June 16, 2015
Indian pharmaceutical industry and its growth
In the last 15 years, Japan has invested around USD 18 Billion in Indian companies.1 Unsurprisingly, around 27.5% of the investment has been made into pharmaceutical companies2 as the industry presents tremendous opportunities. In 2014, Rohto Pharmaceuticals Japan acquired 40% equity stake in Deep Care Health Private Limited and was one of the major Japanese deals of the year.
Brief background of the Indian Pharmaceutical Industry
India is among the top five emerging pharmaceutical markets, with sales expected to reach USD 27 billion by 2016.3 The industry is typically involved in four types of businesses - production of branded medicines, production of branded generic medicines, production of unbranded generic medicines and production of active pharmaceutical ingredients which are used as ingredients in medicines. India has also become a popular destination for outsourced contract research and manufacturing service. The contract manufacturing and research Industry has grown immensely and is currently estimated to be worth around USD 7.8 billion.4
Important Trends in the Pharma Industry
Investing in Indian Pharma Companies
Doing business in India is a challenge as well as an opportunity.
Foreign Direct Investment (FDI) is now permitted in almost all the sectors in India without obtaining prior regulatory approvals (i.e. under the “automatic route”) barring some exceptional cases like defense, housing and real estate, print media, etc. (referred to as the “negative list”). If the FDI is not in accordance with the prescribed guidelines or if the activity falls under the negative list, prior approval has to be obtained from the Foreign Investment Promotion Board (“FIPB”) (this route is also referred to as the “approval route”).
In the case of the pharmaceutical sector, FDI is permitted to the extent of 100% under the automatic route for a greenfield company (i.e. an undertaking that was not pre-existing). FDI in a brownfield company (i.e. an undertaking that is already in existence) is also permitted up to 100% but it has to come under the approval route. However, there has been a recent government clarification to reflect that any additional foreign investment into the same entity (within an approved foreign equity percentage) or into a wholly owned subsidiary will not require fresh governmental approval.
Moreover, in case of investment into existing companies, a non-compete condition with the existing shareholders is not permissible except in special circumstances with the approval of the FIPB.
To be aware of the legal framework is another must. Specifically, investors must keep an eye on the exchange control laws as they govern how profits made by the company can be realized out of India. Also, if a multi-national company is operating a wholly owned subsidiary in India, it must be make sure that the subsidiary is compliant with the regulatory framework and other product liability related laws to avoid any unpleasant legal proceedings.
The laws enumerated below are some of the most important laws that concern the Industry.
The Indian Pharmaceutical Industry has shown great potential and continues to grow consistently. Though, since health is an important subject, the industry continues to be regulated. Multiple Ministries continue to regulate the pharmaceutical industry such as the Health Ministry, Chemicals and Fertilizers Ministry, Science and Technology Ministry, Food Ministry etc.
However, the Indian generic drug sector is robust and is establishing its presence in foreign markets. Given that the regulatory framework has been streamlined further in the last couple of years, Indian generic companies have been seeing an increasing number of foreign investments. The new drug sector is also expected to record a healthy growth owing to significant industry wise increase in R&D expenditure and proposed new drug launches. Thus, the Indian pharmaceutical sector continues to be an attractive destination for multinational pharmaceutical companies and investors.
You can direct your queries or comments to
1‘Fact Sheet on Foreign Direct Investment (FDI)’, Department of Industrial Policy and Promotion, http://dipp.nic.in/English/Publications/FDI_Statistics/2015/india_FDI_February2015.pdf (last checked June 2, 2015)
2 ‘FDI Synopsis on Japan’, Department of Industrial Policy and Promotion, http://dipp.nic.in/English/Investor/Japan_Desk/FDI_Synopsis_Japan.pdf (last checked June 2, 2015).
3 ‘Pharma sales in India to touch $27 billion by 2016: Deloitte’, The Economic Times, February 16, 2014, available at http://articles.economictimes.indiatimes.com/2014-02-16/news/47379629_1_chronic-therapies-health-awareness-life-sciences (last checked October 16, 2014)
4 ‘CRAMS Industry’, CARE Research, available at https://researchreports.careratings.com/industries/crams-industry.html (Last checked October 16, 2014)
The contents of this hotline should not be construed as legal opinion. View detailed disclaimer.