How is the Situation in your Organization?
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How is the Situation in your Organization?

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We were searching for core problems faced by Indian Pharma Industry; and the winning strategies it is adopting. Remember that Pharma Industry worldwide is at cross-roads, not mainly because of current ...

We were searching for core problems faced by Indian Pharma Industry; and the winning strategies it is adopting. Remember that Pharma Industry worldwide is at cross-roads, not mainly because of current global turmoil but because of its own ways of doing things. Perhaps, the long standing assumptions on which it has been operating have changed.
With this article, we start extending our activities into Pharmaceutical Industry.

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How is the Situation in your Organization? Document Transcript

  • 1. Pharma at Cross-Roads Is it a different situation in your Organization? Shridhar Lolla, PhDFirst DraftNeeds EditingWith this article we extend our exploration into the Pharmaceutical Industry.Key words: Indian Pharma Industry, Pharma, Pharmaceuticals, Change Management,Business Innovation, Business Model, Operational Strategy, Describing Situation________________________________________________________________________26 Dec 2011Sitting in the jetliner, I looked out through the window into the fog at Delhi Airport. Itwas 9am, and outside it was 5 degree Centigrade. It was long, since I was into this levelof cold. My nose was painfully dry and my throat was jammed. Probably, I hadunderestimated the cold and did not cover myself sufficiently, when I had taken a strollwith Siraj and Anand, the previous night.A curly haired person threw himself on the seat next to me. When I looked at him, he saidHello and introduced himself. I greeted him, and introduced myself.The gentleman was a senior executive in a leading pharma company. As we talked aboutthe weather and the business environment, I found his voice a bit wavering. I asked him ifeverything was ok, and if he was comfortable.He said, as he tightened his seat belt, “Yes, … but there is a little bit growing pressure toperform.”“That’s there all the times, and the higher you rise, more is the pressure to perform(unlike the atmospheric pressure).” I said."But in either case, when you fall, you are not safe," he said with a laughter.Then he said, “True! We are worried a lot about the rush of global big pharma companiesinto India and the onslaught on our market share. We went to the government to protectourselves. ““Did it work?” I asked 1Copyrights ©2011, CVMark Consulting, All rights reserved.
  • 2. “Yes, the policy makers were more than willing to help. But then the government put alid on our pricing and squeezed our margins. We gonna lose a minimum of 10% of thetop line, and more of the bottom line.” He said.“So what are you going to do now?” I asked.“I do not know. Even the market abroad is becoming tougher with the growing scrutinyby the regulators.” His exasperation was clear.“But I think your cost base is pretty low and at least till 2014, you are safe.” I recalled thelatest news item that I had read in the Economic Times.“Patent Cliff has only been our hope. But Innovators are coming out with new strategyand entering the generic market. Their aggression is making the Para-IV filing riskierand costlier.” He said.“But, surely the pipeline is long enough.” I said.“It looks so, but low hanging fruits are already plucked. Our company is, of course,giving a little more focus on difficult to make drugs, but given our legacy and skill levels,there is not much hope. Remember that our understanding of chemistry and humananatomy is only borrowed from abroad. It may mean that deep technical competencycould become a necessary condition to be in the business. ” He revealed his frustration.“But a vast majority of India is still unexplored, and you could leverage your salesstrength. In fact, the next growth for Pharma is going to come from emergingeconomies.” I suggested, as the plane took off the runway.“Actually, we have already exploited sales too much in India, and built too bad a culture.We need to totally revamp the assumption on which we have been selling. There is alimit on how much you can indirectly influence the doctors and the KOLs (Key OpinionLeaders).” He did not mince words in doubting the viability of current marketing andsales practices.“But the reach of your sales team can still be an advantage.” I suggested further.He said, “We cannot beat the deep pockets and structured approach of the Big Pharmacompanies. All of them may not be new to India, and they are very systematic in the waythey approach their business and they are catching up soon. If it is only about numbers ofsales hands, then they can anyway build it very quickly. We need to innovate a cleanersales model.”“The future growth is in the lower tier towns and the rural areas. But we fell into thesame trap as did the IT companies in India. Most of the IT companies built their businesson market abroad and neglected the local market. Now with the global factors playing instrongly, they are on the back foot. Similarly, most of leading Pharma players fromIndia, took their sight off the Indian market and jumped after the dollar market when the 2Copyrights ©2011, CVMark Consulting, All rights reserved.
  • 3. Generic business opened up; but by then, others penetrated India gradually and are aboutto beat us in our back yard. Most of Innovator companies from abroad have investedhugely in understanding Indian patients and channels. And they have better insights intoIndian market than several of us. Most of Indian Pharma companies have no idea abouthow to do business in tier-III and the rural areas. The issues are different and it needsdeep capabilities to identify the core issues and come out with a robust delivery model tobuild a successful business there. In fact, some of prominent people in the industry feelthat standalone Indian marketing companies may be better suited to make inroads intotypical Indian rural areas.” He said, almost in a breath.He seemed relaxed after he spoke out. It took some time for me to co-relate what he hadsaid.The airplane was now cruising at 30,000 ft in the clear sky. I could feel the heat of thesunrays on my palms.“How much the pressure is really on you,” I asked him after a while.“A great deal of... the margins were too good so far. But our existing R&D and Salesstrategy is no more sufficient to hold our market position. Things are changing too fastfrom all the directions. The moment we get into taking care of one issue, the other one ofentirely different nature, props up. There is a growing activism by the investors and theyare getting deeper into operational issues, if we are addressing these changes swiftly.There is increasing scrutiny on how do we do things on day to day basis. The completeorganization is turning into operational mode. It is now a sort of 24x7.” He went a leveldeeper.