Policy

FDI in pharma: No game changer, 'health security' worries still on the horizon

PT Jyothi Datta Mumbai | Updated on January 20, 2018 Published on June 21, 2016

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In 2010, alarm bells went off in the Government when it found that the pharmaceutical industry had witnessed about six local acquisitions by foreign drugmakers in just five years.

The Government went into a huddle, with Ministries like Commerce and Health wondering aloud if investment caps were required in a sector that was integral to keeping the “health security” of the country.

In fact, multiple departments evaluated these concerns, including the DIPP (Department of Industrial Policy and Promotion), the Arun Maira committee and a Parliamentary Committee on Foreign Direct Investment (FDI) in the pharmaceutical sector.

The resounding view was that new or greenfiled projects could attract 100 per cent FDI, while brownfield investments (into existing operations) would go through a gate-keeper, a task bestowed on the FIPB (Foreign Investment Promotion Board), again after much discussion.

This being the backdrop, the Centre’s latest move to relax foreign investments in domestic pharmaceutical operations upto 74 per cent has raised the question of what gave Government the confidence to go ahead with such a decision? And whether the concerns raised by several Governmental agencies in the past have been allayed?

The move to bring in more investment into the domestic drug industry would have met with greater approval if the Centre was transparent with the rationale behind such a decision in the pharmaceutical sector. For instance, it would have done well to back up its decision with data on how drug prices of a local company had fared after it was acquired by a foreign company.

But in the absence of such an explanation, the Government has given more ammunition to both the Left and Right wing ideologies to find common cause in batting for domestic industry. And the shadow of possible increase in medicine prices continues to cast its shadow on foreign buyouts of local drugmakers.

Stable policies

But not everyone is worried that a domestic sell-out is imminent. Hitesh Sharma, EY’s Partner and National Head (lifesciences), observes that the latest move may not be a “game-changer”, though it does reduce the uncertainty and waiting period of three-six months that every deal took while being reviewed by the FIPB.

Beyond the 74 per cent cut-off, a buy-out deal will be put through checks on its overall size and the impact on marketshare etc, he points out, referring to concerns on whether the latest move would change the ability of local drugmakers to make medicines for the country.

In fact, he adds, the FDI breather in isolation would not see foreign drugmakers line-up to buy operations in India, until greater stability comes into the local environment in terms of clinical trial norms, intellectual property protection and medicine price control.

Domestic drugmakers could benefit from the inflow of funds to scale up technology and research, say some industry-watchers.

Acid test

But Indian Pharmaceutical Alliance’s DG Shah feels the “acid test” for the government would be in how the pharmaceutical landscape fares over the next three years. It will show up whether investments come into small drug companies making generic medicines or into those making speciality products like injectibles, vaccines, or biotech products, he says.

A similar concern had been raised in the Parliamentary committee report on the subject, that found that FDI went largely into brownfield projects and barely into greenfiled ones. The concern of “family silver” leaving the country had reached a shrill pitch when big-guns in the industry like Ranbaxy sold out to Daiichi Sankyo (it later got sold back to Sun Pharma) and Piramal Healthcare sold its domestic operations to Abbott.

The Parliamentary report also said that investments needed to go into segments like Active Pharmaceutical Ingredients (bulk drugs) etc, a desperate need in the country today.

With many such concerns still on the horizon, industry-watchers will be looking to the Centre for explanations on what fuelled the latest FDI relaxation for the pharmaceutical sector.

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Published on June 21, 2016
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