Sarang Deo: What are your thoughts on the current global and domestic pharmaceutical markets? Where do you see opportunities and challenges?
GV Prasad: In the Indian pharmaceuticals industry, major inroads into innovation are few and far between. We market some licensed products and we out-license others. But the major business of Indian pharma is generics.
The history of the Indian pharma industry started with active pharmaceutical ingredients (APIs). India has been the largest API provider in the world, even bigger than China. Then Indian pharma moved into the generics industry. Today, India is supplying drug products to many countries in the world. We have a large market share in the United States (US), approximately 30% of the volume.
Process innovation in India brought down AIDS drug costs. We can credit the Indian industry for having given treatment access to AIDS patients. Similarly, in oncology, we have been able to bring down the price of cancer care in many countries. In that sense, India is a dominant force in the API and generic spaces.
What is next for the industry? In the last two decades, we could have made good profits and margins, just by supplying products to the world. Today that is no longer enough. The markets have been commoditised to a great extent. Industry competition has intensified, both from within India and from other countries. But I think Indian competitors are the most formidable competitors. So, we have effectively lowered margins by competing with each other. This is what any industry goes through in its maturity phase.
From making money simply by being present in the market, now we have to make money in the marketplace. That is the shift that has taken place over the past decade. We are in that phase of competitive intensity. The industry is still very attractive. If you are good at what you do, if you are able to get first to market, if you have a strong cost position or if you bring innovation to cracking difficult problems, it is still a very attractive industry. People have to take medicines physically, so our business is not going away in spite of the digital revolution.
But there are changes on the horizon. In the basic sciences, there is a revolution happening. Medicine will be more targeted, more personalised. People will use data much more for diagnosis, treatment and management of disease. Digital channels and digital therapies are emerging. So, it is an interesting time for pharma.
When anyone thought of innovation in pharma, they had a simplistic vision of new chemical entities (NCEs). At Dr Reddy’s Laboratories (DRL), how do you think of innovation beyond that holy grail of NCEs? How has that perspective shaped your strategy?
If you look at our classic generics business, we can introduce innovation in multiple areas. But where does it make a meaningful difference to the business? That is what I focus on. There are several possible areas of innovation.
One aspect of innovation is science and technology — to develop difficult to make, complex generics. The second use of innovation is to drive cost leadership. Even the basic chemistry that we employ today are very old. For example, organic chemistry was based on a classic round-bottom flask where you mix the reagents, heat them or cool them. That process is undergoing dramatic change to micro-reactors, process intensification, etc. So, there are a whole array of tools available to the scientist today. But how do you use them to improve your efficiency? The speed of development is another aspect to consider.
The third area I would like to highlight is not just supplying pills to the patient but adding a layer of digitally-enabled services to improve drug delivery and compliance and also to measure effectiveness better.
There are a whole lot of other services that can be layered on to products. That is another set of innovations possible. Then the whole delivery chain will be disrupted. Now it is still under the control of retail pharmacy shops but over the long term, it will go the way of everything else — delivery at home, digital ordering, digital tracking — all of that will disrupt the supply chain.
These are some of the innovations possible apart from molecules or NCEs. NCE innovation, too, is undergoing dramatic change because we have the genome mapped out. We have an immense amount of data for diseases with a genetic origin.
Then there are tools such as 3D organ printing, stem cell-based therapies and others. You need to choose where you want to play, what strengths you have and where you can make a difference.
In other words, you have to use a strategic filter. How have you applied those filters as a company?
Priorities are shifting for us. Originally, we thought we would migrate towards drug discovery. Dr Anji Reddy himself was very active in that area. That was his passion. Over time, we have realised that it is going to be a very difficult thing to do. So, we are focused on our core business, which is generics.
We are trying to test some of these innovative concepts I have mentioned in India, our home market. However, we have only done some small experiments. That data is mixed. Going forward, we will focus on the Indian market because this is where we can observe better, control more and learn more. Once we succeed in our experiments here, we will scale those experiments globally.
Servitisation is a transformation that is pervading many industries. On the journey from a molecule to a patient eventually getting well, there are many different services that you can provide. We can start with innovations that come right after the development of a new molecule, i.e., the development of different delivery mechanisms. You have done a lot of work there as well. Is that area maturing?