“Thank you!” He said, as he received the breakfast from the airhostess.I asked the airhostess to serve me the coffee first. The breakfast plate contained hotsandwich and black pepper sprinkled pudding. Quick sips of coffee and a few spoonfulsof pudding made my throat clearer. By then, we were talking so freely, as if we kneweach other for years. As he took a bite of the cheese sandwich, he said, “Investors and the Board are no moresatisfied with our plans of new products and sales deployment. They are asking for thetype of numbers, which were never looked into before. They are forcing us to look intothe productivity numbers in the plant and the inventory across the supply chain. They areasking about the variability in demand and about our delivery performance. They areasking us to be more agile. Increasingly, we are realizing that we have been doing verybadly in terms of efficiencies in our plants. Our MIS now includes operational figureslike, product availability, resource utilization, inventory turns, WIP etc. Actually, it is aneye opener… our return on asset is very bad.” 3Copyrights ©2011, CVMark Consulting, All rights reserved.
  • 4. “It looks like the life in pharma would not be the same again.” He commented, as hesipped black tea.“I see. So you are damn unsatisfied?” I put a personal question.He said, “Unsatisfied! I am not though. Value creation has not been straight forward inPharma Industry; and it was natural that some time, it opened up, bringing thetransparency in the way value is added and business is done. It seems to be coming to abetter way of doing things. We are getting into a more competitive market, significantlyremoved from the mystic way each pharma company has been making money.”He continued, “So far, whatever we did, there has not been much exceptionally greatabout it. We were just lucky to be in India, were well protected by Indian trade and IPRregulations, and tax concessions, we had low cost structure, nobody ever scrutinized ourmargins, market was green field with a lot of low hanging fruits around for everybodywho betted into it…you had to just walk around, put more money and make moremoney… just like trading business. So that was not a matured business landscape,anyway. There was no pressure to do a breakthrough in R&D nor innovate the businessprocess. We simply copied, reengineered and did a bit tweaking to earn a lot of moneyunder government protection.” It was amazing to know his conclusion.“You mean that you are looking forward to the things favorably, as they unfold.” I asked“Yeah! I know that there is a little pain, but I would like to enjoy the journey, of runningmy organization in an operational centric way. This is an entire paradigm shift. Hereonwards, Operations is going to be a new dimension in Pharma. The reality is that thusfar we were blinded by the high margins in our business; and driven it based on "R&Dand Sales" centric model. We perhaps, gave a damn step child treatment to Operations.Now, we realize that operational efficiencies in pharma companies is shamelessly low,compared to all other industries. Which means that we have a huge hidden capacity in ourplants, that is waiting to be realized. And we have a lot to catch up with.” He said.“How are the business leaders reacting to the situation?” I pushed him to the strategiclayer.He said, “Actually, things are not that smooth. We see some major changes. Some of thefirst generation entrepreneurs are hanging up their boots, just at the time when thecompetition is picking up and low cost advantage and local incentives are ebbing out, andall other factors are disrupting the business. I am not sure if it is a coincidence. Though,this is partly creating a way for consolidation in the industry and it may not be a bad ideato exit at a good valuation.”He continued, “In other cases, where the business is being passed onto the heir apparent,it is causing much uneasiness to the second generation that has taken over, for they areborn in a different era and pharma may not be the high octane business that it used to be.And so, you see the rigor, the first generation entrepreneurs brought into the business,dilutes a bit.” He said. 4Copyrights ©2011, CVMark Consulting, All rights reserved.
  • 5. “With so much of opportunities around in a growing economy, this is quite possible.” Isaid.Then, I asked, “But do not you have local companies that are health care centric, and sayactually bent upon giving healthier lives to India. I mean those who are purpose built toprovide healthier lives through better medicines. And perhaps, that might create aninnovative local company.”Our talks were so engrossing that I did not realize how time passed, till the cabin crewannounced landing preparation.He said, as the plane started descending, “The days of building pharma companies withthe emotional and philanthropic objective of providing healthy lives are over. Gettinginto something like that needs innovation, you would find deliberate health care purposecompanies in Bio-Pharma, Critical Therapies, Medical Devices and Diagnosis. InChemistry led Pharma Industry, it is mostly, pure business sense and opportunity to makemoney that drives businesses. Although, there are still some of the organizations that arehell bent emotionally to bring better medicines, make them affordable and accessible; avast majority of the existing pharma companies are opportunity based, runningthemselves as chemical companies (bulk drug) or drug suppliers (formulation). I couldcount on fingers, the companies that are trying (though struggling) to get into theInnovator Club, where they are seriously attempting to push the boundary of cure, toprovide new and more effective medicines.”The plane landed smoothly at Hyderabad airport, and as we walked out of the airport, weshook hands, and wished to meet again.As I walked towards the taxi stand, it just appeared to me as if I received bulleted statusof pharma industry in India, and wondered how things are going to unfold for Pharma,from 2012.Clet:01-12___________________________________________________________________CVMark handholds business leaders in creating organizations that are built to transform.For developing, innovating and executing your business model, call Tel: +91 94480 70081 or Email details to : lolla@cvmark.com .CVMark Consulting, #2304, Nandi Park, Gottegere, Bannergatta Road, Bangalore 560083, INDIA Web: http://www.cvmark.com 5Copyrights ©2011, CVMark Consulting, All rights reserved.