Government gears up for more drug sector buyouts

Global pharmaceutical companies are facing the expiry of patents of some of their blockbuster drugs, increased competition from generic drugs manufacturers, and a decline in new money-spinning wonder drugs. In contrast, India is one of the world’s largest manufacturers and suppliers of generic drugs and is emerging as a vast and fast growing market for pharma products.

There is great potential for foreign pharma companies to invest in the pharma sector in India and have a slice of the huge domestic and international market for generic drugs. In the past decade or so, most of the foreign direct investment (FDI) in the sector has gone into buyouts of existing Indian companies or operations (brown-field units) rather than green-field projects. Some of the notable acquisitions of Indian companies by multinational companies (MNCs) were: Shantha Biotechnics by Sanofi-Aventis; Ranbaxy by Daiichi Sankyo; Piramal Health Care’s domestic business by Abbot Laboratories; Matrix Lab by Mylan; Dabur Pharma by Fresenius; and Orchid Chemicals by Hospira.

Growing concern

Such deals have led to pressing of panic buttons by Indian pharma companies, the Department of Industrial Policy and Promotion (DIPP) and other stakeholders, including the Ministry of Health, the Department of Pharmaceuticals, health workers and consumer groups, claiming that more takeovers by MNCs would result in predatory pricing, cartelization, etc., which would kill the competition and eventually lead to price increases and scarcity of essential drugs. This is a cause of great concern for a developing country like India with its huge population of poor people.

Thus, there is a growing desire within a section of stakeholders to block brown-field investments by foreign pharma companies.

OP Khaitan & Co is a 40-lawyer law firm, based in New Delhi. Gautam Khaitan is the firm’s managing partner and Amlan Jyoti Borah is a principal associate.