I think Dr Reddy’s should not look at itself solely as a provider of pills or different forms of drug delivery or even as a producer of new drugs alone. I think we must widen our scope and become a company which takes ownership of managing disease or managing health. And when you adopt that lens, suddenly many different areas open up. Nutrition is an area which opens up. Lifestyle, or measuring and managing your vitals, is another area which opens up.
We are in the early stages of thinking this way. We thought of ourselves as a supplier of generic products or an innovator of medicines. But a few years ago, we looked at a theme that unified Dr Reddy’s and asked if it would also be relevant to us in the future. That’s when we came up with our brand tagline, “Good health can’t wait.” Good health is something that all of us aspire for. “Can’t wait” speaks to innovation, of speed and urgency. This is our new, expanded vision. We are in the early stages of that journey.
Has patient-centricity started to inform some of the efforts upstream? For a patient, the journey to getting well should not be very onerous in terms of money, effort, discomfort or side effects.
Dr Reddy’s has transitioned from a business-to-business company supplying APIs to other players to becoming a generics company, first, as a supplier of pills and then as a distributor. Then we started dealing with doctors.
Patients were never at the heart of what we did. Patients were the consumer and not the customer. The customers were either the distributors or the doctors. So, we would go to a doctor, explain the virtues of our brand versus 20 other brands available. Or we would sell to the distributor who bought on price and switched the brand with our generic. This is the classic model for generics.
When we put the patient at the centre, suddenly we started thinking a little differently, even for generic products, which are our brand. We figured out that we could add value in many ways. First, we could help the patients manage their disease better by taking the medicine on time, every day and under the right circumstances. We did this by adding a layer of service that applies largely to chronic diseases. Patients can enrol into a programme to get timely reminders to see the doctor or to get a diagnosis done, or to take pills. And these are smart device-enabled services. Or we also have physical services. If you want to talk to a human being, we can do that. Patient-centricity has brought us success here.
The other thing that we also did was packaging innovation. Packaging for a pharmaceutical company was basically about keeping the integrity of the medicine stable, safe and efficacious as well as complying with the law. That is the basic minimum for a pharmaceutical company. Today we go way beyond that. We look at designing the strips for visibility, to avoid confusion of mistaking one medicine for the other with large font size and expiry date. We are using the same stub for refills. It is not scientific innovation per se on the packaging side, but this is patient-centric innovation which will help patients in their journey.
Regulation in India almost requires pharmaceutical companies to create a firewall between themselves and patients. How do you overcome that firewall to generate insights? This seems contradictory to patient-centric thinking.
There is no law barring you from speaking to patients. You cannot promote your product to your patient. That is unethical and not fair. But that is the doctor’s job. We enrol the doctor in this process. It is always a three-way process in India. Sometimes it is the patient, sometimes the doctor and sometimes it is the clinic. You have to have the medical practitioner, patient and company triangle always there. If you ignore the patient or the doctor, it can cause trouble.
And for every frontline person in the company or every manager in the company who does not necessarily interact with a patient on a day-to-day basis, we try and help them develop empathy for the patients, to understand what the patient is going through. So, we encourage our people to go to hospitals, to clinical settings, understand, observe and put themselves in their patients’ shoes.
Let’s say hypothetically there was a startup that came to you and said they have a solution that will help improve patient adherence through say, the use of technology. Where a lot of these innovations stumble is with the business model. They have technology and data analysis capabilities. They are asking would a pharma company be interested in this solution or a retail pharmacy chain or hospitals or doctors?
It is not hypothetical for us. We talk to startups like these all the time. Many times, the startups don’t have access to patients or doctors, so we provide them with that. We give them a sandbox to experiment in and come out with solutions. If the company can help us improve compliance, that is a good outcome. First of all, the company should help with the purpose of helping patients, curing patients. Number two, it should improve sales also. Drop-offs mean lower sales. Non-adherence means fewer medicines consumed. That might sound cynical, but adherence also helps improve business. It is a win-win solution. If we find something that works for us, we pay for these services.
