Pharma deals may come under scanner

Pharma deals may not escape the scrutiny of the Competition Commission of India (CCI) on the ground of higher threshold that is provided in the Competition Act to trigger such a vetting. For, the Ministry of Corporate Affairs is mulling amending the legislation.

The Ministry of Corporate Affairs (MCA) is planning to amend the Competition Act, 2002, to introduce sector-specific assets and turnover thresholds for merger and acquisition (M&A) scrutiny.

While the move is primarily meant to empower the CCI to take up the scrutiny of all M&As happening in the domestic pharmaceutical space, it will make sector-specific exemptions, if required, easy across industrial sectors.

The ministry is known to have accepted a suggestion from the CCI to include a new section in the Act which allows the government to notify different value of assets and turnover for any class of enterprises in future.

Under the current rule, only those companies with Rs 750 crore (Rs 7.5 billion) asset value, or Rs 2,250 crore (Rs 22.5 billion) turnover, need to approach the CCI for M&A approvals.

A high-level committee headed by Planning Commission member Arun Maira had, in October, said that this clause would keep most of the pharmaceutical acquisitions out of M&A scrutiny as a majority of pharma companies have annual revenues less than Rs 1,500 crore (Rs 15 billion).

Hence, the Maira committee proposed changes in the rules framed under the Competition Act to bring all pharma M&A under CCI scrutiny. At this, the government, which approved the committee's recommendation on October 10, set a six-month

deadline for making rules.

The six-month deadline may not be met as amendment to the Act involves parliamentary approval, and is not as easy as notifying changes in the rules framed under the Act.

The ministry feels that changes in regulations alone cannot empower the CCI to undertake scrutiny of all pharma M&As, as the Act does not have an enabling provision.

Following the acceptance of the Maira committee recommendations, the government decided that India would continue to allow foreign direct investment without any limits (100 per cent) under the automatic route for greenfield investments in the pharma sector.

In the case of brownfield investments in the pharma sector, the decision taken was to allow FDI after getting it vetted by the Foreign Investment Promotion Board for a period of up to six months. During this period, the MCA was asked to make necessary enabling regulations to empower CCI for effective oversight on M&As.

Interestingly, the CCI can handle only competition issues; it has no powers to take a view on the basis of public health concerns.

The commission will, therefore, have a "Standing Advisory Committee on Health and Pharmaceutical Sciences" constituted to advise the commission on the public health impact of pharmaceuticals M&A proposals.

The move to amend the Competition Act has come at a time when the country's competition watchdog is engaged in signing a memorandum of understanding on competition-related matters with its counterparts in Russia and America.