Pharma deals set to face closer scrutiny

Pharma deals set to face closer scrutiny

New Delhi: The government will use the Competition Commission of India (CCI) and the Foreign Investment Promotion Board (FIPB) to keep a watch on acquisitions in the pharma sector to stave off the possibility of cartelization and dominance by multinational companies.

While there will be no change to the automatic approval norm for greenfield proposals involving 100% foreign direct investment (FDI) in the sector, so-called brownfield proposals, or those involving the acquisition of Indian pharma companies by multinationals, are set to face closer scrutiny, according to a government release.

At a meeting chaired by Prime Minister Manmohan Singh, it was decided to make antitrust rules tighter for such deals, bringing more pharma mergers and acquisitions (M&As) within CCI’s ambit.

“FDI will be allowed through the FIPB approval route for a period of up to six months" for these brownfield investments, the government said.

“During this (six-month) period, necessary enabling regulations will be put in place by the CCI for effective threshold limits on mergers and acquisitions to ensure that there is a balance between public health concerns and attracting FDI in the pharma sector," the government said. “Thereafter, the requisite oversight will be done by the CCI entirely in accordance with the competition laws of the country."

The decision was welcomed by a grouping of local companies.

“We are glad that the government has made a distinction between brownfield and greenfield investments in the pharma sector," said D.G. Shah, secretary general, Indian Pharmaceutical Alliance, representing local drug companies.

Chandra M. Gulhati, editor, Monthly Index of Medical Specialities, India, a medical magazine, said: “The fine print of the new guidelines would determine whether foreign companies would be able to easily take over existing units or would face an FIPB hurdle."

Until now, the government has made no distinction between brownfield and greenfield projects when it comes to acquisitions by foreign buyers.

The government wants to ensure that there are adequate safeguards against anti-competitive deals in the sector, which is sensitive to price movements, according to Arun Maira, a member of the Planning Commission.

Retaining the automatic approval for greenfield investments, “will facilitate addition of manufacturing capacities, technology acquisition and development", the government said.

Prime Minister Singh had appointed a high-level committee led by Maira to consider whether there was a need to change the policy of allowing 100% FDI in the pharma sector. Maira, who submitted his report in September, had recommended the lowering of threshold limits for deals needing CCI’s approval.

“The threshold criteria under the Competition Act 2002 are on the higher side. Therefore, most of the acquisitions by multinational corporations of Indian pharmaceutical companies will fall under the category of group criteria for filing, which at present is $3 billion for assets and $9 billion for turnover on combined basis for the acquired and the acquirer," the draft report, a copy of which has been reviewed by Mint, stated.

The department of industrial policy and promotion (DIPP), the health ministry and the domestic pharma lobby have been asking the government that brownfield projects be routed through FIPB.

These groups say takeovers by multinationals will create a market in which just a few companies will determine the prices of medicines, potentially putting vital drugs beyond the reach of the poor.

Maira said the government has decided to set up a specialised committee that will help CCI analyse the pharma sector and strengthen its knowledge base.