The high-level committee headed by Planning Commission member Arun Maira is set to recommend approval by the Competition Commission of India (CCI) for all pharmaceutical merger & acquisition (M&A) deals. The committee, expected to finalise its recommendations on the pharma sector tomorrow, would not suggest any change in the FDI level, currently 100 per cent in the drug industry. Rather, the Maira committee, at its third meeting tomorrow, is likely to seek modification of the turnover and asset thresholds under the Competition Act to allow CCI to clear all M&A deals in the domestic drug sector.
The committee was set up earlier this year, following concerns raised by the health ministry that acquisition of Indian pharmaceutical companies by multinationals could orient them away from the Indian market, thus reducing the domestic availability of drugs produced by them. The ministry argued the trend of takeovers may result in cartelisation and a clutch of companies dictating prices of drugs critical for addressing public health concerns. Subsequently, the commerce ministry sought a review of the FDI policy in the pharma sector.
Recent cases of takeover of Indian pharma companies by MNCs include Matrix Lab bought by US-based Mylan Inc, Dabur Pharma by Singapore’s Fresenius, Ranbaxy Laboratories by Japan’s Daiichi Sankyo, Shanta Biotech by France’s Sanofi Aventis, Orchid Chemicals by US-based Hospira, and Piramal Health Care by US-based Abbott Laboratories.
The Maira committee may call for inclusion of all pharmaceutical takeovers, irrespective of the size and value, under the purview of the Competition Act. Under the existing law, only M&As that involve target companies with a turnover of above Rs 750 crore and assets worth more than Rs 250 crore need to be vetted by the CCI.
The committee is of the opinion the threshold size of the acquirer should also be ignored as most foreign companies acquire assets through special purpose vehicles or subsidiaries that have no turnover or very little assets to escape intense regulatory scrutiny.
“We must pay attention to the acquisitions and mergers taking place in the pharmaceutical sector. We do not want to be in a position where acquisitions are distorting the industry and oligopolistic or monopolistic conditions are created,” Maira told Business Standard. He added, “We have created sophisticated mechanisms like the CCI on Monday, where the necessary gate-keeping could be done before such takeovers or acquisitions take place. Therefore, we no longer need to follow the FIPB (Foreign Investment Promotion Board) route when there are other instruments to scrutinise a deal.”
According to the committee, the pharmaceutical sector needs an exemption, given the public interest involved. The committee also wants CCI scrutiny to cover a wide range of issues such as closure of acquired manufacturing facilities, continued availability of low-cost products, etc through effective use of competition as a tool.
The committee is also of the view that India must desist from any move to dilute the public interest clauses enshrined in the patent law. The committee finds no reason to suggest changes in the FDI policy in the pharmaceutical sector as takeover of Indian pharmaceutical firms by foreign drug multinationals cannot be linked to changes in the pricing pattern or availability of medicines.
The health ministry and the department of industrial policy and promotion (DIPP) under the ministry of commerce and industry had both opposed this view of the committee. The committee stand had also seen commerce minister Anand Sharma writing to the Prime Minister, stressing the need for controlling FDI in pharmaceutical takeovers.
According to Sharma, while the FDI policy in greenfield investments would remain unchanged, there should be restrictions put in terms of mergers and acquisitions.
