public health policy

The new pharma FDI policy undermines Indian generics, which may make drugs more expensive

By relaxing brownfield pharma FDI norms, the government is making way for multinational corporations to take over 'Make in India' generics companies.

The Union government’s decision to allow up to 74% foreign direct investment in pharmaceutical companies through the automatic route could threaten competition in the pharmaceutical sector and India’s role as a supplier of low cost, life-saving drugs across the developing world.

In 2013, the Department of Industrial Policy and Promotion, which is the nodal body for FDI policy in India, sought to restrict FDI in brownfield pharmaceutical projects (those in which a government or private entity buys or leases existing production facilities to start new production activity) to discourage multinational drug corporations from taking control of Indian generic companies that produced critical drugs and vaccines at prices lower than brand-name drugs. The decision to roll back on this policy now could mean that the majority stake in key generics manufacturers, like Cipla, can be easily transferred to multinational drug corporations.

Blow to world’s pharmacy

Cipla is a symbol across the world of all that India has achieved with its policy of self reliance in technology, domestic production and the provision of life-saving drugs to its people. It represents the aspirations of the country and its lawmakers who invested and built a generic industry to ensure that it had the technology to manufacture affordable essential medicines for its people.

Mahatma Gandhi with Cipla founder KA Hamied during his visit to Cipla in July 1939.
Mahatma Gandhi with Cipla founder KA Hamied during his visit to Cipla in July 1939.

Indians should be concerned about the recent decision to allow 74% brownfield FDI in pharma under the automatic route as this will speed up the ongoing pincer strategy to take over the pillars of the Indian generic industry, which is known as the pharmacy of the developing world. Companies like Cipla that contributed not only to employment, development of indigenous technologies and innovation but also significantly to the availability of medicines to tackle public health challenges, could be taken over with no prior approval.

Generic companies like Cipla are now at great risk of being merged and acquired, becoming a part of multinational pharmaceutical corporations like Pfizer, GlaxoSmithKline, Merck or Bristol-Myers Squibb. They might no longer play a role in meeting the public health needs of the developing world, but simply be cogs of the multinational pharmaceutical industry whose sole aim seems to be to generate supra-normal profits for its CEOs and shareholders.

Affordable healthcare hit

It is important to distinguish between brownfield investments that are basically mergers and acquisitions, and greenfield investments in which the parent company builds the business up from scratch. Greenfield FDI in the pharma sector will have a stronger and long-term impact on growth as foreign investors will have to build new manufacturing units and/or research and development facilities from the ground up, contributing to jobs and technology transfer to the country.

Unfortunately, government policies over the last decade have increasingly encouraged brownfield investments, which work like this: A Japanese or US pharmaceutical corporation purchases a Indian generic company, resulting in a transfer of the controlling stake, with huge profits accruing to the firm’s previous owners without resulting in major investment in the country.

Ranbaxy is a classic example. In 2008, the owners of the company, the Singh brothers, sold their stake in the company, which consisted of brands, production units and research and development facilities. The owners earned huge profits, but the company itself has all but disappeared. Ranbaxy’s phenomenal growth stagnated after it was acquired by the Japanese company Daiichi, and it was finally resold to Sun Pharma in India, which was one of its competitors. From one of the leading generic manufacturers that took pride in leading the production and supply of affordable HIV and cancer medicines like Zidovudine and Imatinib at the beginning of the century, Ranbaxy today exists only as a subsidiary for Sun Pharma’s branded business.

Relaxing the norms on brownfield FDI in pharma will not contribute to technology transfer or new research and development facilities. It will only allow capital flow from India to developed countries whose pharmaceutical industry is taking over key Indian companies to enter the generic branded business in high and middle income countries. In the process, India will lose an independent generic industry that fiercely competes with patent-holding multinational pharmaceutical corporations to bring low cost essential medicines to the market.

Leena Menghaney is a lawyer working on access to medicines in developing countries.

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