Health Ministry advocates FIPB route, commerce ministry seeks policy review
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. This was among the many concerns raised by the Ministry of Health and Family Welfare that made the commerce ministry seek a review of the foreign direct investment (FDI) policy in the pharmaceutical sector recently.
An internal note of the health ministry pointed out that such takeovers could weaken competition resulting in higher prices of domestic drugs.
According to the ministry, if the trend of takeovers continues, “an oligopolistic market and cartelisation may develop in India….”. This may lead to just a clutch of companies dictating prices of drugs which are critical for addressing public health concerns, including diseases like HIV/AIDS and Hepatitis C.
Based on these reasons and more, the health ministry advocated doing away with the automatic 100 per cent FDI approval route for the pharmaceutical industry. Rather, foreign investment should be allowed in the pharma sector through the FIPB (Foreign Investment Promotion Board) route, it argued.
Last week, Business Standard had reported that the commerce ministry had sought a review of FDI policy in the pharma sector, in the light of recent takeovers of domestic companies by MNCs. Interestingly, at an inter-ministerial meeting earlier this month, the finance ministry is learnt to have opposed changes to the current FDI policy for the pharma sector.
Meanwhile, Commerce and Industry Minister Anand Sharma said that FDI in new pharma projects would continue and only those companies that receive government funds for research could face some curbs.
The health ministry stressed in its note that though pharma imports had been growing, the emphasis on exports had resulted in a significantly lower growth of domestic consumption, compared to exports, during most years between 2003 and 2009. In fact, the value of domestic consumption of pharma products was down from Rs 45,953 crore to Rs 44,579 crore in 2008-09. “This is despite India having a large unmet demand for critical medicines,” the ministry said.
Pointing out that the need for affordable and high-quality medicines was critical for sustainable growth of the Indian economy, the health ministry has indicated that takeover of Indian pharma companies by MNCs had heightened the all-round concerns.
The cases of takeover of Indian pharma companies by MNCs, include Matrix Lab being 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 Abbot Laboratories.
The argument put forward by the ministry is that if Indian pharma giants were taken over by MNCs, they might lose interest in applying for a compulsory licence even if they were eligible, and that might threaten the regime of cheap and effective drugs in the country. Also, in the case of a public emergency, capable drug manufacturers may not be available to come forward to apply for compulsory licence and work at a reasonable cost. It said Indian pharma companies taken over by MNCs had been receiving state grants and tax concessions.
"A significant portion of their market value arose because of state support and they were catering to niche markets for relevant drugs. With their transfer to foreign control, they may no longer be interested in doing so," the note said.
It raised concern that strategic alliances of foreign companies with drug manufacturers for licensing and supply may alter the pharmaceutical landscape.
The alliances include those between GSK and Dr Reddy’s; Pfizer with Aurobindo, Strides Arcolab and Claris Life Sciences; Abbot with Cadilla Healthcare and Astra Zeneca with Torrent.
That’s not all. The Health Ministry has also raised the issue of foreign companies taking over domestic drug companies in other countries too. It has termed it as a step towards consolidation in the developing economies. GSK taking over BMS in Egypt and Pakistan, Sanofi taking over Medley in Brazil are among the examples cited by the Ministry.
