Foreign Investments In India’s Medical Devices Sector Unshackled
This article was originally published in PharmAsia News
Executive Summary
The Indian government has allowed foreign firms to invest in local medical device units. The move to unshackle controls and do away with close scrutiny aims to spur growth in a sector that has been left far behind by the galloping growth in the pharmaceutical industry.
MUMBAI - India’s recent announcement easing controls on foreign direct investments (FDI) to manufacture medical devices locally has been welcomed by leading industry groups like AdvaMed, but a lesser known local lobby body - the Association of Indian Medical Device Industry – has reportedly expressed reservations on the expected fallout.
The government notified Jan. 6 that starting Jan. 21, 2015, investments in manufacturing devices can be made automatically, effectively sparing the industry the hair-splitting scrutiny of the Foreign Investment Promotion Board before approvals are granted.
AdvaMed, the group of large device makers in the U.S., noted the new announcement is a significant step towards creating an appropriate regulatory framework for medical devices as proposed in the Drugs & Cosmetics (Amendment) Bill 2013. “We are optimistic that the distinction will be taken to the last mile by this government,” it said in a statement to PharmAsia News (Also see "AdvaMed Pushes For Separate Indian Medical Devices Law" - Scrip, 7 Aug, 2014.).
Conflicting Views
The medical devices industry can hope for a fresh beginning with investments in new technologies unlike its pharmaceutical peers, where investments in existing companies or manufacturing units will continue to be scanned by government authorities, per the notice posted on the site of the Department of Industrial Policy and Promotion.
An important relief to the investing firm in an Indian enterprise engaged in medical devices is that it can sign a “non-compete” agreement with the seller, unlike in the pharmaceutical industry where “non-compete” is not allowed. Effectively it will mean that the seller will not be able to replicate the same business or products sold for a fixed period of time.
A Dec. 24 note in the run up to the latest government notification said, “The condition of 'non-compete' was imposed [in the earlier policy] so that the Indian manufacturers can continue manufacturing generic drugs and catering to the needs of the large number of people in the country and in other developing countries who cannot afford branded and patented drugs. This condition is not relevant to 'medical devices' industry of the country where the country is substantially import dependent and the sector is adversely impacted because of the lack of adequate capital and required technology.”
However, a report in Business Standard newspaper said AIMED, the local industry lobby, shot off a letter to the commerce minister Nirmala Sitharaman opposing the lifting of controls on FDI.
"In the past too when FDI was permitted with the intent to encourage manufacturing within the country, multinationals only misused the provisions by setting up 100 percent owned subsidiaries for import, marketing and warehousing rather than for manufacturing resulting in India becoming heavily import dependent in this critical sector with over 70 percent import dependency," AIMED reportedly said in a press release.
Booster Dose
The latest boost to the medical devices sector, primarily carving it out of the pharmaceutical sector as a different industrial activity, coincides with government efforts to spur investments under the ongoing “Make in India” banner.
The government notice mentioned the eminent global position achieved by the Indian pharmaceutical sector. It however added that the same has not been replicated in the medical devices industry. “The country has a huge pool of scientists and engineers who have potential to take medical device industry to a very high level. Domestic capital market is not able to provide much needed investment in the sector. Easing of norms for medical devices industry by creating special carve out in the extant FDI policy on pharmaceutical sector will encourage FDI inflows in this area.”
In its response, AdvaMed added the announcement approving 100% FDI for medical devices would enable the industry to significantly increase investment, innovation and manufacturing.
Having lobbied hard to drive a separate identity for the devices sector, AdvaMed said its member companies stand ready to participate as full partners in India's effort to provide accessible and quality healthcare to its citizens.
“We are also encouraged that by distinguishing the FDI policy for medical devices from the policy forpharmaceuticals, the government has recognized medical devices as a crucial and distinct pillar of the healthcare ecosystem. In India, the ability of the medical devices industry to address the country's growing disease burden has historically been limited by the treatment of medical devices as drugs, despite the differences between the two.”
Pricing Pains
However the medical devices industry has its own set of woes to combat. The National Pharmaceutical Pricing Authority (NPPA), the watchdog for drug prices, in early December sent out notices to leading device makers like Roche Diagnostics Corp., Zimmer Biomet Holdings Inc., Medtronic PLC and Johnson & Johnson probing the prices of devices and the revisions made in the last two years.
The NPPA has directed the companies that since devices form part of the non-scheduled drug category, their prices can be increased only up to 10% annually.
AdvaMed said it is aware of the NPPA's request for the details and that its “member companies are cooperating with the request to the best of their abilities. We hope to address the government's concerns and demonstrate our commitment to helping India solve its healthcare challenges.”
It noted further, across the world as a best practice, AdvaMed encourages governments to review pricing considerations for medical devices in a transparent and predictable manner.
“Historically, in India (as is the case in most part of the globe), market mechanisms and fair competition have been most effective in ensuring cost effective access for patients. Pricing consideration for medical devices usually incorporate various issues related to delivering products and services and factors very different and complex from the manner they are considered for pharmaceuticals.
“This, together with financing schemes are key determinants (i.e. reimbursement, prices, etc.) for companies considering investments into India.” (Also see "India’s Device Sector At A Crossroads: Will New Policy Push Growth?" - Scrip, 15 Nov, 2013.)
In order to encourage long-term and substantive investments in the healthcare sector and bring the 'Make in India' policy alive, AdvaMed said, “We would urge the government to undertake stakeholder consultations as it formulates its policies with respect to medical devices. Given the magnitude of India's disease burden, a collaborative approach between government and industry will offer the best solutions. We look forward to an ecosystem that supports investment, innovation and growth to address healthcare challenges in India.”