The Government of India (GOI) has
continuously taken initiatives to tighten merger activities in
the pharmaceutical industry in order to maintain existing drug
prices and prevent price manipulation by multinational
corporations (MNCs). Since October 2011, such deals have been
subject to clearance by the Foreign Investment Promotion Board
(FIPB). Further regulations are expected as the industry
anticipates greater scrutiny.
In October 2011, the GOI approved a proposal submitted by
the Planning Commission to remove the automatic approval route
for FDI into existing pharma companies. Some GOI officials
previously suggested that the FDI cap should be lowered from
100% to 49%. This was ultimately rejected by the GOI, with the
FDI cap remaining at 100% and certain extra restrictions
Such GOI initiatives have been launched to help control the
price of drugs in India. The healthcare industry in general,
and drug availability in particular, has raised many
discussions in the country of late. In March 2012, the first
compulsory license in the country was issued to Natco Pharma to
produce a life saving drug. This followed the failure of Natco
Pharma's foreign patent holder to offer the drug at a
Khaitan & Co partner Rabindra Jhunjhunwala says: "Where
there is overseas investment, pharmaceutical acquisitions have
recently come under regulatory scrutiny in India in order to
ensure that the existing price control regime is maintained.
The government has suggested the greater involvement of the
Competition Commission of India in pharma industry deals."
Some domestic players have also requested GOI intervention
over the entrance of foreign players in the Indian pharma
industry. One legal practitioner, who wished to remain
anonymous, says the GOI initiatives are also taken to protect
domestic pharma companies as they worry that MNCs will later
dominate and manipulate the Indian pharma industry.
The FIPB assesses applications with various considerations
in mind. These include the impact of a merger on public
affordability of a drug, whether a transaction will assist in
developing the local pharma industry, and whether a transaction
will bring about the infusion of new technology in the
In January 2012, four applications from international pharma
companies wishing to invest in the Indian pharma industry were
deferred. It has been suggested that this was either due to the
potential implication of the mergers on the prices of some
critical drugs, or because there was no proposal to enhance the
quality of products manufactured by the Indian company.
In December 2011, the Corporate Affairs Ministry proposed
that the Competition Act should be amended to empower the
Competition Commission of India (CCI) to scrutinise all pharma
M&As. A six-month window period was reserved for
parliamentary review and approval of Competition Act amendments
and, during this window, the FIPB continued to scrutinise
merger activities in the pharma industry. This six-month window
may now be extended until the proposed Competition Act
amendments are reviewed and approved by parliament.
M&A activities that involve the transfer of shares below
15% are normally exempt from CCI clearance under provisions of
the 2002 Competition Act that came into effect on June 1 2011.
And the CCI has said that it will not intervene heavily in the
pharma industry when it formally takes up responsibility for
approving pharma M&A deals – saying that its
responsibility is not to regulate prices in the drug market but
to scrutinise M&A transactions that might give rise to
Some legal commentators suggest it is therefore highly
unlikely that the CCI will intervene, as the Indian pharma
industry is very fragmented without any single players.
Regulating the market for anti-competitive behaviour thus might
not be the most effective means of overcoming the problem of
drug prices in India.
If CCI involvement fails to control the price of drugs in
India, the regulators might push for the introduction of a
national pharma pricing policy – something that has
been proposed by the Department of Pharmaceuticals (DoP). Such
a policy would empower the GOI to fix and regulate the prices
of all 348 critical drugs, and such a decision would have a
significant financial impact on domestic and foreign
The development of regulations in India's pharma industry,
it seems, very much depends on the extent to which the CCI is
able to influence drug prices after it assumes its role of
scrutinising M&As in the pharma industry.
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