Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Concern
The Health Ministry was deeply concerned with the recent spate of acquisitions/takeovers
taking place in the Indian pharmaceutical space. The Ministry believed that takeover of the
Indian Pharmaceutical companies by MNCs was a worrisome trend as it could lead to
increase in drug prices taking generic drugs out of the reach of common man.
Recent takeovers
Since 2006, several MNCs have taken over Indian Pharmaceutical companies:
Target Acquirer Date Value (approx)
Matrix Labs Mylan Inc (US) August, 2006 $736mn
Ranbaxy Laboratories Daiichi Sankyo (Japan) June, 2008 $4,600mn
Shantha Biotech Sanofi-Aventis (France) July, 2009 $783mn
Piramal Healthcare Abbott Laboratories (US) May, 2010 $3,700mn
Orchid Chemicals Hospira (US) December, 2009 $400mn
Dabur Pharma Fresenius Kabi (Singapore) May, 2008 $139mn
During the period April-July, 2011, Indian pharmaceutical sector received FDI worth $2.99bn
(`134.26bn). However, since 2001, when the sector was open for FDI, less than 10% of the
investment has gone into Greenfield investments.
Arun Maira Committee
Consequently, the Cabinet Committee on Economic Affairs (CCEA) set up a committee under
planning commission member, Arun Maira to study the effect of such takeovers on the
Indian pharmaceutical industry and to suggest measures for strengthening the sector.
Following were suggestions of the committee:
• To keep FDI policy in pharmaceutical sector unchanged and continue with 100% FDI in
pharmaceutical sector through the automatic route.
• Competition Commission of India (CCI) should be given more teeth to regulate M&A
activity in the sector.
• Lowering of threshold limit for deals needing CCI nod. Currently, most acquisitions fall
under group criteria for filing ($3bn for assets and $9bn for turnover).
Commerce Minister’s stand
Commerce Minister Mr. Anand Sharma sent out a strongly worded letter to the PM seeking
his intervention on the whole issue. He was critical of the lack of effective suggestions by
the Arun Maira committee. Mr. Sharma alleged that the takeover of Indian pharmaceutical
companies by MNC pharmaceutical companies was a deliberate attempt to weaken the rise
of Indian generics. He suggested that 100% FDI should be allowed in Greenfield projects and
M&A proposals should be routed through the Foreign Investment Promotion Board (FIPB).
Stalemate
• The Health and Commerce Ministries were in favor of the FIPB being the watch-dog
whereas the Maira Committee had suggested CCI for the job.
• Also, the Health Ministry and DIPP wanted the sectoral FDI limit reduced whereas the
Department of Pharmaceuticals and the Finance Ministry were opposed to any
clampdown.
• This difference of opinion led to a stalemate on the whole issue with the matter
remaining unresolved.
Intervention by the Prime Minister
Realizing that some policy stance was required on the issue, Prime Minister Dr. Manmohan
Singh called a meeting of the Union Ministers of Health, Commerce and Finance on 10th
October, 2011.
Following decisions were taken during the meeting:
• No cap on FDI in the pharmaceutical sector and 100% foreign investments allowed.
Impact: Helps to create and continue with image of India as an investment-friendly
destination.
• Greenfield investments continue to be allowed under the automatic route and no
scrutiny needed. However, acquisition proposals to be looked at very carefully by the
Government.
Impact: Would facilitate new technology developments, capacity expansion and
investments into the country. Domestic players would have to step up R&D efforts and
technological expertise to match their MNC peers, while retaining cost
competitiveness.
• Brownfield investments to be routed through FIPB approval route for six months. After
six months, the oversight will be done by CCI. Necessary steps to be taken to
strengthen the CCI to make it capable of overseeing the transactions.
Impact: The fast takeovers of Indian pharmaceutical companies by global majors posed
the danger of a few companies deciding price of drugs, thereby putting them beyond
reach of the common people. This is neither politically nor socially acceptable in India.
Giving more teeth to the CCI would help to ensure that drugs remain within the ambit
of the common man.
• The Government plans to set up a committee to help the CCI study the pharmaceuticals
sector and gain expertise in it; something which it currently lacks.
Comment
Whether it is the recent aggressive takeovers of Indian Pharmaceutical companies by MNC
giants or increasing partnerships with their Indian counterparts for marketing drugs in India
or ramping up of work force by MNCs in India, the writing on the wall is loud and clear: Big
Pharma is here to get us!! The big boys of the Pharmaceutical world are training their guns
on India, where they see an under-penetrated and untapped market. They are going all out
with their financial muscle and technological expertise.
It is true that cost-competitiveness, abundance of skilled manpower and strict adherence to
global norms have been the strength of domestic pharmaceutical companies till now.
However, even today, India lacks serious innovator companies as most of the domestic
companies seem to be content with bringing out me too products and copy cat drugs.
Already, the labor cost-effectiveness is reducing fast as wages have risen rapidly in India.
The recent spate of takeovers should sound an alarm bell for Indian pharmaceuticals. There
needs to be greater emphasis on Research and Development.
