After months of deliberation, the Indian government has decided not to cap foreign direct investment (FDI) in the pharmaceutical sector and to continue with the 100% FDI regime. A decision in this regard was taken by an inter ministerial group presided over by India’s Prime Minister Manmohan Singh, which sought to allay fears about clearing investments automatically.

Currently, India allows 100% FDI under the automatic route, both in greenfield investments (wherein a company starts a new venture from the ground up), and in existing Indian drug firms. While there is to be no scrutiny of greenfield investments, acquiring a brownfield investment (which involves purchase of an existing production facility), is set to face stringent scrutiny by the country’s competition authority to ensure there is no collusion or predatory pricing.

Given the seven big-ticket acquisitions of Indian drug majors by multinationals, most recently the Abbott-Piramal deal for $3.72 billion, India’s health ministry had raised concerns about marginalization of homegrown firms and subsequent rising medicine costs.

Calling for a FDI cap of 49% to check takeovers, the ministry noted that such buyouts would also undermine the Indian government’s efforts at making generic version of drugs available at affordable prices.
The health ministry was responding to allegations of Big Pharma buying out the competition and creating an oligopolistic market with large companies working as a cartel. Allaying fears, the Indian government has decided to exercise a certain degree of supervision with all future takeovers.

The changed circumstances will ensure that in the initial stages, investments will have to be cleared by the Foreign Investment Promotion Board, while six months down the line, investments will need the stamp of approval of the Competition Commission of India (CCI), which is to double up as a gatekeeper for any anti competitive outcomes.

In the interim, the government is to put in place the essential enabling mechanism for any oversight by the CCI. All M&A deals are to be scrutinized in accordance with the competitive laws of the country with the CCI holding the authority to order a demerger, if the merged entity has been found to be abusing its dominant position or is found to be engaging in any exclusionary practice.

Both multinational and domestic drug makers in India have hailed the move, since the overriding emotion is that any regulatory restrictions on FDI could adversely impact competition which is not in the public interest.
India is the third largest pharmaceutical industry in the world in terms of volume, with total turnover crossing $21.04 billion. During April to July 2011, India received FDI worth $2.99 billion in the pharma sector. With the industry set to become a $20 billion industry by 2015, from its present turnover of $12 billion, FDI will no longer translate to Funds Deserting India.

View this author’s Report from India columns

Several India-based companies have increased in value significantly. Consider the recent Ranbaxy-Daiichi deal, for example, or the Sanofi-Shantha deal. Also, Abbott paid close to nine times the value of Piramal’s formulation unit sales to propel itself to the leading position in the $8-billion Indian pharmaceutical market.

With IMS Health predicting that leading emerging markets (i.e., India) will have annual pharmaceutical sales growth of 14-17% through 2014, the bargaining has really only just begun. There are several well-positioned Indian firms that have healthy cash flows and strong drug pipelines. Cipla, Glenmark, Torrent, Claris Lifesciences, Zydus, Strides, Aurobindo, and Dr. Reddy’s have already teamed up with Western pharma companies. For most, more than 50% of their revenue comes from overseas markets.

Two years after Ranbaxy, the Indian pharma giant, was acquired by Japan’s Daiichi Sankyo in a $5-billion deal that shook the industry, Abbott entered the stage to snag Piramal Healthcare for $3.72 billion. Abbott clearly spent its money well, according to Miles White, chairman of the 120-year-old Abbott Laboratories when speaking about the deal. With domestic pharma sales in India expected to more than double over the next five years, Abbott managed to vault itself to the number one position. Several other multinationals have been salivating at a similar prospect.

And why not? Sheer market size and strong annual-growth indicators aside, the Indian pharmaceutical sector is coming into its own, says Y.K. Hamied, chairman of Mumbai-headquartered Cipla. “It all depends on what is available. Buyers are willing to pay a handsome premium for available assets,” he says. Cipla grew nearly 15% between May 2009 and April 2010. So, is Cipla for sale? He guffaws. “Cipla is never going to be sold,” he asserts.

