The Foreign Investment Promotion Board (FIPB) has accepted some of the stiff riders proposed by the health ministry for multinational pharmaceutical companies trying to acquire Indian firms. However, it has rejected the ministry’s proposal to insist such companies must bring new technology and invest the necessary funds in research and development so that new molecules were developed keeping Indian conditions in mind. It has also rejected a proposed mechanism to monitor compliance of these conditions.
The three pharma proposals where the health ministry’s proposed riders have been accepted and the requests cleared include the 100 per cent acquisition of Bangalore-based Pharmaceutical Ingredients and Formulations India Pvt Ltd by US company Levomed Inc and a proposal of US-based Akorn Inc to buy 100 per cent stake in Akorn India Pvt Ltd. The third proposal was of Edict Pharmaceuticals, in which the existing shareholders proposed to sell 100 per cent stake to Par Pharmaceuticals of the US.
With this, half a dozen-odd pending FDI (foreign direct investment) proposals are also expected to be cleared.
| DOSE OF CLARITY |
| CONDITIONS ACCEPTED Foreign company must seek approval before curtailing or discontinuing production of any active ingredient or formulation part of the national list of essential medicines Manufacturing facility must continue to be used for supply of medicines to the domestic tariff area as during the financial year preceding the year of acquisition Acquirer must increase production of generic medicines and make them available for domestic use before export Acquired company should go for value addition and new products, and meet commitment to create jobs |
| NOT ACCEPTED Acquirer must bring new technology and invest in research so that molecules were developed keeping Indian conditions in mind A compliance-monitoring mechanism must be set up |
One of the riders accepted says the company must seek approval before curtailing or discontinuing production of any active pharmaceutical ingredient or formulation included in the national list of essential medicines. Another is the manufacturing facility must continue to be used for supply of medicines to the domestic tariff area as done during the financial year preceding the year of acquisition. Also, the acquirer must increase the production of generic medicines in the acquired facility and make them available for domestic use before export.
The ministry has added the acquired company should go for value addition and new products. It should also meet the commitment to create jobs (as promised by Akorn).
The ministry has suggested the FIPB set up a mechanism in the department of pharmaceuticals or the department of industrial policy and promotion (DIPP) to ensure undertakings or commitments made by companies were complied with and the compliance monitored regularly.
The FIPB, however, said a monitoring mechanism should be examined by the DIPP and incorporated in amendments to the FDI policy, if required. It observed the insistence on funds for research and bringing new technology was not a practice in any sector. The board added that till such time as the policy was not amended, the health ministry must directly convey the conditions it had imposed and oversee their compliance in the absence of an FIPB mechanism.
Brownfield investments in the pharma sector came under the FIPB approval route as an interim measure last year after the Cabinet decided to monitor foreign takeovers of Indian pharma companies from a public health perspective.
FIPB scrutiny was recommended until the Competition Commission of India (CCI) got legislative support to scrutinise pharma M&As (mergers and acquisitions) irrespective of the deal size.
