Dr Ajit Dangi, President & CEO Danssen Consulting, shares his tips for pharma leaders to operate and thrive in a VUCA world which is beset by myriad challenges
Although the acronym VUCA is of recent origin, the Indian pharma industry has been operating in a VUCA environment for quite some time.
It has been facing strong headwinds due to issues like expanding price controls, controversy regarding FDCs, ambiguity in regulatory guidelines, weak IPR enforcement, US FDA compliance issues (and now pricing controversy) as well as many factors like FMRA and AIOCD related irritants etc.
This has resulted in the Indian pharma industry not realising its full potential.
Although we are proud of achieving the distinction of being called ‘Pharmacy of the World’, (and rightly so), we have achieved this partly because of our comparative advantage of being cost competitive. Throughout the pharma value chain like manufacturing, R&D, clinical trials etc., our costs have been 30-40 per cent lower than those in the developed countries like Europe and the US. However, history has shown that cost competitiveness is seldom sustainable. The spectre of our virtual dependence on Chinese API industry, which we ignored for too long, has now begun to haunt us.
We therefore need to adjust the sails of our boats to navigate smoothly through these turbulent waters. Here are a few suggestions:
Innovation: While we have reaped the benefits of reverse engineering for quite some time, now we need to move up the value chain through technology innovation. Drug discovery is one such option and many Indian majors have been spending upwards of 6-10 per cent of sales on discovery research. However, the outcome is sketchy as discovery research is expensive, time consuming and risky. Many global pharma companies have however prospered by innovation in drug delivery without discovering an NME. For example, Alza Corporation which studied the existing molecules for their half life and ability to penetrate through the skin, developed a slew of transdermal patches with significant commercial success. Dr Al Zafforani, the founder of Alza sold his company to Johnson & Johnson few years ago for $10.2 billion. Similarly, Sunovion (erstwhile Sepracor USA) focussed on developing improved chemical entities (ICE) by developing single isomers of racemates of existing drugs through chiral chemistry techniques and built a multi-billion dollar empire. The global market for enantiopure drugs is estimated to be about $50 billion.
Our own Biocon’s journey from a simple enzyme manufacturer to a biotech leader in Asia is a classic example of how innovation with passion can make you stand out in a VUCA world. More recently, some companies are breathing new life into old drugs by substituting hydrogen with deuterium, a process called Deuteration. Deuterium remains longer in the body than hydrogen as it is more difficult to break down by enzymes. Teva has already developed such a drug for Huttingdon disease which is currently undergoing FDA review. Abbott has recently launched Flash Glucose Monitoring system which manages diabetes by eliminating the use of finger prick. There are several such innovations which have become commercial successes. Indian industry should explore such options which do not require deep pockets compared to those required for drug discovery.
Building Mega Brands: Although our obsession with generics has yielded good results, time has now come to build and nurture mega brands.
E.g. Lipitor (Atorvastatin) of Pfizer reached a peak global sales of about $12 billion before its patent expired in 2011. Some of our major brands like Augmentin, Corex, Becosules, Mixtard etc. are still hovering around $50-60 million. While lack of patent protection and rigid price controls have hurt brand building to some extent, sustained efforts are required to overcome these barriers. Pharma brand building is a challenging task as prescription drugs are not allowed to be advertised. While direct to consumer (DTC) as practiced in the US is one such option, in Indian context this path cannot be recommended, although OTC brands can be built effectively.
Diversification: Expansion through diversification is one more option for sustainable growth and have been successfully employed by many non pharma companies like Reliance, Tatas, Godrej, ITC etc. who used diversification as a strategy for rapid growth, although in the pharma sector there is a limitation to this strategy. However, expansion within the healthcare sector by exploring options such as APIs, OTC, nutraceuticals, diagnostics, hospital supplies etc., each as a separate SBU, is possible. Johnson & Johnson, a leading healthcare company in the world with global sales crossing $70 billion, in 2015-16, is a case in point.
It has used this strategy successfully by operating in consumer healthcare, prescription drugs, OTC, diagnotics, hospital supplies, orthopaedic implants, cosmoceuticals, Biotech etc., each being a separate SBU, although major contribution for sales and profits come from pharma products. As healthcare trends gradually move from illness to wellness, Indian pharma companies need to capitalise on this trend by exploring options such as Nutraceuticals, Dietary supplements, nutritionals etc. With young demographics and increasing disposable incomes, these areas will have good potential.
As pharma R&D moves from chemistry to biology, we need to get out of our comfort zone and enter the biotech area by taking simple steps of developing biosimilars/ biobetters, a global market of which is estimated to be about $20 billion by 2020. As we know, Insulin Gargine of Biocon has recently been approved in Japan, a country with stringent regulatory requirement.
Inorganic Growth: Beyond a certain point organic growth becomes little challenging and one must look for inorganic growth through M&A.
In the Indian context, with over 10,000 pharma manufacturers and market leaders having only 7-8 per cent market share and over 70,000 ‘me too’ brands cluttering the market, time has come for consolidation. The rapid growth of Sun Pharma, Piramal Enterprises in just a couple of decades is a case in point.
J&J did not become a $70 billion global giant by selling baby powder and bandages, but by following a strategy of ‘String of Pearls’ by acquiring innovative companies like Janssen, Cilag, McNeil, Depuy, Ethicon, Lifescan, Ortho, Neutrogena, Centacor etc. just to name a few. We need to embark upon aggressive M&A, and in-licensing strategy not only in India but outside the country as is successfully done by many Indian majors. With Brexit, UK offers good opportunity for M&A as pound has dropped to its historical low.
While VUCA environment is unlikely to change in near future (Brexit, GST, new US President, Demonetisation of Indian currency etc.), the Indian pharma industry is resilient enough to weather these challenges inspite of the strong headwinds.