Drug industry hails 100% FDI in pharma

Business Standard, October 12, 2011

Calls for a policy framework for CCI to handle pharmaceutical M&As.

Domestic drug makers have welcomed the government’s decision to continue with 100 per cent foreign direct investment (FDI) in the domestic pharmaceutical sector and make the Competition Commission of India (CCI) solely responsible for the scrutiny of mergers and acquisitions in the drug manufacturing field.

Industry representatives, reacting to the Prime Minister Manmohan Singh’s endorsement of the recommendations made by a high-level committee headed by Planning Commission member Arun Maira on pharma takeovers, said the government should now formulate a policy framework.

“For the first time, the government has made a distinction between foreign investments happening in brownfield and greenfield drug projects,” D G Shah, secretary general of Indian Pharmaceutical Alliance (IPA) said. “While M&As in brownfield projects will now be scrutinised by the CCI irrespective of the size of the deal, greenfield projects will continue to invite 100 per cent FDI through automatic route.” IPA is the representative body of leading domestic drug-makers.

The Organisation of Pharmaceutical Producers of India (OPPI), which represents multinational pharmaceutical majors, said it welcomes free flow of FDI in pharmaceuticals.

The Indian Drugs Manufacturers Association (IDMA), another domestic drug makers’ forum, also expressed similar feelings. Its secretary general, Daara Patel, said any regulatory restrictions on FDI could adversely impact competition which is not in the public interest.

The industry bodies are looking forward to see whether the government intends to develop a policy framework for the CCI to handle pharmaceutical M&As.

Competition advocacy group CUTS International said the CCI can work as the gatekeeper for any anticompetitive outcomes of takeovers. “The advantage with a merger review provision is that the CCI can allow a merger with conditionalities and undertakings, which could include either divestiture of a product line or division if the merger can lead to concentration,” CUTS stated. “Undertakings can also be taken up to ensure that less profitable product lines are not shut down. This is a standard practice in all countries.”

As part of strengthening CCI to look into all pharmaceutical M&As, the government will soon set up a standing advisory committee.As an interim measure, all FDI in all brown-field projects will require the clearance of the Foreign Direct Investment Promotion Board.

The government expects to empower CCI to handle pharma M&As of all size through an amendment to the Competition Act in six months.

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