Dwindling FDI in pharma, medical devices worries industry

A 74 per cent drop in foreign direct investment (FDI) in drugs and pharmaceuticals for the year ended March 2019 has caused a sense of disquiet, as the performance reflects uncertainty in the domestic market stemming from fluid policies, say industry-watchers.

FDI in the sector stood at $266 million for the period, a huge dip from $1,010 million in the corresponding period of the previous year, data recently released by the Department for Promotion of Industry and Internal Trade showed. Medical devices too reported an FDI dip to $66 million in the year ended December 2018, compared to $439 million in 2016.

Inconsistent policies, including the increasing grip and scope of price control, injected a high degree of uncertainty for investors interested in both the drugs and medical devices segments, says an industry-hand, pointing to the price slash on cardiac stents. While this may have brought some cheer to patients, the industry representative questions if the entire benefit was indeed passed on to patients, or were hospital “packages” revised to make up for the slashed trade margins?

Patient-benefits and encouraging industry to be viable are not mutually exclusive, the med-tech representative said, adding that they had suggested rationalisation of trade margins to the Government. Transparent procedures and payment structures benefit patients and industry, the representative said.

Looking at the ailing numbers, Bhavik Narsana, Partner with Khaitan & Co, said the last six months had seen foreign companies holding back on investing in India for reasons including uncertainty over the outcome of the Parliamentary elections. Price control on drugs and devices further fanned the negative sentiment, he observed. In AdvaMed’s Abby Pratt’s view, the last two years also saw protectionist and more inward looking policies that affected investor sentiment.

But KM Gopakumar with the Third World Network pointed out that the absolute FDI numbers did not reveal the entire picture in terms of investments in greenfield (new projects) or brownfield (existing) projects, for instance.

Just years ago, the Government had intervened and appointed a gatekeeper agency when top Indian drug companies like Ranbaxy and the Piramals sold their pharmaceutical businesses entirely or in parts to foreign players. This had raised concerns on the health security of the country, as local manufacturing capacities were being acquired by foreign companies. And this is something the Government should keep an eye on, he said.

Seeking policy remedies

At present, the medical devices sector is allowed 100 per cent FDI through the automatic route and is governed under the Drugs and Cosmetics Act. FDI in pharmaceuticals is allowed only up to 74 per cent through the automatic route and big-ticket acquisitions are required to get additional clearance.

But Rajiv Nath from the Association for Indian Medical Device Industry said FDI flows only when companies need money to set up factories. At present, foreign companies don’t find the need to do that as they import on low custom tariffs and their profitability or market access is not affected, he added.

On the pharmaceutical front, foreign companies are not looking to buy generic drugmakers who make similar versions of an original drug, says an industry veteran. Instead, they are looking for companies making newer biosimilar drugs which is the future. They are also looking for bulk drug or API (active pharmaceutical ingredient) plants, to reduce their dependence on China. In fact, he adds, Chinese companies may look to buy Indian drug companies to enter the US market, he says, as India has the largest number of plants approved by the US regulator outside their country.

The remedy that the pharmaceutical and medical devices industry needs is consistent and remunerative policies where companies and investors can make long-haul plans for India, says Sudarshan Jain of the Indian Pharmaceutical Alliance. There is a huge population that needs to be serviced and this can be done only with policy support from the government, he added.

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