In what could be termed as the largest buyout in the Indian pharma space this year, Shanghai Fosun Pharmaceutical Group signed a deal to acquire an 86 percent stake in Gland Pharma, an injectables maker, in July. The nearly $1.3 billion buy of the Hyderabad, south India-based firm will not only provide Fosun with a portfolio of injectables, but help beef up its manufacturing prowess too.

Gland Pharma operates four facilities manufacturing injectable medicines. With established strengths in APIs, Fosun can look for vertically integrating the production process.

Privately held Gland Pharma has secured approvals from U.S. and European regulators for making a range of ampoules, lyophilized vials, pre-filled syringes, dry powders, infusions and ophthalmic solutions.

Fosun, which was looking for assets in developing markets such as India, said the deal with Gland Pharma would expedite the Chinese major’s internationalization process.

The 86 percent of Gland Pharma include a 49 percent stake from the founder P VN Raju and his family and a 37 percent holding from the New York-based private equity firm Kohlberg Kravis Roberts & Co. KKR bought the stake in Gland Pharma in 2014 for $200 million. In the meantime, the founder family will continue to hold a 10 percent stake in the company.

Attracting capital
The Gland-Fosun deal evinced special interest in the investors as being the first major cross-border acquisition and happened soon after India announced sweeping changes to its foreign direct investment (FDI) policy.

This June, the Union Cabinet introduced a slew of measures to further liberalize the nation’s investment climate allowing 100% FDI in several key sectors, including defense, civil aviation and food processing.

To facilitate further investments in the pharma sector, the government cleared the decks by removing a disputed clause requiring prior government approval for up to 74 percent FDI in existing companies. Investors often found this condition of obtaining approval from government agencies like Foreign Investment Promotion Board cumbersome as the bureaucratic process led to inordinate delays.

The easing up of the policy now makes it possible to fully own Indian pharma companies or the so-called brownfield units and the investors need to seek permission for any FDI beyond 74 percent. Previously, FDI above 49 percent required a government nod. However, a no-holds-bar 100 percent FDI is allowed under automatic route for greenfield pharma.

The government is aiming at attracting required capital, international best practices and latest technologies in the pharma sector by permitting 74 percent FDI under automatic route in brownfield pharmaceutical sector, according to Nirmala Sitharaman, India’s Minister of State in the Ministry of Commerce & Industry.

India’s FDI inflows grew 29 percent to $40.46 billion in the fiscal year ended in March, according the data issued by the ministry.

CRAMS to soar
Industry bodies hailed the move saying that the decision to relax FDI norms is a bold step in the right direction. The long overdue revision of FDI cap has immense possibilities for setting up manufacturing facilities, obtaining technologies and capabilities and generating high skilled employment.

FDI would provide the Indian pharma industry access to more funds for investing in R&D, which in turn, will lead to the creation of more IPR, according to DS Rawat, secretary general of ASSOCHAM, apex industry association.

Organization of Indian Pharmaceutical Producers of India, a grouping of mostly MNC firms, opined that new measures would enable enhanced investments in the form of M&A activity from the multinational companies. Foreign firms have been lobbying hard seeking revision to allow 100 percent FDI under the automatic route for both new and existing companies.

Promoting the “Made in India” initiative through relaxed FDI norms could spur the growth of the outsourcing segment, especially manufacturing. The contract research and manufacturing (CRAMS) sector may see a lot of action as flexible FDI could motivate companies looking for full control, experts say.

Small cap firms, however, are of the view that FDI in brownfield pharma would not facilitate asset creation and long-term growth of Indian pharma.

Meanwhile, medicine access civil groups see red in a widening FDI base. MNCs’ increasing control over India’s generic industry could potentially lead to more pressure on IP and eventually affect the affordability of lifesaving medicines, they fear.

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S. Harachand
Contributing Editor

S. Harachand is a pharmaceutical journalist based in Mumbai. He can be reached at harachand@gmail.com.