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Multinational drug companies are considering launching blockbuster molecules in India largely though their unlisted 100 per cent subsidiaries and not through their publicly held Indian arms.
The upshot: the profits derived from these drugs will go to the foreign parent directly and not to the listed arms of these multinationals in India, and Indian shareholders will not benefit from the move.
Most foreign drug makers, including Novartis AG, Pfizer, Aventis and GlaxoSmithKline, have 100 per cent subsidiaries in India, apart from their listed arms. The wholly owned subsidiaries often do not have any employees but use the sales force of the Indian arm.
According to a top executive at a European multinational, there has to be enough incentive for the parent company to launch blockbuster molecules in a low-price market like India. "After all, the foreign parent spends millions of dollars in research and development," he added.
The government had decided to allow foreign pharmaceutical companies to set up wholly-owned subsidiaries in the mid-1990s.
That had kicked up a huge controversy, with critics arguing that Indian shareholders of the Indian arms of multinational drug companies would not benefit since the multinationals would launch new drugs through their subsidiaries and remit the profits to the parent company overseas.
"The domestic companies will be left with a profit margin of 10-15 per cent," an industry observer, who was a senior executive at a multinational pharmaceutical company, told Business Standard.
Kewal Handa, director, finance, Pfizer India, told Business Standard: "The new molecules from the parent's portfolio will be launched in the Indian market either through the listed entity, Pfizer India, or through the parent company's 100 per cent arm. The decision will depend on which vehicle creates maximum value. For instance, if manufacturing activities are required, the launching vehicle could be the listed entity and if niche promotional activities and a dedicated field force are required it may be through the wholly-owned arm."
Pfizer Pharmaceuticals India (the former Warner Lambert) and Pharmacia India are the two 100 per cent arms of Pfizer in India.
Novartis Consumer Health and Sandoz India are the two 100 per cent-owned subsidiaries in India of Swiss pharmaceutical company Novartis. Some of these subsidiaries came into being through global takeovers and consolidation moves.
For instance, in the process of Pfizer's global consolidation with Pharmacia, Pharmacia India was retained as a fully-owned entity and was not merged with Pfizer India. Pharmacia Healthcare, the then listed entity, was merged with Pfizer India.
A GlaxoSmithKline spokesperson said while GSK Pharmaceuticals India would launch the UK parent's drugs in India through the listed company in India, the 100 per cent subsidiary of the parent, SB Asia, will be used if the parent had to transfer any of its patented technologies for the purpose of manufacturing and allied activities in the country.
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