DIPP for stringent conditions in FDI in existing pharma cos

Faced with rush of multinationals to acquire Indian pharma firms, the commerce and industry ministry is proposing to tighten the FDI policy for the sector by incorporating conditions like mandatory investment in R&D and non-compete clause in the shareholders pact.

The Department of Industrial Policy and Promotion (DIPP) has proposed these steps in its draft cabinet note for tightening foreign direct investment (FDI) in the existing domestic pharmaceutical companies.

As per the proposal, the foreign company would not be allowed to close down the existing R&D centre and would have to mandatorily invest upto 25% of the FDI in the new unit or R & D facility, sources said.

The total investment as per the condition proposed would have to be incurred within 3 years of the acquisition, they said.

"As comments of some ministries have come late, the DIPP is moving a supplementary note on the matter," they added.

The note has also proposed to reduce FDI cap to 49% in rare or critical pharma verticals.

Sources said that 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.

"MNCs which are acquiring domestic firms have spent less than one% of their total sales in R&D in India. They are doing only clinical trials in India and not actual drug development work," another source said.

A Parliamentary committee had recently suggested a blanket ban on FDI in pharma saying the policy in the sensitive sector should be dictated by public good.

In 2008, Japanese firm Daiichi Sankyo had bought out the country's largest drug maker Ranbaxy for $4.6 billion.

US-based Abbot Laboratories had acquired Piramal Health Care's domestic business for $3.7 billion. Another US company Mylan bought Matrix Lab while Dabur Pharma was acquired by Singapore's Fresenius and France's Sanofi Aventis purchased Shanta Biotech and Orchid Chemicals by US-based Hospira.

Over 96% of the total FDI in the sector between April 2012 and April 2013 has come into brownfield pharma.

Global firms are accusing India that its pharma policy is not in compliance with the international standards.

According to a media report, recently a 87-minute documentary - Fire in the Blood - has been making waves across the globe. It tells the story that how global pharma firms and governments have blocked movement of low-cost AIDS drugs to the African continent causing deaths of millions of people.

"This documentary clearly reflects the true story of the western pharma companies," a source said.

Currently, India permits 100% 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.