Even as the Prime Minister has reportedly endorsed a high-level panel?s recommendation that the Competition Commission of India (CCI) will vet all M&A deals in the pharmaceutical sector, the regulator is yet to firm up its views as to how this would be done. The CCI, which derives powers to scrutinise M&A deals above specified thresholds ? defined in terms of turnover/assets of the merging entities ? might find it difficult to have a special dispensation for a particular sector.
If at all a special regime is to be established for pharmaceuticals, the Act will have to be amended for that as any intervention by the CCI without due support of law could easily be struck down by its appellate authority and of course be successfully challenged in courts.
Speaking to FE, a CCI official agreed that the concept of ?relevant market?, which is behind the determination of the thresholds for M&A scrutiny, might have to be defined more tightly in the case of the drugs sector, given its peculiarities. That is, the exemption limit could be brought down to bring even smaller deals under scrutiny. But this could be true of some other sectors like agrochemicals also and once the threshold numbers as specified in law and the rules thereunder are changed only for a sector, it could open a pandora?s box and might potentially be legally untenable.
This is because conceptually, CCI is not to be given to sensitivities like that the one over high drug prices or even a monopoly as its mandate is simply to ensure fair play of market forces. It can act against anti-competitive agreements and abuse of dominant position, but not dominant position per se. It can thwart M&A deals with appreciable adverse adverse effect on competition and to gauge this, the threshold criteria.
A spike in prices of a lifesaving drug can be a concern for the government, not for CCI. Asking the CCI to handle such things would tantamount to re-defining its mandate, which is now in line with that of prominent anti-trust bodies in the world.
How is the pharma market different and why the ?relevant market? might need redefinition here? Consider this likely instance: a pharma firm with a high value, low volume drug – say a breakthrough cancer drug or a new drug for managing severe sepsis- proposes to merge with another company which makes the only therapeutic alternative in the market. That merger, even as its size being way below the thresholds specified in Competition Act, can have an appreciable adverse effect on competition in the relevant market– in this case, the market for those two competing drugs. Prices of the two drugs could spiral consequent to the merger.
The Arun Maira committee which proposed a larger-than-normal CCI role in pharma M&As was set up in the context of the concerns over likely acquisitions of Indian drug companies by foreign drug companies, with their potential to increase drug prices. The inter-ministerial committee was split down the middle on whether to restrict the FDI in pharmaceuticals to address this concern. Currently, 100% FDI through the automatic route is allowed in the sector. While health ministry wanted FDI in brownfield ventures (read acquisition) to be restricted at 49%, the planning Commission and finance ministry voted for the status quo with an enhanced role for CCI. It is to be seen whether and how this would work.