We have a unit called Studio 5B. It is an innovation studio based in Mumbai. We are approached every day by startups saying that they have this wonderful solution which will help your patient. And occasionally we come across very interesting startups. One which really struck me was cancer detection for breast cancer without a mammogram, using only body temperature.
The only reservation we might have is that start-ups can be naïve and may need to be exposed to various realities of the industry. For example, doctors don’t want another app on their phone or their computer.
Could you talk about data analytics, as distinct from health tech?
The biggest problem is getting the data in a form that is usable. Today we have it on paper, in a spreadsheet or on customer relationship management (CRM) software. Our first task is to make all the data easily accessible. In some areas, we are ahead of the curve. For example, we have already put in platforms for manufacturing quality and research and development (R&D). We have electronic lab notebooks. For the quality management system, we have a total quality module of SAP. We have a manufacturing system which captures data from every measurement of the manufacturing process.
We can pull the data and understand trends, understand what causes better yields, better efficiencies and also what causes problems. However, on the customer or patient side, there is data, but we have to still do a lot. We don’t have access to patient data.
I think the future will be great when you can have data transparency for clinical trial data, patient outcome data, diagnoses and cure rates. Then you can connect all these things and that’s when the power of data analytics comes into play. For now, there are many barriers to combining data.
In the West, there are a lot of data privacy concerns. In India, privacy laws are not that tough, but data itself is not captured or stored in a way that it is retrievable again. So, data analytics will take us some more time as we start cleaning up the data, using historical data and converting it into a usable form. Until then there is a lot of speculation.
For example, Hindustan Lever capture data every day at all their retail outlets. Similar data is also available from pharmacies also but not with as much fidelity. The culture of data use is not yet prevalent in pharma. A cultural shift is needed. We plan to start a digital academy.
I wanted to talk more about your interest in higher education. You are on the ISB Board, you are also on the Ashoka University Board. Let me draw a parallel with the pharmaceutical industry. As academics, we value the ecosystem a lot like a network. There is a similar ecosystem in the pharmaceutical sector. You talked about competition early on, but in many cases, there has also been sort of healthy rivalry.
Hyderabad, in particular, has a good ecosystem for the API and the generic industry. It happens on many levels. Proprietary knowledge migrates through people. I work for you this year, next year I go and work for someone else and take that knowledge along. This osmosis happens very rapidly.
The second part is an informal professional network. Knowledge travels so fast. So, for example, if an inspector has come to DRL and raised concerns, the word can spread among the regulatory network. The ecosystem is very vibrant. At the same time, there must be respect for intellectual property and confidentiality. That can be a problem in India.
You mentioned regulation. And not just pharma but the health sector is broadly on the government’s radar with the Pradhan Mantri Jan Arogya Yojana (PM JAY), for example.
The central government is saying something about the health of citizens. I love that. Too often, we discuss non-issues. The real issues are health, education, quality of life and environment.
Access to primary care is a crying need for this country. Tertiary care is important when a problem happens, but prevention is more important. So primary care is in need of investment. I would invest in public health care centres. We had a vibrant infrastructure 30 or 40 years ago which has now deteriorated to a point of dysfunctionality.
Take the parallel to China. China has done a lot to invest in low-cost, high-quality access to primary healthcare. In fact, I have been visiting many markets. I have seen the transformation of Russia, China, and even Africa, which people used to write off. What bothers me is that their rate of improvement is many times that of India. With all our intellectual wealth, great institutions and knowledge, our rate of improvement is slow. One step ahead can be with public-private partnership models.
If the government takes ownership of citizens’ health, focuses more on primary healthcare than tertiary care and improves healthcare delivery mechanisms, India can also accelerate on healthcare.
Thanks for this very lively conversation.
G V Prasad is Co-Chairman and CEO of Dr Reddy’s Laboratories since 2013. Dr Reddy’s is India’s leading indigenous pharmaceutical multinational. It was ranked among India’s most trusted businesses in 2014 by Brand Trust Report. Joining Dr Reddy’s in 2001 as Vice Chairman and CEO, Mr Prasad spearheaded the company’s API and generics businesses and among other major initiatives, led the company’s acquisition of the German pharmaceutical giant Betapharm. Mr Prasad is also a keen wildlife photographer and actively involved with the World Wide Fund for Nature (WWF).