FDI in pharma, the wrong prescription

After a recent high-level meeting in early December 2012 on the issue of FDI policy, the Government decided that all foreign investments in existing domestic pharma firms should be allowed only after clearance by the Foreign Investment Promotion Board (FIPB) — till such time the Competition Commission of India (CCI) is empowered to vet such deals.

By and large, the decision is just right. And quite contrary to the spirit of runaway FDI in retail the same Government has taken. However, the issue is not merely about competition but control and access to affordable medicines, which may well escape the CCI’s narrow interpretation of its mandate if one goes by its track record.

India has a booming pharma industry, which is the leading generic drug supplier for much of the developing world. The discourse on FDI is, or ought to be, to maintain and enlarge this commanding position.

If you ignore reinvested earnings of existing foreign investors, normally FDI comes in the form of equity capital or working capital. The result could be some form of control or leverage over the domestic company.

India’s pharma companies are not in a dire state that they require equity or working capital from abroad. Far from it. But the threat of takeover and resultant control even with a 10 per cent shareholding in India’s pharma companies is real. At least three of India’s leading companies have been taken over in the recent past — Ranbaxy, Nicholas Piramal and Shanta Biotech (the technology for the latter’s best selling Hepatitis vaccine came from a Hyderabad-based government lab), creating windfall wealth for its owners.

Govt-industry ties

The 12{+t}{+h} Five Year Plan has ambitious plans for universal healthcare, with free medicines for all, in all government health facilities. The underlying faith is that India’s leading pharma companies will pitch in, in this social development goal. Health security is as important as defence security.

It is perhaps for this reason that the Government of India has put defence, and banking and insurance, in prohibited sectors for FDI. One would be wary of insurance companies that have a track record of exploitative health insurance clauses in their home countries — and wary also of the local advocates who champion health insurance as the route to universal access to healthcare for all.

So we are relying on the social responsibility of the home-grown entrepreneur to the foreign one? And we are assuming that the local pharma capitalist will be susceptible to government’s moral pressure? The short answer is ‘yes’ – and for good reason.

The Government has rightly been batting for India’s pharma sector, be it using TRIPS flexibilities creatively in the 2005 amendments to India’s Patents Act, or during the period 1972-2005 by extending the facility of process patents. Or the reported move to use compulsory licensing (CL) more creatively in some sort of automatic licensing.

Tech for self-reliance

The other argument given for bringing in FDI is that the process will bring in technology. It may. But we do not need technology in formulations, which is the core of India’s pharma exports. At best such technology is incremental.

What we need is technology for a whole range of medical devices, prosthetics and orthotic implants, if it can be made cheaper in India. Also, we need technology that can restore the semblance of self-reliance we had in bulk drugs ( Active Pharmaceutical Ingredients, or APIs) — a position that has now been sacrificed to China, with India now sourcing at least 50 per cent of its API requirements from China.

Indeed, it would be alright even if the Government takes the position that no “Indian” pharma industry takeover proposal would be approved for the next 10 years — that will give a clear signal that no easy pickings are available in this vital sector in India.

The usual market “analysts” who scream hoarse over wrong signals being sent, may have to be ignored. Nor is the Indian pharma formulation industry going to buckle over — with several molecules going off patent.

The next 10 years should also be considered a time to put our own house in order: a national R&D policy in pharma in accordance with the disease pattern of the country needs to be formulated. Funds for these can be made available through a special purpose fund. A move towards greater self-reliance in APIs is essential.

Clean-up, with policies

The Indian pharma industry is also due for a shake-up in terms of pricing of its products and the kind of products it makes. The National Pharma Pricing Policy 2012 is the first of the many policy initiatives that can start the clean-up.

At present the National List of Essential Drugs covers only 25 per cent of the pharma formulations market. A reformed pharma sector would make that figure 80 per cent at least if not 100 per cent after counting some less used, but important, life-saving molecules.

The FDI approval now comes with a rider that the company shall not reduce its proportion of essential drugs manufacture. In fact, all special governmental support to the Indian pharma industry (say for R&D) ought to come with a stronger rider — the proportion of its marketing of essential drugs should be at least 80 per cent. There is no reason why any industry dealing with the direct welfare of human beings should be allowed to make non-essentials.

FDI comes also in other non-equity guises. Some of these — such as licensing, franchising, subcontracting, alliances — can, in effect, cripple and tie the hands of the domestic company which, in accepting these arrangements, sacrifices longer-term freedom for short-term gains.

One of the invisible forms of FDI is voluntary licence – some licences have been already signed by Indian companies — and its successor, the medicines patent pool licence.

The subtext of the voluntary licence is to ward off patent challenges, including compulsory licence, from the licensee (read Indian pharma company) — it is a form of evergreening of patents.

The just completed argument in the Novartis case in the Supreme Court is all about how Section 3 d of India’s Patents Act is to be interpreted. Section 3 d is the clause that prevents evergreening of patents.

The FIPB, if it were concerned with preserving the autonomy and independence of India’s pharma industry, might consider looking into the text of these voluntary licences and sweetheart deals. Incidentally, a government that is so keen to allow Walmart must also examine if it will allow Walgreens and its impact on the domestic retail pharma sector.

Even as we write this, there is news that Pfizer paid $50,000 for lobbying in India on “issues related to a Supreme Court decision on generic medicine pricing” and a “certain patent cancellation matter” — the latter referring probably to the cancellation of their patent on Sunitinib. FDI by other means?

(The author is with All India Drug Action Network and LOCOST)

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