Try the new

April 16, 2012 3:51 pm

Indian competition regulator likely to take hands-off approach to pharma

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

This article is provided to readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors.


The Competition Commission of India (CCI) is unlikely to intervene heavily in the country’s pharmaceutical sector, unless there is a significant degree of price manipulation, a CCI source told dealReporter.

Pharmaceutical acquisitions where there is overseas investment have come under regulatory scrutiny in India recently, to ensure that the existing price control regime is maintained.

The Indian government recently removed the automatic approval route for foreign investment into existing pharmaceutical companies or assets. While it did not lower the foreign direct investment (FDI) cap from 100% to 49%, it has initiated steps to ensure that all M&A deals in the pharma space are monitored by the Foreign Investment Promotion Board (FIPB) for a period of six months, giving the competition regulator time to come out with enabling regulations for “effective control” based on industry thresholds.

The CCI hopes that this will both facilitate FDI but also respond to government concerns over the possibility of price manipulation by multinationals, the source said.

Since CCI needs more time to come out with the necessary guidelines, the six-month window for FIPB to continue scrutinising M&A deals involving foreign investors, is likely to be extended, sector lawyers said.

CCI would step in if M&A led to price manipulation

The CCI’s role is not that of price regulator, but should M&A transactions result in a change in the market structure that could give rise to monopolistic practices, the Competition regulator would step in, the source said.

CCI could then impose certain conditions, including divesture of product lines or businesses, if the regulator finds that the proposed arrangement could result in concentration, said the official.

CCI member Geeta Gouri told this news service that the regulator prefers structural changes as opposed to behavioural changes.

The Indian pharmaceutical industry is so fragmented that no single entity has a large market share. But, because of concerns over the accessibility and affordability of drugs in India, the government has decided to modify the law and put in checks and balances, the CCI source said.

FDI cap retained at 100%, but with restrictions

The Prime Minister of India convened a high level meeting of ministries and government agencies headed by Planning Commission member Arun Maira on 11 October, 2011. The committee concluded that while there would be no change in the FDI cap, certain restrictions would be imposed and approval would no longer be given automatically.

At the time, some government officials had suggested that FDI should be capped at 49% in the pharmaceutical sector, given the spate of recent acquisitions.

Foreign investment into existing projects have been placed under the scrutiny of the FIPB, until more comprehensive regulations are put in place.

However, given the financing needs of the industry, the government has exempted greenfield projects from the FIPB’s mandate. The government intends that all future investments into existing brownfield projects should be scrutinized by the CCI.

If not controlled, some industry participants had feared that, should the remaining large Indian players be acquired by global companies, multinational players would ultimately control the Indian pharmaceutical market, said Dr Milind Antani, partner at Nishith Desai Associates.

Control by multinationals would likely give rise to an increase in drug prices as the Indian the Drugs Price Control Order (DPCO) controls just 74 products, Antani said.

This in turn could trigger the introduction of the National Pharmaceutical Pricing Policy 2011, proposed by the Department of Pharmaceuticals (DoP), which would see the government fixing and regulating prices of all 348 essential drugs and their combinations, included those on the new National List of Essential Medicines.

A sensitive issue in India

Healthcare is a very sensitive issue in India, where the cost of medicine is borne by individuals as the government does not offer free medical care. Talks over the draft national pricing policy have been going on for some six years and the pharmaceutical industry does not feel the need for the regulation of pricing, given that the sector is so fragmented without any monopoly player, noted Angel Broking analyst Sarabjit Kaur.

The industry wanted the DPCO removed, given that the maximum pricing allowed does not offer Indian companies much of a margin to undertake R&D, for want of adequate cash flows and free reserves, Kaur noted.

With many products going off patent in the next couple of years, Indian generic companies would need to invest in R&D for new molecule discovery. R&D has a very low probability of success, with less than an 0.1% success rate globally.

Of 10,000 molecules selected, only a handful actually get approval from the Food & Drug Association (FDA), and the average cost of research for a single molecule could be as much as USD 1.6bn to USD 2bn, said an executive at one of the domestic pharma players.

CCI is currently grappling with the fact that India still a developing nation and so cannot afford to put up too many competition barriers.


For more information or to inquire about a trial please email or call Europe/EEMEA: +44 (0)20 7059 6160 Americas: +1 212 686-3076 Asia-Pacific: +852 2158 9714

Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments