More Government Involvement in Pharma Industry 
Posted by Carlos on Jan 04, 2011

The past few months have seen a number of reports describing how national governments are using policy to spur local pharmaceutical industry growth. We have already described examples from Brazil, Russia, and Russia again.

Today we learn that the Indian government is reportedly looking to cap foreign direct investment in pharmaceutical (and related) companies to 49%. Of note (with our emphasis in bold):

“Foreign investment in pharmaceutical industry up to 100% was allowed in India through automatic route as the government expected new investments to flow into this sector for further growth,” said Dilip G. Shah, secretary general of the Indian Pharmaceutical Alliance, an industry lobby that represents top Indian drug makers.

“But the recent trend has shown that the foreign companies are taking over the existing businesses from the local players to instantly grab a significant market share instead of making new investments that help in expanding the industry,” he added.

The Financial Times of London has also picked up this story.

Herein lies the crux of the matter. Many countries would like to see multinational companies enter their countries and invest in local companies, provided that those investments also help grow the local/national industry. This implies that the days where a multinational can acquire a company and strip it bare are fading, since such a move does little, if anything, to spur local industry growth.

Is this “protectionist”? Yes, without question. However, we can understand their point. Perhaps if we had a similar approach, then a number of jobs would have been preserved over the past few years here in the US.

From a BD&L perspective, it is clear to us that a new, powerful participant is entering the arena. Traditionally, national government policy was only considered when discussing pricing-related matters, health and safety matters, and the like. Moving forward, it is likely that some proposed transactions (i.e., a 51%+ acquisition) will simply not be possible unless additional investments are made to support and bolster the national industry.  Another possible scenario is that intellectual property may have to be shared with the host country in order to execute various transactions.

Those of us involved in international BD&L need to keep a keen eye on these policy developments, as they may directly impact what deals can and cannot (or should not) be executed.

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