The alarm needs to be sounded again, loud and clear. Pharmaceutical multinationals are gobbling up Indian drug makers and may soon be dominating the Indian market. This could mean steep hike in prices of medicines and extinction or marginalization of SMEs in the sector.

In the face of such a clear and present danger, the government has chosen to overrule serious concerns expressed by two of its own ministries over acquisition of Indian drug makers by foreign multinationals. The decision is unfortunate, but it is not surprising. It comes naturally to a government that is obsessed with projecting an investor-friendly image before foreigners, rather than protecting helpless millions from rapacious corporate giants.

To briefly recapitulate, during the last couple of decades Indian pharma companies have become the chief source of low-priced quality generics (that is drugs out of patent). For a large number of products, drug MNCs have been forced to bring down prices or lose market. This has served the interests of weaker sections of society not only in India but the world over. Thus, Indians get vital drugs at a small fraction of what they cost in other countries. Abroad, more than 60 per cent of UNICEF's international medicine procurement is from India, and India is the major supplier of medicines for HIV in Africa.

This is a source of great anxiety to pharma multinationals which are facing multiple problems: their most important drugs are losing patent protection, growth in developed markets is slowing to a crawl, cost of research is going up and Indian generics markers are all set to flood the markets with cheap versions of patented blockbusters once they go off patent.

Realising the potency of the threat, pharma MNCs swung into action long back. They successfully lobbied for stronger IP regimes e.g. India was forced to recognize product patents instead of process patents. They are vigorously lobbying against inconvenient measures like Section 3d of India’s Patents Act, which lists out inventions that are not patentable. They have canvassed in international forums for a slew of measures that make things difficult for India’s pharma exports. These include border measures like ACTA that legitimise seizing goods in transit, the whole exercise to call India-made generics “counterfeit”, and within India opposition to any kind of price regulation. At the same time, they promote the idea that salvation of sorts for India's pharma industry lies in 100 per cent automatic FDI.

Their latest strategy is simple but deadly: just buy the competition. Let alone 100 per cent FDI (which the government has refused to bring down), even a controlling stake in any local pharma major by an MNC means it ceases to be an Indian company for all important purposes. Takeover of leading Indian players will put an end to patent challenging, a great headache for the Big Pharma. Much of the innovation in low-cost drugs is driven by domestic companies. So if the good ones no longer remain domestic, then who will do the job? It is also possible that instead of feeding the domestic market with low-cost medicines, MNCs with their Indian acquisitions will be more interested in exports to more lucrative markets. Also, they will try to keep other Indian manufacturers out of third countries.

Indian drug companies are more than willing to sell out, for now apparently is the “right time”. “Companies have seen the benefits of getting acquired by multinational pharma companies,” says Daara Patel, secretary general of the Indian Drug Manufacturers Association (IDMA). Naturally. They get fat valuations for their companies. The only losers are drug consumers in India and abroad. As it is, many Indian companies wear menial and mental job work for MNCs (respectably called contract manufacturing and contract research) as a badge of honour.

In the last three years, as many as seven Indian companies have sold off either their controlling stake or their key business to foreign MNCs. Foreign MNCs now control 25 per cent of the Indian market, compared with 15 per cent three years back.

In June 2008, India’s largest drug maker, Ranbaxy Laboratories, was taken over by Japan’s Daiichi-Sankyo. Since then, Delhi-based Dabur Pharma and Shantha Biotech have been bought by Germany’s Fresenius Kabi and France’s Sanofi Aventis, respectively. Also, Matrix Lab and Orchid Chemicals were bought over by Mylan Inc and Hospira of the US, respectively. Two of the subsidiaries of Wockhardt have been sold and in May 2010 Abbott Laboratories bought Piramal Healthcare’s domestic business.

The effect of this spate of buy-offs would be felt when 61 drugs worth over $80 billion go off the patent list in the US between 2011 and 2013. Once the drugs go off the patent list, domestic pharma companies in India would be entitled to produce their cheaper variants. But if MNCs buy them, the price would remain high.

