FDI in Indian Pharma sector – A boon

FDI in Indian Pharma sector – A boon

Amidst the din surrounding the Indian government’s plans to facilitate FDI in various fields that contribute towards the economy, what comes to the fore is a certain anticipation that might indeed turn out to be a boon.
FDI in retail is highly debatable but the same in the pharma sector will only trigger the economy to newer heights and also ensure a remarkable growth in technology and medical advancement. In order to rub shoulders with its American and European counterparts, the Indian pharma industry desperately needs foreign aid, only to boost its already blooming credibility.
Despite adversities and a number of challenges, the Indian pharma and the biotech industries have shown phenomenal growth and are almost at par with foreign industries in the league. And in order to remain to have diverse expertise in the field, there has to be a healthy exchange of views &ideas complimented with the latest technology vis-a-vis foreign aid.
We all know the standing of Indian pharma industry globally. In spite of various challenges faced by the industry, the pharma and biotech sectors have grown phenomenally. FDI has added to the growth substantially. One should look into the economic growth of the country through various sectors/industries.
As they say, ‘health is wealth’, the pharma and the biotech industries help us in the proper maintenance of the human body. So in order to have healthy citizens, any nation needs to have substantial barter of knowledge, technology and mighty brains that will allow quality R&D, exports, drug development and latest technological applications.
As we all know that the pharma and the biotech industries help us in living healthier lives. They have come up with various solutions to problems related to the human health and exist for the sake of human survival across continents. There is no harm with FDIs if they help in economic growth, for the development of R&D, exports, drug development and latest technological applications.
A number of countries have benefitted because of FDI and hence India should look for more avenues to expand its foreign relations with respect to the pharma and biotech industries.
Investors from abroad like to initiate newer ventures in India because the country is less expensive- right from the finances that are needed to invest to kick start a project to efficient manpower, cheap and efficient labour, renowned scientists & research personnel. In totality, India is a hub for contract research, biotech, clinical trials and clinical data management.
Some sections in the government have voiced their concern over the price rise of generic drugs. Following the number of takeovers of Indian pharma companies by the MNCs, even the Health ministry is showing concern over the price issue of generic drugs.
There were initial apprehensions expressed by some of the drug making lobbyists from the domestic industry about the arrival of MNCs to monopolize the Indian pharma sector, particularly after the six famous acquisitions.
The government set up the Maira Commission (headed by Mr Arun Maira, member of the government’s Planning Commission) following an appeal put forth by some pharma associations concerning monopoly of FDI over indigenous companies.
However, companies that were acquired by MNCs, reaped benefits and some of them were advocating the government to allow FDI. And this led to difference of opinion among the industry associates. But nonetheless, the majority felt that there was certainly a need for some regulatory norms to safeguard interests of the domestic companies.
After going through the recommendations made by the Maira Commission, the government categorized the FDIs as investment in Brownfield and Greenfield areas. Mergers & Acquisitions that will take place in Brownfield sector will be scanned by the Competition Commission of India, and 100 percent FDIs will take place in the Greenfield sector.
The industry is in favour of 100 percent FDI in the domestic pharma  sector and would like the CCI (Competition Commission of India) to work out a policy/ guideline to look into pharma M&A.
The industry is growing rapidly in the country and is expected to create a niche for itself in the global market.
However there is one section in the society that feels that FDI in pharma might not be beneficial. But considering the fact that there are bodies to govern the proper functioning of the impact and effect of FDI on indigenous producers, one may welcome it as a boon that will enable advancement.

Sankar Iyer of LifeScienceWorld spoke to some experts on what they feel about FDI in the pharma industry and its implications:

This is what they say:

chandrajit_banerjee
Chandrajit Banerjee Director General, Confederation of Indian Industry

 Do you feel FDI in the Indian Pharma sector should be allowed without restriction or  should there be a benchmark as talked about which is 49% ?
Yes, we feel that FDI should be encouraged in India without restrictions in pharmaceutical sectors. There are misplaced conceptions that investments by big multinationals in India will lead to increased pricing of drugs in country while we understand that pricing is determined by country policies and not by ownership of company. We feel that FDI in Pharmaceutical sector will promote business, opportunities, and collaborations in and out of India.

Some of the domestic pharma companies are fully in support of outside investments. Do you think some may succumb to the investor’s pressure on certain working policies?

We have no reason to believe that this will happen. In the global world, it is increasingly becoming one common platform for operations for Industry and each company; whether domestic or foreign does enough due-diligence towards customizing their policies to the local environment, in whichever country they operate.

We should not be worried about that few small and medium pharma companies will succumb only due to foreign investments but they may also succumb by attractive offerings made by large Indian companies and they might get out of business anyways. In current scenario, we should be work about how the whole industry can multiple and grow in India.

Will FDI enhance the economic growth without affecting the Indian entrepreneurs’ working pattern on company policy matters?
 
I do not feel that FDI will have negative impact on economic growth of India.

As a matter of fact, When we go out of India, we are able to compete in most of the fields as very strong business people from India. If Indian industries give most fierce competition in foreign environment then I do not see any reason why we should be feared with the same competition in our home land. Irrespective of sector, FDI will certainly groom business and entrepreneurs in India.

Any other comments

Yes, I would encourage FDI in India. Many countries including our neighbor China has encouraged FDI in country by drafting and implementing careful policies in country and we should also function carefully with open investments towards growth of economy.

