Two months after the government tightened the FDI policy in the pharma sector by allowing up to 100 per cent brownfield investment only after Foreign Investment Promotion (FIPB) clearance, there have been several applications from international pharma companies interested in Indian firms. However, the FIPB in its last meeting a few weeks ago threw a spanner in the works by deferring four such applications. A brownfield investment means acquiring or buying a stake in an existing company.
Earlier, FDI in both brownfield and new investments were under the automatic route. Now, brownfield investments in the sector will be cleared by the FIPB for the next six months. After that period, they will be scrutinised and cleared by the Competition Commission of India (CCI).
International pharma companies are rushing to get clearances from the FIPB within the six-month window. After that, applications would be with the CCI, which will be empowered for effective oversight.
| MERGING IDEAS | |
| Aug 2010 DIPP and commerce ministry float draft discussion paper on compulsory licensing, express concern at foreign takeovers of domestic pharma firms; health ministry joins bandwagon | |
| July 2011 Govt asks Planning Commission member Arun Maira to examine if acquisitions by foreign firms would hit drug availability and increase import dependence | |
| Oct 2011 Maira committee submits report, govt accepts, says 100% FDI through automatic route to continue in greenfield projects, suggests CCI scrutiny for brownfield projects; in the interim, brownfield acquisition proposals to be routed through FIPB | |
| Dec 2011 Corporate affairs ministry tells PMO there’s a need to amend Competition Act to empower CCI to scrutinise all pharma M&As | |
| MAJOR TAKEOVERS SO FAR | |
| $4.6 bn Daiichi Sankyo (Japan) acquires Ranbaxy in June 2008 | $3.7 bn Abbott (US) buys Piramal Healthcare in May 2010 |
| $783 mn Sanofi (France) acquires Shantha in July 2008 | $736 mn Mylan (US) takes over Matrix Lab in Aug 2006 |
| STUCK PROPOSALS | |
| Foreign player | Indian target |
| Akorn Inc (US) | Akorn India Pvt Ltd |
| Chemo Espana (Spain) | Ordain Healthcare Global |
| Par Pharma (US) | Edict Pharmaceuticals |
The FIPB and the department of pharmaceuticals have taken a tough stance on the new applications. Nearly half a dozen other international pharma companies are waiting in the wings and will decide on their next step based on the fate of the existing applications.
The FIPB has in its deliberations said in the wake of the new policy changes, it wants to study the applications carefully on various grounds — whether they would impact the affordability of drugs for the common man, help the domestic pharma industry or bring about the infusion of new technology in the country.
The pharma companies under scrutiny are the US-based Akorn Inc, which manufactures niche generic drugs, Spain-based Chemo Espana, a health care multinational, the US-based Par Pharmaceuticals and Aptuit LLC, a US-based global pharma company.
Akorn Inc wants to acquire 100 per cent in Akorn India Pvt Ltd, controlled by Indian shareholders. Its plan is to convert the company into a wholly owned subsidiary and acquire business assets and manufacturing rights from Kiltech Drugs and NBZ Pharma Ltd.
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These two companies are engaged in the manufacturing of generic pharmaceutical formulations.
However, the FIPB has contended that in view of the affordability of critical drugs for the common man, it needs further consultations on the application.
Similarly, Chemo Espana and some other companies together have put up a proposal to invest up to 100 per cent in Indian company Ordain Healthcare Global, based in Chennai. However, the Indian company does not have any manufacturing facility and will be engaged in marketing and wholesale distribution of finished dosage formulations.
The department of pharmaceuticals has contended it does not support the proposal as the company will import chemicals without any gain to the Indian pharma industry, and there is no proposal for the upgrade of products currently manufactured by the Indian company.
Par Pharmaceuticals has agreed to buy out 100 per cent in Edict Pharmaceuticals Ltd, a 100 per cent export-oriented unit in the business of research, development and manufacture of pharma products for markets in the US. The department has argued the application does not envisage any new products or technology and there is no value addition in the acquisition.
Experts say the six-month window may be extended as the government has to amend the Competition Act, which will require parliamentary endorsement.
The Ministry of Corporate Affairs plans to amend the Competition Act, 2002, to introduce sector-specific assets and turnover thresholds for merger and acquisition scrutiny.