India May Cap Foreign Investment In Pharma

India May Cap Foreign Investment In Pharma

September 28th, 2011 // 1:01 pm @

Will India place a cap on foreign investment in its pharmaceutical industry? The issue has been simmering ever since the Department of Industrial Policy and Promotion floated a paper more than a year ago suggesting such a move in response to an increasing number of purchases of domestic drugmakers by big pharma based overseas.

A growing number of multi-national drugmakers are, of course, expanding quickly into India by way of acquisitions. And the paper underscored growing anxiety that the Indian government would be unable to pursue its policy of generating low-cost generics and may find it difficult to secure manufacturing facilities to cope with outbreaks of epidemics and health emergencies. At the time the report was issued last year, foreign drugmakers commanded 15 percent of the Indian market, up from 10 percent in 2009 .

Now, a high-level panel of the Planning Commission, a government think tank, is recommending that the present cap on Foreign Direct Investment be lowered to below 49 percent among drugmakers from the present cap of 100 percent in order “to retain predominance of Indian pharmaceutical companies and preserve our self-sufficiency in drug production,” The Times of India reports. The commission wants pharma M&A proposals to be overseen by the Foreign Investment Promotion Board for more thorough scrutiny.

The domestic pharmaceutical industry is lobbying to lower the cap and argues that drug prices may, otherwise, eventually be out of reach for the nation’s poor. “If one were not to take note of it and initiate appropriate action, the damage to the domestic industry and the public health will be irreversible,” DG Shah, secretary general of the Indian Pharmaceutical Alliance, an Indian industry trade group, wrote The Wall Street Journal.

The implications are potentially dramatic for big drugmakers looking to expand into emerging markets by purchasing numerous brands and big domestic sales teams. But other Indian ministries are concerned that such restrictions would send the wrong signal to foreign investors. The foreign ministry, for instance, is resisting the change. “Any such move would be retrograde and detrimental to the country’s image as an investment destination,” an unnamed finance ministry official tells The Economic Times.

For the past decade, India has been rather liberal about foreign direct investment in its pharmaceutical industry. But a recent wave of acquisitions has caused concern. Among the biggest deals: the $3.6 billion acquisition of Ranbaxy Laboratories by Japan’s Daiichi Sankyo; Mylan Laboratories’ $734 million acquisition of Matrix Laboratories; Fresenius spent $219 million to buy Dabur Pharma in 2008; Sanofi-Aventis acquired a majority stake in Shanta Biotech in 2009 for about $700 million; Abbott Laboratories paid $3.72 billion to acquire Piramal Healthcare’s domestic drug formulation unit and spent $726 million to buy Paras Pharmaceuticals; and Hospira bought Orchid Chemicals.

In an effort to appease those who worry about scaring away investors, the Planning Commission may suggest a more moderate solution to review deals on antitrust grounds but avoid explicit limits on foreign investment. The Journal writes that there is good reason for considering this approach, because overall foreign direction investment dropped 28 percent to $29.4 billion in the year that ended March 31 amid corruption scandals and uncertainties about government regulations.

India makes more than 20 percent of the world’s generics and its industry is expected to grow from $19 billion in sales in 2009 to $50 billion by 2020, the Journal continues, citing to a report last year by PricewaterhouseCoopers. And the US India Business Council recently gave a document to India’s US ambassador, Nirupama Rao, saying it wants to “prevent the enactment of protectionist measures” in India’s pharmaceutical industry such as foreign-investment barriers and compulsory licensing requirements for patented drugs, the Journal adds.

Some Indian drugmakers believe restricting foreign investment restrictions would not be such a good idea. “Companies will do what makes business sense for them,” Biocon chairman Kiran Mazumdar-Shaw tells the Journal. “This is a high-growth sector and you will devalue it if you start putting restrictions.”

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