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Industry welcomes Centres call to allow 74% FDI in brownfield pharma projects
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Suja Nair Shirodkar
June 30 , 2016
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Industry expressed huge relief over the government’s decision to relax
foreign direct investment (FDI) norms for pharma, as it is expected to
open up better business opportunity for the sector. Experts stressed
that this comes as a much-needed reprieve for the industry, which was
finding it increasingly difficult to attract FDI through new investment
due to the various riders placed by the government to control proposals
seeking to invest beyond 49 per cent in brownfield projects. Through a
recent notification, the government allowed 100 per cent FDI in pharma,
and 74 per cent FDI under automatic route for brownfield pharma
projects, from previous 49 per cent.
A highly placed source
pointed out that due to Center's position limiting FDI in brownfield
investment, the investors have been apprehensive about venturing into
any mergers and acquisition with any Indian pharma companies.
“We
are pleased that after repeated representations, the Centre has agreed
to allow FDI into the sector. This will now ensure a smooth passage for
the big pharma cos or financial investors to invest in Indian drug
companies through M&A route by buying up to 74 per cent equity stake
without any prior clearances from the government,” informed Viranchi
Shah, vice chairman of the Indian Drugs Manufacturer's Association-
Gujarat State Board.
The Centre's decision previously to allow
100 per cent FDI in greenfield projects in pharma was hardly of any
help, as it was not able to garner any momentum, due to it being
subjected to scanning by the FIPB.
MNCs and investors needed
approval from the FIPB under the department of industrial policy and
promotion, which was a huge challenge for the sector. Especially since
they had to through red tape and other hurdles to get requisite approval
for investments from the FIPB till now, keeping potential investors at
bay. Now that the investors can do so through the automatic route, it is
sure to garner right attention stressed Shah.
The years between
2007-2010 had seen a spate of pharma M&As starting with US based
Mylan’s acquisition of 71.5 per cent stake in Matrix Laboratories in
2007 for a cash and stock deal of US$ 736 million. Followed by France
based Sanofi Aventis takeover of Hyderabad-based vaccine maker Shantha
Biotechnics, in 2009 when it bought 80 per cent stake in the company for
around Rs. 3,000 crore. Interestingly, it has since then gradually increased its stake in the company.
This
was later followed by the acquisition of Piramal Healthcare’s branded
generics business by the US based Abbott in 2010 for US$ 3.72 billion,
the last deal finalized in the country, cleared through the automatic
route; followed by the US based Mylan’s acquisition of Agila Specialties
a generic injectable drug manufacturer for $1.6 billion in cash in
2013. However, since then there has been a lull in M&A activities
partially due to strict government policies, observed experts.
It
is believed that the government had earlier limited FDI in brownfield
projects to control the spate in the acquisition of domestic
manufacturers by multinationals, fearing rise in the price of drugs in
the country.
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