RBI Amends Pharma FDI Norms

Over the concerns of inbound M&As effecting generic drug prices, RBI has notified new rules regarding FDI in pharma companies.

According to the new rules, FDI upto 100% will be permitted in existing pharma companies under the government approval route and for any merger or acquisition, the overseas investor will have to seek permission from the FIPB. After six months, it will be the monopoly watchdog Competition Commission of India which will vet such deals.

For greenfield projects, 100% FDI will be allowed under the automatic route, under which investors only inform the Reserve Bank about the inflows and no specific government nod is required.

Currently, there is 100% FDI in pharma under automatic route and the foreign companies only have to inform the RBI at the time of investing in India. They are allowed to invest 100% in India without the prior approval of FIPB.

Earlier this year, DIPB set up a panel headed by Planning Commission member Mr Arun Maira to study a proposal to reduce FDI in the pharma sector from 100% to 49% and check whether it requires a policy intervention. In July this year, DIPB also came out with a discussion paper inviting views on the rationale and relevance of putting a cap on FDI.

Since 2006, as many as six big Indian pharma companies have been taken over by foreign firms. About $4.73Bn or 50% of the recorded FDI in the sector since the year 2000 has been in the form of M&As.

Major M&A's in Pharma:

2006: US based Mylan acquired acquired Matrix Labs

2008: Singapore-based Fresenius Kabi acquired Dabur Pharma

2008: Diachii Sankyo acquired Ranbaxy

2009: Sanofi Aventis acquired Shantha Biotech

2009: Hospira acquired Orchid Chemicals

2010: Abbot Laboratories acquired Piramal Healthcare

Other global pharma MNCs including Japan based Takeda are keen on acquiring companies in India. This MNCs are targeting the emerging markets including India for acquisitions as they are pricing pressures and threats to revenues due to patent expiry of their best selling drugs.

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