An inter-ministerial group set up to frame rules on FDI (foreign direct investment) for brownfield proposals in the pharma sector has decided to do away with the mandatory transfer of technology by the foreign investor to the target company.
A brownfield investment means acquiring or buying stake in an existing company.
The group has said the clause mandating the requirement proposed by the health ministry would restrict foreign investors and compliance would be difficult to monitor.
| BIG PHARMA DEALS IN INDIA |
| 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, saying 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 |
| Jan 2012 -May 2012 Ministry of health wants stiff riders before allowing brownfield FDI investment. Other departments want a liberalised regime. Differences lead to delay in FIPB clearances and many pharma proposals got stuck |
| May 2012 Government sets up a special group to streamline the process of approval of FDI in brownfield pharma |
| June 2012 IMG meets |
However, the group has imposed riders on the quantity of generic drugs a foreign company must produce for the domestic market and the enhanced investment in research and development it must make.
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| Rs -$ conversion at current rate |
The group was formed after there were major delays in the clearing of FDI proposals due to differences between the health ministry, which favoured stiff riders, and other departments keen on a liberal regime. In the beginning of this year, major investments from pharma companies such as Akorn Inc (the US), Chemo Espana (Spain) and Global Par Pharma (the US) were stalled due to opposition from the administrative ministry.
In November last year, the government had made FDI in brownfield pharma companies stricter by putting it under FIPB scrutiny and moving it out of the automatic approval route. However, amid growing inter-ministerial differences, the commerce ministry decided to set up the said group with representatives from the health ministry, the DIPP, the department of pharmaceuticals and others.
In a meeting held a few days ago, the group decided the level of generic medicines produced for domestic use (other than for exports) after FDI should not fall below the average level for the last five financial years preceding the induction of FDI or the period since the date of commencement of production by the company. The word level will be deemed to mean the percentage of the total turnover of the pharma company and the total quantity of production of generic medicines.
The group also agreed that instead of using the term generic the phrase “national list of essential medicines", which could be modified from time to time, should be used.
It has also stated that the level of investment in research for “diseases relevant to India” expressed as a percentage of the total cost of production shall, after induction of FDI, increase by at least five percentage points over the average level for the last five financial years preceding the induction of FDI or the period since the commencement of production by the company. The condition has to be met within a period of three years of the induction of FDI.
The group agreed the health ministry should come out with some classification specifying diseases relevant to India.
