FDI policy in pharma set for major overhaul

The government is set to make major changes in the current FDI policy in the pharmaceuticals sector to protect domestic generic industry in the wake of increasing acquisitions of homegrown companies by foreign players.

New Delhi: The government is set to make major changes in the current FDI policy in the pharmaceuticals sector to protect domestic generic industry in the wake of increasing acquisitions of homegrown companies by foreign players.

After a high-level meeting held today chaired by Prime Minister Manmohan Singh, it has been decided that the Commerce and Industry would soon start a consultation process to address "dangers inherent" in the current model of FDI in brownfield pharma units.

"Today's meeting looked at two dimensions. One is that the proposals which have come under the existing policy, there are some concerns, particularly with regard to oncology, injectibles and vaccines, where we see there is a critical need which must be met at all cost and that the policy will ensure," Commerce and Industry Minister Anand Sharma told reporters here.

He further said the proposals before the FIPB would go through the existing policy and if there were "safeguards required that will be discussed as what should be the nature of safeguards so that affordable life saving medicines are available to the people".

Elaborating the steps to be taken up, a top official in the Commerce and Industry ministry told PTI: "The Department of Industrial Policy and Promotion (DIPP) will soon start consultations for the proposed changes with the concerned departments, including Health. It will soon move the draft Cabinet note."

The changes to be brought will prospective in nature, the official said, adding the current policy was not serving its objectives and it needs to be changed in order to ensure affordable drugs to the general public.

"Multi-national companies (MNCs) which are acquiring domestic firms have spent less than one percent of their total sales in R&D in India. They are doing only clinical trials in India and not actual drug development work," the official added.

As part of the proposed changes, the Health Ministry would be asked to suggest whether any specific critical verticals in the sector should be retained only with the Indian companies in case of M&As, the official said.

Among the main concerns that were raised in the meeting is how to prevent MNCs from changing product mix from generics to branded generics or patented ones after acquiring Indian companies, which could impact the cheapest price generic for the Indian population.

"Also, there is a concern that dominant MNCs can block small domestic companies from establishing their presence in the global market," a source said adding the government may look at reducing FDI cap from 100 percent in the sector.

There is also concern that the ability of Indian firms to take advantage of the situation of blockbuster drugs going off patent through 2015 could be impaired. As many as 67 percent of drugs worth USD 80 billion is expected to go off patent during 2011-2013.

The official said that over 96 percent of FDI between April 2012 and April 2013 has come into brownfield pharma.

Besides, FDI has not led to significant addition to gross assets or jobs or increase in R&D expenditure. It has led to outsourcing, clinical trials to India rather than new investment in R&D for development of new drugs.

About 28 percent of the market was controlled by pharma MNCs. "If another top 3 Indian companies are acquired by MNCs, their share would rise to 41 percent and on acquisition of the next rung of 8 companies their share will go over 55 percent. In the last five years, the share of pharma MNCs has grown from 15 percent to 25 percent," the official said.

Moreover, the other big concern of the government is that the MNCs can resist regulations and production of essential drugs. There may not be applicants for compulsory licence if conditions of national emergency or extreme urgency requires.

Besides, there is a feeling in the government circle that with MNCs taking control of Indian firms, there could be reduction in supply of vaccines, injectables, particularly for cancer, and active pharmaceutical ingredients, sources added.

"The government is also cagey about the fact that India could be pressured to go to TRIPS plus," the source said.

Earlier this week, a Parliamentary committee had suggested a 'blanket ban' on FDI in existing pharmaceutical companies saying the policy in the sensitive sector should be dictated by public good.

It had 'strongly' recommended the Commerce Department to take all measures to stop any further takeover or acquisition of domestic pharma units.

The panel headed by BJP MP Shanta Kumar had said FDI in brown field pharma has encroached upon India's generics base and adversely affected the industry. It also said collaboration between foreign and domestic pharma companies has served western markets more than the needs of the local population.

"As a result, significant strides have not been made in creating fresh jobs and transfer of technology...The Department concerned must take desired steps to come up with optimal policy formulation in this regard," it added.

Currently, India permits 100 percent FDI in pharmaceutical sector through automatic approval route in the new projects but the foreign investment in the existing pharmaceutical companies are allowed only through FIPB's approval.

In July, concerned with the overwhelming majority of FDI in pharma coming only in existing units (brownfield investments), Sharma had written to Singh seeking an urgent high-level review meeting.