The same, however, might not be true for Hyderabad-based Dr. Reddy’s, which has been battling several challenges following its 2006 acquisition of Betapharm in Germany. Immediately after, the German government’s reforms brought about a slide in drug prices, which have yet to be stemmed. Dr. Reddy’s Chairman K. Anji Reddy has said that chatter about Dr. Reddy’s being for sale is merely rumor-based.  The company’s revenues reached $1.56 billion at the end of 2010, and Dr. Reddy’s aims to earn revenues of $1 billion per year from branded generic drugs alone over the next three years. In its arsenal are 141 ANDAs filed with the FDA, of which 13 are first-to-file products. (Recently, the US District Court of New Jersey allowed the firm to launch the generic version of Allegra-D 24 in the US. Approved by FDA on Mar. 16, 2010, the market size of the drug is around $200 million.)

With a new drug offering just around the corner, Reddy maintains there is no time like now for an Indian drug company to show off its true colors as a multinational firm. One must keep in mind that Ajay Piramal of Piramal Healthcare had a similar position before bailing out his generic-drug business to Abbott. The Piramal group is using part of Abbott’s $3.7-billion in proceeds to bring to market the country’s first domestically developed drug by 2012. With 14 new chemical entities in its product pipeline, Piramal Life Sciences could carve a niche for itself. As for the other Indian-based firms, only time will tell how long they hold out before jumping to a multinational partnership or merger.

It was her first port of call and it was steeped in symbolism.

At 7:30 am in Mumbai on July 18, Hillary Rodham Clinton’s private, cosy tete-a-tete with 10 of India Inc’s most sought-after billionaires, was a power breakfast the likes of which the city’s corporate czars had not seen in a long time. The meeting was anything but cozy, with participants hungry to take in every morsel.

The agenda was clear. Clinton wanted to break bread with India’s think-tank and confabulate with talented men and women who had built businesses and had a commitment to life beyond the bottom line.

In India for the first time after assuming charge as the US Secretary of State in the Obama administration early this year, Clinton apologized for not shaking hands with the select crowd due to her recent shoulder surgery.

Even still, she brought considerable star power to the awestruck group at the iconic Taj Hotel, the same location that bore the brunt of a terror attack in November 2008 (see related blog post).

CEOs and chieftans, normally engaged in boardroom battles, were content to be mute observers at the meeting. No ordinary mortals these, all of them are iconic figures in their own right. Chairman and managing director of Reliance Industries Mukesh Ambani, with an estimated net worth of $19.5 billion, and host Ratan Tata, who heads India’s premier conglomerate, the Tata group, with an estimated net worth of $1 billion, were just two of the noteworthy names on the guest list.

Swati Piramal, vice chairperson of Piramal Life Sciences, who was also part of the select gathering, said Clinton wowed the crowd. Not just with her strawberry-pink suit, but with the “sheer essence and honesty of her words.”

The closed-door meeting was an amalgamation of ideas. From health to telecom to banking and higher education: the veritable variety of topics being discussed won hands down over the delectable fare laid out with such precision on the breakfast table.

Host Ratan Tata spoke about setting up another cancer hospital on the lines of Mumbai’s famed Tata Memorial Hospital, and said he was looking for partnerships with places like the Sloan-Kettering institute and the MD Anderson Cancer Centre at the University of Texas.

To which, Clinton immediately remarked: “I could pick up the phone right now and speak to them,” referring to the fact that she was well-versed with the subject, as she had headed the Health Reform Committee as a senator when her husband, Bill Clinton, was in office. “Only the time difference would pose a problem,” she chuckled, adding that she would look into it once back home in the US.

The Clintons have been known to keep their word, and Swati Piramal vouches for it. When then US President Bill Clinton visited India in March 2000, he was informed about the sheer inexperience of patenting officers in India; a major reason for the 25,000-plus patent cases pending in the courts. Bill Clinton went back to the US and promptly sent across a team of expert trainers to educate India’s patent examiners. Due to his generosity, the backlog of patent cases has been brought down to the current 4000.

On being thanked for the quick response, Hillary Clinton said she was aware of the episode. At that time, Bill Clinton had met industry stalwarts at a roundtable in Cafe Royal in Colaba and had started many successful initiatives after the meeting.

