to promise that they wouldnt cut down on production of generic drugs, which are part of National List of Essential Medicines, below an average of five preceding years of acquisition and would increase R&D spend by 5% points in the three years of the deal going through, as reported by FE earlier this week.
Atleast, two such projectsof Canadian generic major Apotex and US drug giant Pfizer have faced delays at the FIPB desk in last few months in the backdrop of lack of clarity on such issues. As reported by FE earlier, Apotex Pharma Holdings, one of the largest generic drug firms of Canada, has plans to invest R500 crore in its wholly-owned Indian subsidiary, Apotex Research, to set up a solid dose formulation facility.
The Canadian firm, which also figures among the top 10 generic firms in the US, the largest drug market globally, had sought the governments approval for the capital infusion. However, this request raised the governments eyebrows on whether such funding in existing subsidiaries by foreign multinationals can qualify as greenfield investments.
Interestingly, Apotex dubs it as an infusion in a strictly greenfield project and promises that the proceeds would not be used directly or indirectly to acquire or merge any existing company in the country. For investments in a greenfield project in the pharmaceutical sector, 100% FDI is allowed under the automatic route. But the government chose to view Apotexs investment plans through a different lens. The FIPB in May said that since Apotex Research is an existing company, FDI in it should be routed only through the FIPB route and not automatic route.
In case of Pfizer, atleast a significant part of R800-crore investment proposal that is awaiting FIPB approval now is meant as infusion in its Indian subsidiary.