Anay_Shukla
        Anay Shukla Member Pharma Team
Milind_Antani
Dr. Milind Antani Head, Pharma & Life Science Practice, Nishith Desai Associates (Legal & Tax Counseling Worldwide)

Do you feel FDI should be allowed without restriction or should there be a benchmark as talked about which is 49%?We feel that FDI in pharmaceutical sector should be allowed without any restriction. Today, the Industry is witnessing a paradigm shift as it has started focusing on domestic R&D and creation of NCEs (New Chemical Entities). This involves heavy expenditure and long gestation period. Access to large foreign funds by way of investment into the capital of the company (FDI) will ensure availability of funds without any strict repayment obligation. Any FDI would also bring along with it technical expertise and best practices in development and manufacturing which will benefit the Industry at large.The question of any restriction on the amount of FDI arises only in the backdrop of ceding of control over management of the company to a foreign party, which may not be in the interest of India. The assumption is that the post- FDI, pharmaceutical companies engaged in R&D connected to India and production of ‘essential medicines’ will stop doing so because of the change in management.

This may be true. But the assumption has a very big limitation. Not the entire pharma industry in engaged in the production of ‘essential medicines’, or is focused on R&D exclusively meant for benefit of Indian populace. A large portion of the Indian Pharma Sector is involved in production of bulk drug and non- essential medicines. The recent announcement of new drug pricing policy bring essential medicines under price control may further affect this figure. .

Some of the domestic pharma companies are fully in support of outside investments. Do you think some may succumb to the investor’s pressure on certain working policies?

The aspect of investor pressure cannot be ignored. However, pressure points can be anticipated and dealt with contractually under the applicable agreements

Will FDI enhance the economic growth without affecting the Indian entrepreneurs’ working pattern on company policy matters?

We believe that the entrepreneurial sense and working pattern is specific to the individual and the company. It is not rigid, and may change depending upon the need of the hour. A problem may arise if it is felt that the foreign investor is encroaching upon the value system / working pattern of the Company. However, such a situation can be averted if proper safeguards are put in the applicable agreements.

Prabal_Roy_Chowdhury
Prabal Roy Chowdhury Planning Unit, Indian Statistical Institute, Delhi

Do you feel FDI in the Indian Pharma sector should be allowed without restriction or should there be a benchmark as talked about which is 49% ?I am in favour of free FDI without caps, however I do support  regulations aimed at encouraging investments in priority sectors.Some of the domestic pharma companies are fully in support of outside investments. Do you think some may succumb to the investor’s pressure on certain working policies?The larger Indian companies I am sure are large enough to withstand such pressures. But smaller ones might be. However, as with any legislation the rules should be         based on the median, and not the outliers.Will FDI enhance the economic growth without affecting the Indian entrepreneurs’ working pattern on company policy matters?

Unless we are talking about joint ventures I do not see why.

b_k_iyer
             Dr. B K Iyer Medico – Consultant, Mumbai

Do you feel FDI in the Indian Pharma sector should be allowed without restriction or should there be a benchmark as talked about which is 49%?
Your comments overall.
Dr. B K Iyer, Medico – Consultant, Mumbai
No FDI is in India for welfare of Indians. None of the people interested in investing FDI above 50% are wanting current standards of MRP to stay or the profit mark up levels to be controlled by National Pharmaceutical Pricing Authority (NPPA). The very basis of NPPA is to extend and monitor affordability and reach. Even with the current stringent controls of the watchdog, the local Indian pharma companies do make profits and survive and grow substantially. This is purely due to the entrepreneurship skills of the Indian businessmen. Giving them a small say in the run of their operations by asking a global pharma company to have majority stakes in such organisations is inviting troubles since value by numbers will be the buzzword and not value creation by volumes, as is the outlook today. A classical guide in this direction for such investors will be the pressure to recover the investment as early as possible. Benchmarking it to 49% will be good on paper but not in practical implementation mode. A relevant guide to this will be the factors currently affecting the senior personnel at Ranbaxy and Abbott Piramal. An anonymous chat with any one of them will reveal insights better than any consultant’s perspectives.The smart pharma companies in India want to add either value in terms of technology or increase their basket offerings.
In wanting to do this, they would not like to shake the apple cart of marketing that the companies that get in FDI would be critical about, without understanding the local environment. So, of course, there be investor’s pressure on certain working policies and the easiest would be increase in prices. The strong foreign companies that have technology and basket would love to be on their own rather than tie up with anyone and so, FDI benefiting local companies substantially is a myth. In the past, there has been a strong push towards using prevailing Indian pharma manufacturing infrastructure to sourcing drugs but only because it makes economic sense. This does not in any way add to the evolution of new drugs as it is their prerogative of pricing that determines when and with what product to enter.And history has proven the ulcers created when their bottom line gets affected by some smart Indian companies offering the same at a fraction of their price. Till the bridge between the thought processes of the Indian entrepreneur and the foreign investor undergoes a sea change, the FDI process needs to be deferred. When the backend in India is used effectively for more R&D and technological adaptations, then the time is ripe for FDI to add more bang to the buck. This will then spur Indian economy substantially both in terms of job creations and economic turnover, affecting the Indian entrepreneurs’ working pattern on company policy matters, but positively and honed with a global outlook. This does not mean it is absent in Indian entrepreneurs currently. It is just far and few!

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