Pharma deals can’t have non-compete clause: Reserve Bank of India

Hyderabad: The Reserve Bank of India on Monday said that the non compete clause will not be applicable in acquisition of existing pharma companies by foreign entities or investors except in certain special cases. India allows 100 per cent FDI in pharma sector. While FDI is permitted through automatic route in case of greenfield investment or new venture, government approval is required in case of brownfield or existing companies.

“It has now been decided with immediate effect that the existing policy would continue with the condition that ‘non compete’ clause would not be allowed except in special circumstances with the approval of the Foreign Investment Promotion Board (FIPB),” RBI said in a notification. Under a non compete clause a party agrees not to enter into a similar trade in competition against another party as part of a deal.

The notification follows revision of the extant FDI policy for pharmaceutical sector by the government in January, 2014. This decision is expected to preempt the mono poly of pharma MNCs, which acquire Indian generic companies. Several Indian lawmakers and civic society groups had expressed concern over the availability of affordable medicines in the country, if the foreign companies are allowed to acquire Indian drug majors.

Some of the high profile acquisitions since 2006 include those of Ranbaxy, Shantha Biotech and Nicholas Piramal by Daiichi Sankyo, Sanofi Aventis and Abbott respectively. In its report in 2013, a parliamentary standing committee on commerce had sought a blanket ban on the acquisition of Indian pharma companies by foreign MNCs.