The Government might have saved the day for domestic companies for now. However, it
cannot be expected to step in every now and then as it too has a pro-investment image to
protect.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Concern
The Health Ministry was deeply concerned with the recent spate of acquisitions/takeovers
taking place in the Indian pharmaceutical space. The Ministry believed that takeover of the
Indian Pharmaceutical companies by MNCs was a worrisome trend as it could lead to
increase in drug prices taking generic drugs out of the reach of common man.
Recent takeovers
Since 2006, several MNCs have taken over Indian Pharmaceutical companies:
Target Acquirer Date Value (approx)
Matrix Labs Mylan Inc (US) August, 2006 $736mn
Ranbaxy Laboratories Daiichi Sankyo (Japan) June, 2008 $4,600mn
Shantha Biotech Sanofi-Aventis (France) July, 2009 $783mn
Piramal Healthcare Abbott Laboratories (US) May, 2010 $3,700mn
Orchid Chemicals Hospira (US) December, 2009 $400mn
Dabur Pharma Fresenius Kabi (Singapore) May, 2008 $139mn
During the period April-July, 2011, Indian pharmaceutical sector received FDI worth $2.99bn
(`134.26bn). However, since 2001, when the sector was open for FDI, less than 10% of the
investment has gone into Greenfield investments.
Arun Maira Committee
Consequently, the Cabinet Committee on Economic Affairs (CCEA) set up a committee under
planning commission member, Arun Maira to study the effect of such takeovers on the
Indian pharmaceutical industry and to suggest measures for strengthening the sector.
Following were suggestions of the committee:
• To keep FDI policy in pharmaceutical sector unchanged and continue with 100% FDI in
pharmaceutical sector through the automatic route.
• Competition Commission of India (CCI) should be given more teeth to regulate M&A
activity in the sector.
• Lowering of threshold limit for deals needing CCI nod. Currently, most acquisitions fall
under group criteria for filing ($3bn for assets and $9bn for turnover).
Commerce Minister’s stand
Commerce Minister Mr. Anand Sharma sent out a strongly worded letter to the PM seeking
his intervention on the whole issue. He was critical of the lack of effective suggestions by
the Arun Maira committee. Mr. Sharma alleged that the takeover of Indian pharmaceutical
companies by MNC pharmaceutical companies was a deliberate attempt to weaken the rise
of Indian generics. He suggested that 100% FDI should be allowed in Greenfield projects and
M&A proposals should be routed through the Foreign Investment Promotion Board (FIPB).
Stalemate
• The Health and Commerce Ministries were in favor of the FIPB being the watch-dog
whereas the Maira Committee had suggested CCI for the job.
• Also, the Health Ministry and DIPP wanted the sectoral FDI limit reduced whereas the
Department of Pharmaceuticals and the Finance Ministry were opposed to any
clampdown.
• This difference of opinion led to a stalemate on the whole issue with the matter
remaining unresolved.
Intervention by the Prime Minister
Realizing that some policy stance was required on the issue, Prime Minister Dr. Manmohan
Singh called a meeting of the Union Ministers of Health, Commerce and Finance on 10th
October, 2011.
Following decisions were taken during the meeting:
• No cap on FDI in the pharmaceutical sector and 100% foreign investments allowed.
Impact: Helps to create and continue with image of India as an investment-friendly
destination.
• Greenfield investments continue to be allowed under the automatic route and no
scrutiny needed. However, acquisition proposals to be looked at very carefully by the
Government.
Impact: Would facilitate new technology developments, capacity expansion and
investments into the country. Domestic players would have to step up R&D efforts and
technological expertise to match their MNC peers, while retaining cost
competitiveness.
• Brownfield investments to be routed through FIPB approval route for six months. After
six months, the oversight will be done by CCI. Necessary steps to be taken to
strengthen the CCI to make it capable of overseeing the transactions.
Impact: The fast takeovers of Indian pharmaceutical companies by global majors posed
the danger of a few companies deciding price of drugs, thereby putting them beyond
reach of the common people. This is neither politically nor socially acceptable in India.
Giving more teeth to the CCI would help to ensure that drugs remain within the ambit
of the common man.
• The Government plans to set up a committee to help the CCI study the pharmaceuticals
sector and gain expertise in it; something which it currently lacks.
Comment
Whether it is the recent aggressive takeovers of Indian Pharmaceutical companies by MNC
giants or increasing partnerships with their Indian counterparts for marketing drugs in India
or ramping up of work force by MNCs in India, the writing on the wall is loud and clear: Big
Pharma is here to get us!! The big boys of the Pharmaceutical world are training their guns
on India, where they see an under-penetrated and untapped market. They are going all out
with their financial muscle and technological expertise.
It is true that cost-competitiveness, abundance of skilled manpower and strict adherence to
global norms have been the strength of domestic pharmaceutical companies till now.
However, even today, India lacks serious innovator companies as most of the domestic
companies seem to be content with bringing out me too products and copy cat drugs.
Already, the labor cost-effectiveness is reducing fast as wages have risen rapidly in India.
The recent spate of takeovers should sound an alarm bell for Indian pharmaceuticals. There
needs to be greater emphasis on Research and Development.
The Government might have saved the day for domestic companies for now. However, it
cannot be expected to step in every now and then as it too has a pro-investment image to
protect.
No comments:
Post a Comment