Pharma Experts Feel CCI not Competent to Deal FDI in Pharma Sector.

The Union government's policy on FDI in pharma sector, announced recently by the Prime Minister, has come in for severe criticism from the experts as they contend that the Competition Act and the Competition Commission of India (CCI) are not equipped to deal with the situation arising out of the acquisition of Indian companies by the MNCs as the focus of the Commission is to approach the issue from a competition point of view.

“The power of CCI to inquire into acquisition and merger is regulated under Section 20 of the Competition Act. Sub-section (4) of Section 20 states that for the purposes of determining whether a combination would have the effect of or is likely to have an appreciable adverse effect on competition in the relevant market “the Commission shall have due regard to all or any of the following factors” and it lists down 14 factors. Hence, the focus of the Commission is to approach the issue from a competition point of view,” said KM Gopakumar, an expert in pharma policies.

He said that the concerns emerging out of acquisition of Indian pharmaceutical sector are not only related to the price of medicines, but also the ability of the sector to make available new medicines to the people of India. Such acquisitions also trap the Indian companies in the lower value chain. Further, the absence of national ownership in pharmaceutical market raises serious concern about health security.

Similarly, the foreign companies cannot be forced to address the critical concerns of Indian health needs due to India’s obligations under the Bilateral Investment Treaties (BIT), which ban most of the performance requirements. BIT provisions on performance requirements also block the perceived benefits of FDI in technology transfer, diffusion, manufacturing, etc. Hence, such investments will serve the purpose of rent seeking, without providing technology, R&D investment, etc. The Competition Act and the Commission are not equipped to deal with this situation. Therefore, leaving it to the question of FDI only in the hands of CCI is not the right solution, Gopakumar said.

Experts said that another important lacuna of the competition law route is that CCI cannot intervene prior to the acquisition or merger. It can act only after the post-acquisition phase, after receiving the notification from parties. This limits the scope of remedies available before the commission compared to a prior approval route. However, the FIPB route generally requires ex ante assessment and prior permission. Apart from these fundamental limitations of the competition law to address the concerns of acquisitions of Indian generic companies, there are following concerns emerging out of the Indian Competition Act.

Section 5 of the Competition Act sets a very high threshold level for CCI to act. As per Section 5 (a) 9i) (A), CCI can intervene only when the asset value in India is more than Rs.1000 crore or turnover more than Rs.3000 crore. This has been increased recently to Rs.1500 crore through a notification under Section 20 (3). In the absence of amendment on Section 5, CCI cannot examine all types of Brownfield investments in pharmaceutical sector.

It clearly shows that competition law is not an effective tool to address the multiple concerns related to acquisition of Indian generic companies. The FIPB route also has inherent limitations to address those concerns. For instance, MNCs may enter into informal arrangements, often called as strategic alliances, to bypass the explicit restrictions and direct the generic business model away from using the TRIPS flexibilities. Hence the task before the policy makers is to push Indian companies while using the flexibilities in the patent law to minimise the effects of patent monopoly in order to ensure access to affordable medicines and move up in the R&D value chain to develop products involving new chemical entities.

Therefore, it is important to develop multilevel policy responses to curb the direct and indirect acquisition of domestic generic companies with the objective of creating an enabling environment for the generic pharmaceutical industry to continue in business and move up in the value chain, along with disincentives to MNCs to capture the Indian generic market under the garb of strategic acquisitions and alliances, experts said.

Source : pharmabiz.com