Despite its challenges, there is no going back on the digital journey companies have embarked on, says Satish Reddy, past President, Indian Pharmaceutical Alliance and Chairman, Dr Reddy’s Laboratories. In a recent interaction with businessline, he speaks on multiple issues, including quality concerns involving drugmakers and the M&A activity in the industry.
Edited excerpts follow.
Three years into the pandemic, is there a revival in merger and acquisition (M&A) activity?
It is an outcome of a few things that have happened over the last couple of years. The whole year has been eventful, because it was almost post-Covid, and the industry is being recognised for its strategic importance due to its role during Covid.
The industry has the scale and reach, built over the years, especially during the pandemic. It showed resilience through uninterrupted supply of medicines, to India and the world. There was collaboration among various stakeholders – industry, government, and industry members.
The industry is now on the lookout for growth, and M&A is one factor which companies would have set earlier. It’s not something that comes out of the blue, but actioning it is what is happening. This is something you will continue to see in this sector.
The reasons remain the same: it is a very fragmented sector and there is room for consolidation. One part of it happened at some point in time, but valuations were too high. But when you see the growth potential, and appetite for growth, which companies have now, it is the right time for M&A activity.
For the $50 billion Indian industry, how is the China factor playing out?
From an industry perspective, it is not just the question of China. It is the issue of dependence which the Government was worried about. The question is, why did we lose out to China in an area we were strong? The lessons should have been learnt much before, from a view of policy implementation. Almost nine years ago, policies, especially for the API (Active pharmaceutical industry) were being worked upon. The Government did express its concern over the dependence on Chinese inputs for some essential products. These were known factors from the industry side. Covid accelerated the process of diversifying supply chains.
As pandemic-linked restrictions eased, more foreign regulatory action was expected. But recent USFDA warning letters, import bans etc. What action is the industry taking? Also, the Gambia incident, allegedly caused by contaminated syrup from a less known local company – adds to this concern.
Quality is non-negotiable; all companies must have it. For Indian companies, it has been an evolution. It is not built overnight: companies have been investing in quality standards. They comply with stringent regulations across the world, facing inspections from global regulatory agencies.
There have been times when the industry saw rapid growth, and other factors have not kept pace. Skilling of the workforce, and putting up processes which can handle the scale at which companies are operating were challenges that came along the way, and it also led to regulatory actions which various companies have faced.
The story is not over, it is part of the journey. Such incidents will provoke angst and concern, but it is an evolving situation. Indian products and companies are widely regarded for their quality systems. Investments continue to be made: there is digitalisation, for example. And it has an effect on how things are done because it reduces human error. In terms of capacity building, more work needs to be done at scale. Upgrading the workforce should also involve ensuring the right skills are imparted right from the education level self before people join the workforce.
Is quality a key concern for the future?
It is not something that needs to be called out. It’s just a ticket slip. Companies have to invest in upgrading standards, which is why we’re also talking about regulations. The regulatory system has to be built up with the kind of capacity, capability and expertise you will need to match with the best of the world.
Take PIC/S (Pharmaceutical Inspection Co-operation Scheme) as an example, .or the International Council for Harmonization (ICH). These are global benchmarks for quality and India should be a member and then make sure that it has a voice and a seat at the table. But for this, a lot of things should be in place from a policy framework, building expertise within the regulatory agency etc.
As some sectors see people losing jobs, how is the pharma industry on hiring?
The spectrum of the pharma industry is from developing a product to delivering it to patients through marketing. In manufacturing or research, for example, companies will continue to invest in getting the right talent, which will continue even during consolidation.
There are new companies which are being floated, and a lot of entrepreneurship. New companies that grow faster will see more hiring.
So pharma is a defensive sector, not just in the stock markets, but even when it comes to jobs?
It’s all about the right talent. There is a lot of work to do in academic institutions and skilling, because an industry-ready workforce has to be built straight from the education system. Currently, we have a disadvantage there.
Going digital has its pitfalls, with concerns of hacking and ransomware, as the pharma industry has witnessed. Your thoughts?
It is an inevitable change that everybody has to embrace. Digitalisation gives agility and efficiency - whether it’s product development, manufacturing or through the supply chain. With AI and machine learning, the kind of efficiency achieved in terms of time for the development of a drug is enormous. These are emerging areas. So, if companies have to be competitive, they have to invest in it.
It is necessary and needs to happen right now. And companies have to embrace it. There will be challenges. There have been companies who have been subjected to ransomware attacks but it’s not the end of it, they will keep happening. But you need to build your security and cybersecurity systems, keep moving up the learning curve and addressing these challenges. We have to build capacities into this. It’s not something that you can give up.
For example, our largest manufacturing facility in Bachupally was included in the Global Lighthouse Network by the World Economic Forum. That is prestigious and signifies our journey, whether it was in terms of reducing the manufacturing costs, the production lead times improvements, or energy consumption. There is a huge advantage even in the quality context. You need the right governance framework and be one step ahead, in anticipating cyber security challenges and finding solutions, but there’s no going back.