To know what this has in store for Indian consumers, take just a couple of examples. The anti-cancer drug Gleevec made by Novartis (which is one of the companies battling against Section 3d) is priced at Rs. 1.3 lakh for a month’s dosage whereas the local generic versions cost Rs. 6000-10,000 for a months’ dosage. Swiss multinational Roche used to sell anti-cancer drug Tarceva at Rs. 4800 per tablet, bringing the cost of medication to about Rs. 1.5 lakh per month, when Cipla launched the drug in the domestic market at Rs. 1600.

Alarmed at the weakening competition, the Union Health Ministry suggested that the FDI in Indian pharmaceutical companies be capped at 49 per cent and that too only after approval by the Foreign Investment Promotion Board. These concerns were shared by the Commerce and Industry Ministry which wanted proposals for brownfield FDI (investment in existing Indian companies) to be filtered, though it did not favour lowering of the FDI limit from the percent 100 per cent.

Following this, the government appointed a high-level committee headed by Planning Commission member Arun Maira to “look into the issue of creating an investor-friendly environment for promoting fresh investments in the sector and position India a leading destination for drug research and manufacturing hub.” Curiously, the focus is on foreign investment and NOT on implications of foreign takeovers of Indian companies.

The Maira committee recommended giving more teeth to the Competition Commission of India (CCI) in allowing mergers and acquisitions (M&A) in the pharmaceutical sector and not changing the foreign direct investment (FDI) rules lest, presumably, it should send wrong signals to the foreign investors.

And now a high-level committee chaired by the Prime Minister has decided to continue with the 100 per cent FDI in the pharmaceuticals sector. The only concession it is willing to make to the Health and COMMERCE ministries’ concerns is that such investment be routed through the Foreign Investment Promotion Board for a period of six months during which the Competition Commission of India will be given wider powers and asked to ensure that competition does not suffer as a result of foreign takeovers.

This is clearly a case of too little, too late. Imagine a highly probable scenario of a handful of MNCs controlling more than 50 per cent of the market. High prices rule the roost. Try to impose conditions like price regulation or an essential-medicines-only policy on them, and they will say they cannot operate in these conditions. Hapless patients will be the first to put pressure on the government to backtrack. Government may want to impose compulsory license but there are no takers, because there are no Indian generic companies left to pick up the gauntlet. Entry barriers for new companies are set higher and higher. Gradually, the whole industry would be monopolised by, maybe, half a dozen big multinational pharma companies with no motivation to service local needs, or no compulsion to comply with local government interests.

The government has reposed a lot of faith in the Competition Commission of India (CCI). But the CCI is helpless against, if not oblivious to, the real problems consumers have with pharma companies. As is known, the same medicine of comparable quality is made and marketed at a variety of prices in India — and priced often 10-20 times the cost price. Will CCI treat overpricing of medicines and unethical marketing practices of pharma companies as a failure of competition or abuse of dominance?

Then again, will the CCI intermediation, such as it is, help stop takeovers of domestic pharma companies? While scrutinising the impact of a merger or acquisition, the CCI focuses on the market share or asset size of the resultant entity. To circumvent this, big companies often acquire other companies through small subsidiaries which have little assets or market share of their own. Will the CCI go behind the corporate veil and declare certain takeovers as kosher and some not so? Why do all this? Why not put a moratorium on acquisitions in national interest because our generic pharma industry is the backbone of the health of our people?

Moreover, the government must not lose any time in imposing strict price controls on essential drugs. There are only 74 out of 500 commonly-used bulk drugs that are kept under statutory price control. Dr. Pronab Sen, who headed the Prime Minister’s Special Task Force to explore options to keep drugs affordable, had recommended earlier that all the 354 drugs in the National List of Essential Medicines (NLEM) should be price-controlled.

The pharma companies are bound to threaten that they will be compelled to discontinue production of those medicines whose prices are not realistic and raise fears of growth of grey market in drugs. The government should not succumb to these pressure tactics. What the companies lose on prices, they could make up on volumes in markets like India.

At a deeper level, the government should more actively promote alternative systems of medicine. A healthcare system dominated by drug makers, corporate hospitals and insurance companies is plainly unsuitable for Indian society. Even a rich country like the US is groaning under its weight. We should make a conscious effort to move away from it, and towards an alternative lifestyle rooted in our ancient traditions.

The author is Executive Editor, Corporate India, and lives in Mumbai