Clinton said her husband was “so impressed with India’s pharmaceutical industry and overawed by her generic potential,” that he continued to praise India’s efforts in drug discovery at several fora. “India has only grown since then, discovering new drugs on its own mettle. No doubt, there would soon be many new drug launches from India,” she told the dumb-struck group.

She also suggested that the Ambani group’s Corporate Social Responsibility division could help out in feeding hungry minds, by taking up the social cause of educating the poor.

Aiming to deepen the cooperation between the two countries, Clinton said she wanted to take some of the lessons back with her to the US. She spoke about placing neglected diseases on the fast-track and said she was clear that Indo-US Cooperation needed to go a notch higher in the area of life-saving drugs and in the area of regulatory affairs. This was a clear reference to the Clinton Foundation’s charitable venture to address global issues of health security.

From its inception, the Clinton Foundation has relied heavily on importing generic AIDS drugs from India for supply to Africa. It is now looking at cancer drugs, and the first feelers are on their way.

Before her meeting with the business leaders, Clinton attended a commemorative event in the memory of the Mumbai 26/11 victims at the hotel. She had checked in the previous day as a mark of solidarity with the victims of terror and said her visit offered her a platform to speak out against the coordinated terrorist attacks as well as on issues close to her heart – health reforms and education.

For the 10 participants at the breakfast meeting, the burgeoning trade ties between the two countries would prove to be more than a shot in the arm for India’s relatively strong growth of 6% and its resilient economy.

See more articles by A. Nair on PharmTech.com.

There is a phrase in India that has become not so much a commonplace as a vulgar truism, one that people reach for quickly to describe India’s financial capital’s indomitable nature: the spirit of Mumbai. The terror attacks of November, that ripped asunder the very fabric of this resolute city, has dented that spirit. Somewhat.

For a born and bred Mumbaite like me, the attacks brought on a sense of deja vu. The city of Mumbai, with the gritty attitude of its citizens, is no stranger to catastrophe. In 1992, when communal riots threatened to rip apart the secular fabric of this most cosmopolitan of Indian cities, the spirit lived on. And again in 1993, when serial blasts tore through Mumbai, the spirit was palpable. Yet again in 2006, when bombs went off on the city’s suburban train network, killing more than 200 people, Mumbai picked up the pieces and moved on. The grind continued in the face of adversity.

This time though, I noticed a difference. A tangible anger was in the air, intermingling with the panic and trauma. Over the last couple of days, this has translated into a groundswell of protest. People from all walks of life decided to gather at the Gateway of India recently, with the burnt dome of the battle-scarred Taj hotel in the background. As riveting as the pictures of the smoking Taj – flames leaping out of windows, panes shattering, crows taking off in the foreground at the sound of gunfire – were the images of scores and scores of citizens taking to the streets. From the common man to the captains of industry, they were all there. Lighting candles,  holding all-night vigils, demanding that the powers that be stand up and shoulder their share of  blame.

At the Gateway, I bumped into some senior directors and many employees from the drug industry. While some spoke about the postponement of the global exhibition CPhI India and how potential deals had taken a knocking, others alluded to the deferred dates of the Indian Pharmaceutical Congress, as well as the day-long ExIm (Export Import) seminar on medical devices, which delegates from Japan were slated to attend. Still, many others spoke about the Thanksgiving celebrations across the world, and how the attacks coincided with the occasion, when one is grateful for family, friends, and good health. Closer home, I was struck by the very precariousness of it all.

Some spoke about how the industry would take a fair amount of beating in the short term, but most insisted that that there would be no long-term damage. Employees of multinational corporations affirmed that it would not affect investor confidence in the country, and that even the US-India Business Council, comprising several top US drug firms, underscored the same to its members. The Council has decided to stick to its plans to bring various business delegations from the US to India.

And although the dark forces of intolerance have haunted this city for too long, the undying spirit of Mumbai seems to be coming back to the fore. This time though, it may not be an easy task. No one seems to be in a rush to restore normalcy. People want answers. And they want them now.

For the drug industry, an immediate decision has been taken, to bring together people – seniors, employees and like-minded citizens. Coalitions will be formed, to take on the forces of terror, to deliberate on how to tackle the crisis situation. Across the board, people are meeting to chart out their future course of action. From this point, there is no going back.     

See more articles by A. Nair on PharmTech.com.