Wednesday, September 28, 2011

Government Panel in Favour of More Power to CCI in Allowing M&A in Pharmaceutical Sector

A government panel headed by Planning Commission member Arun Maira in its report presented on 27 September 2011, mentioned there should there should be no restrictions on foreign direct investment (FDI) in the Rs 47000 crore pharmaceuticals sector.

The modification that the committee recommended specifically for the pharmaceutical industry was regarding thresholds for M&A evaluation that come for CCI scrutiny. The panel specified that all mergers and acquisitions in the sector were required to be cleared by the Competition Commission of India (CCI), the country's competition watchdog, as it fears that a spate of M&As in the sector may lead to increase in drug prices.

The committee was in favour of giving more power to the Competition Commission of India (CCI) in allowing mergers and acquisitions (M&A) in the pharmaceutical sector and not changing the foreign direct investment (FDI) rules.

CCI will look at the acquisitions of local operations like Ranbaxy, Piramal Healthcare's domestic formulations, certain operations of Wockhardt etc as well as other types of combinations between companies will also be scrutinised by it.

The healthcare sector raised concern over the recommendations of the committee mentioning that Indian companies could get trapped at the lower-end of the value chain. The sector felt that foreign companies cannot be forced to address the critical concerns of India's health needs, specially given the several bi-lateral trade treaties the country is formalising with other countries.

The committee under Maira was created on June 30 by the Cabinet Committee on Economic Affairs to look into the issue of creating an investor-friendly environment for promoting fresh investments in the sector and position India a leading destination for drug research and manufacturing hub.

Pharma Sector in India

The government currently permits 100 per cent FDI via automatic route. However, the ministry of health had raised serious concerns on the impact of the series of takeovers that have been taking place since 2006 on the domestic drugs industry.

The period from 2006 to 2010 saw some significant M&A deals that changed the face of Indian pharma industry. Some of them were the acquisition of Matrix Lab by US-based Mylan Inc in August 2006, Japan’s Daiichi Sankyo acquired Ranbaxy Laboratories in June 2008, France-based Sanofi Aventis took over Shanta Biotech in July 2009 and last year, in May, US-based Abbot Laboratories acquired Piramal Healthcare.

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