Amid reports that the government is planning to dilute the current FDI policy towards brownfield investments by scrutinising only brownfield FDI above 50 per cent, an NGO has urged the government to stop all FDI in brownfield investments in pharma sector and also to reject Arun Maira committee report in toto.
In a letter to Prime Minister Dr Manmohan Singh, the NGO Centre for Trade and Development (Centad) asked the government to treat the pharma sector as a strategic sector and should not be treated merely as a consumer goods industry. It also urged the government to allow FIPB to continue as an interim arrangement for scrutinising pharma FDI till a new mechanism is put in place.
Asking the government to conduct a comprehensive impact assessment study of pharma FDI in India on R&D, technology transfer, manufacturing, export, import and employment in pharmaceutical sector, Centad in its letter demanded to scrutinise the legality of past takeovers as FDI is allowed only for manufacturing whereas in some of the takeovers R&D facilities are also handed over. Besides, it demanded to scrutinise all the international trade agreements and investment treaties that affect Indian pharmaceutical sector.
Expressing grave concern over the government's reported move to dilute the current FDI policy, Centad said that MNC acquisitions are driven by their own business development and restructuring strategies and incapable to meet the health needs of this country. In the long run this type of acquisitions would endanger self sufficiency and access to medicine as the available data shows that pharma MNCs are having the lowest investment in manufacturing, R&D investment in India, lowest export intensity and highest import intensity.
Reminding the government about the consequences of FDI and resultant takeovers, the Centad letter said that if unfettered entry and exit of capital is allowed in pharma sector in the form of takeovers, the technological capabilities will be damaged. With the absence of technologically capable domestic sector, India would not be able to use TRIPS flexibilities, which are very crucial in ensuring access to medicines. Besides, the self reliance and medical security in the country would be severely compromised as the MNCs would be more interested in import based market structure.
In the long run, prices will go up to prohibitive levels. Access to essential medicines will become a serious problem even for the people above poverty line and as the MNCs are more interested in importing drugs the trade balance will go up and will have higher trade deficit. Therefore, it is important to develop multilevel policy responses to curb the direct and indirect acquisition of domestic generic companies with the objective of creating an enabling environment for the generic pharmaceutical industry to continue in business and move up in the value chain, along with disincentives to MNCs to capture the Indian generic market under the garb of strategic acquisitions and alliances, Centad said.
Regarding the motive of the MNCs, the letter said that by capturing Indian pharma market, the MNCs wanted to source high volume –low cost products. Though compared to global market size its Indian counterpart is too small but it is one of the fast growing pharma markets. Takeover are easy way to establish a distribution and marketing system in a country. For instance, the main objective of Abbott’s acquisition of Piramal healthcare was to acquire the marketing and distribution network of Piramal. With this take over now Abbot ranks first in the market share in India.
Another motive of the MNCs is to neutralise TRIPS flexibilities. In order to use the TRIPS flexibilities such as pre-grant and post-grant opposition or compulsory licensing, the presence of an active domestic sector is important. With the takeovers these possibilities is either fully damaged or restricted. If Indian generic companies are acquired there would not be anybody from the industry to challenge the patents introduced by the MNCs. Ranbaxy case is a classic example here. Immediately after the takeover Ranbaxy has withdrawn all the patent challenges against Pfizer’s blockbuster drugs Lipitor, Centad said.