DIPP bats for FDI curbs in pharma

The commerce ministry has sought a review of foreign direct investment (FDI) policy in the pharmaceutical sector, in the light of recent takeovers of domestic companies by multinationals.

Quoting from a health ministry letter on the subject dated January 7, a department of industrial policy & promotion (DIPP) note prepared for Commerce Minister Anand Sharma for a meeting with US Commerce Secretary Gary Locke stated that takeover norms in the pharma sector should be more stringent.

It said 61 drugs worth over $80 billion are going off-patent, making it possible for domestic companies to produce cheaper versions of those drugs.

The DIPP note highlights growing differences between the health and finance ministries on M&A norms in the pharma sector, wherein 100 per cent FDI is permitted via the automatic route.

The differences cropped up at an inter-ministerial meeting chaired by the DIPP secretary on February 1. The department of economic affairs, under the ministry of finance, is against changes to FDI policy that makes MNC takeovers of Indian pharma companies more difficult — a move that would protect domestic players.
 

NEW PRESCRIPTION

* DIPP note highlights chasm between health & finance ministries on M&As 

* Calls for tough FDI norms, wants local firms to exploit off-patent drug regime

* But department of economic affairs is against changes that will hurt M&As

* Rash of takeovers began with Daiichi Sankyo acquiring Ranbaxy in 2008

The rash of takeovers by MNCs began with Japan’s Daiichi Sankyo acquiring leading Indian pharma company Ranbaxy in 2008. That was followed by German giant Fresenius buying Dabur Pharma, Sanofi Aventis hiking its stake in Shantha Biotech from 60 per cent to 80 per cent, and Abbott Laboratories of the US buying Wockhardt’s nutrition business.

The DIPP note for the minister, meanwhile, also pointed out that the government would review its decision to defer the second phase of its long-term road map for foreign banks. The postponement was prompted by the global financial meltdown.

Under phase 2, which was to start from April 2009, the government was planning to give full national treatment to wholly-owned subsidiaries of foreign banks. It was willing to follow it up by permitting wholly-owned subsidiaries of foreign banks to list and dilute their stakes so that at least 26 per cent of the paid-up capital was held by Indian residents at all times.