Planning Commission in Favour Of Status Quo on FDI in Pharma.

The Planning Commission is unlikely to recommend changing the policy of allowing foreign pharmaceutical companies to directly acquire Indian firms, despite the reservations of the department of industrial policy and promotion (DIPP), the health ministry and the domestic pharma lobby.

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

Arun Maira, a member of the Plan panel who heads a high-level committee appointed by Prime Minister Manmohan Singh to consider if there was a need to change the policy of allowing 100% foreign direct investment (FDI) in the pharma sector, said such a change “will convey a wrong signal to foreign investors that India is going back on its liberalization policy”.

“Before doing away with any existing model and coming out with recommendations, we must understand the systems that best allow the affordability and availability of medicines,” Maira said, adding that his committee will submit its report to the government in a month.

DIPP had issued a discussion paper in August 2010 calling for a public debate on allowing 100% FDI in pharma companies. The department later said that while multinationals may be allowed to buy out new pharma ventures, the acquisition of established Indian pharma companies should be routed through the Foreign Investment Promotion Board (FIPB) so that proposals could be scrutinized.

Currently, the government makes no distinction between brownfield and greenfield pharma companies when it comes to acquisition by foreign buyers.

As a result, India has seen a number of big-ticket pharma deals in recent years. In June 2008, Japanese drug maker Daiichi Sankyo Co. Ltd acquired New Delhi-based Ranbaxy Laboratories Ltd​ for nearly $5 billion (`23,000 crore today). Two years later, US-based Abbott Laboratories​ bought the healthcare solutions business of Piramal Healthcare Ltd for $3.72 billion, becoming India’s largest drug company in the process.

The Indian Pharmaceutical Alliance (IPA), a lobby of domestic drugmakers, says acquisition has become a means of easy entry for multinationals into India’s generics market.

Acquisitions result in aggressive price increases, diversion of drugs to remunerative global markets, and adverse effects on the availability of drugs in the local market, IPA secretary general D.G. Shah said in a presentation to the Planning Commission.

“Continuation of the current FDI policy will be perceived as endorsement of takeovers by the government,” he said in the presentation. Mint has reviewed a copy.

The Maira committee, which is comprised of representatives from various ministries and research institutions, last met on 19 August.

“We have asked various action groups—from non-profit organizations such as Public Health Foundation of India to industry associations—to give their views, but the guiding principles would be what will ensure adequate supply of drugs in the market,” Maira said.

He said the regulator Competition Commission of India (CCI) can look into competition-related issues of such acquisitions.

“Mergers and acquisitions above a certain threshold need CCI’s prior approval,” said H.C. Gupta, acting chairman of CCI. “CCI will take full care whether such a deal will impede competition in the market and suggest appropriate measures.”

The finance ministry has also opposed changing the rules.

“We can use compulsory licensing and drugs control order if there are instances of arbitrary price hike. In case of cartelization among drugs companies, CCI could be brought in,” said a finance ministry official, asking not to be identified.

Predictably, the Organisation of Pharmaceutical Producers of India (OPPI), which represents overseas pharma companies in India, prefers the status quo.

“OPPI strongly believes that this move (change of policy) will be a retrograde step in the financial reform process of the country and would adversely affect the foreign investment not only in the pharmaceutical sector in India, but possibly far beyond it,” the lobby said in a brief, a copy of which has been reviewed by Mint.

“OPPI believes that equity holding of a company has no bearing on the pricing or access, especially when medicine prices are controlled mainly by the National Pharmaceutical Pricing Authority, or NPPA, guidelines and competitive pressure.”

Source : livemint.com