India ups direct foreign investment cap in drug companies to 74% from 49%

Print 23 June 2016
EJ Lane / Fierce Pharma

Prospects for higher foreign portfolio and overseas company investment in Indian drug firms brightened as the government moved to raise the direct shareholding cap to 74%.

India's government, led by Prime Minister Narendra Modi, said the change means investment up to the 74% level can be done by notifying regulators of the transaction, The Indian Express newspaper said--but approval from agencies such as the Foreign Investment Promotion Board is not required. Previously, the level was set at 49% for such transactions.

The change captures notice more for smaller drug and biotech firms in India that may need cash and experience from abroad to ramp up operations.

For major companies such as Sun Pharmaceutical Industries, the country's top drugmaker and fifth largest generic firm globally, the scope for a takeover may be more complex, though not without precedent.

Japan's Daiichi Sankyo in 2008 bought controlling stake in Ranbaxy Laboratories for $4.6 billion, a deal that ended in acrimony and the 2015 exit of the Tokyo-based firm after it sold its holdings to Sun.

India has gradually opened sectors such as insurance and telecom to wider foreign investment after initially allowing stakes around 26%. But the drug industry has long been open to 100% foreign direct investment in so-called greenfield projects, and at the company level in deals labeled as brownfield.

Medicine access civil groups have long opposed India opening its mainly generic drug industry to wider multinational ownership, contending manufacturers in the $20 billion-plus generic drug industry could potentially be squeezed on intellectual property.

“With the objective of promoting the development of this sector, it has been decided to permit up to 74% FDI (foreign direct investment) under (the) automatic route in brownfield pharmaceuticals and government approval route beyond 74% will continue,” the Prime Minister’s Office said in a statement, according to The Indian Express.

The Wall Street Journal said that India's foreign direct investment inflows rose 29% to $40.46 billion in the fiscal year ended in March, citing trade ministry data.

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