After months of bureaucratic debate, the Indian government has decided to require government approval of all foreign investment in domestic pharma companies. The Foreign Investment Promotion Board will have to clear every deal, even those that don't involve transfer of control.
That doesn't mean that domestic drugmakers are happy about it. As the Economic Times reports, larger pharma companies aren't all on board. "FIPB approval for any level of (foreign investment) in pharma sector is a retrograde step," Biocon Chairman and Managing Director Kiran Mazumdar Shaw said. A buyout of more than 49% interest? Yes. Less than that, no.
The Indian Pharmaceuticals Alliance Secretary General doesn't approve either. "This will lead to a situation where it will become less attractive for acquisitions in India," D.G. Shah told the Press Trust of India.
Why would companies resist regulation that's designed to protect the domestic pharma business? Because Biocon and other big pharma fish are most likely to attract foreign buyout offers. As the Times editorial writers note, restrictions on foreign investment "will only discourage value creation by Indian entrepreneurs."
Government officials grew alarmed after a series of high-profile pharma buyouts--Daiichi Sankyo's majority-control stake in Ranbaxy Laboratories and Abbott Laboratories' ($ABT) Piramal buyout in particular. In those deals they saw a threat to smaller Indian drugmakers--which might not be able to compete against the larger players--as well as to drug prices, which they thought would rise as the industry consolidated.
Indeed, some Indian drugmakers appear to be on board with the government's latest decision. The Organisation of Pharmaceutical Producers of India President Ranjit Shahani told the Times that the review process is fine so long as it doesn't cause delays. "A large number of projects were held back earlier," Shahani said. "Now this condition should not be there."
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