India Pharma at the crossroads
As ‘Digital Darwinism’ catches up, and the industry is unwilling to adopt to new ways of marketing to a fast-evolving customer, will pharma only manufacture and supply medicines to digital health cos?
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Over the past weekend, the pharma world in India was shaken up by Novartis’ decision to fire 400 employees following a ‘strategic arrangement’ to hand over some of their matured brands to Dr. Reddy’s. While this is being called a deal where Novartis will continue to make those medicines, they handed over sales and distribution rights to Dr. Reddy’s which will book product sales.
With Eli Lilly doing something similar a few months ago, is this a wider emerging trend in the industry where more MNCs let go of marketing mature brands? These decisions are being taken routinely by many MNCs across the world.
Companies that have a strong pipeline of products in relatively more lucrative therapies such as immuno-oncology and vaccines want to focus there for future growth. Operational efficiency then demands a ‘re-assessment’ of their business which often results in either a selective (Sanofi’s consumer brands → Universal Medicare, GSK matured brands in India sold piecemeal to different companies, AZ → Cheplapharm), an across-the-board sale of matured brands (Novartis → Sun in Japan) or a hiving off of those brands into a separate company that is either retained or sold (Merck → Organon, Pfizer → Mylan etc.).
The reason offered by executives in all these cases is almost the same - the decision is driven either by a ‘strategic’ shift into more lucrative therapy areas, ‘future businesses’ or by the need to reduce a ‘drag on growth’. While these decisions are perfectly justifiable from a business sense, companies must treat the retrenchment of employees with the grace and respect that they deserve.
This is where Novartis India didn’t do well. About 400 employees were informed by email after closing hours on Friday last week, that they were relieved from their duties with immediate effect. They were offered severance packages that abided by terms in their employment contract. What it entirely missed, is the human angle. As George Clooney’s character discovered in the 2009 Hollywood movie “Up in the Air”, human relationships cannot be entirely replaced with technology. Sending an email doesn’t cut it for a person getting laid off after years of working for a company. The least they expect is their manager shaking their hand and saying ‘thank you’.
So, what makes companies do this? One strong reason could be to downsize. Although Novartis claims that’s not its reason for the decision, it could well be the consequence of the decision to divest the Sandoz business globally. While Voveran, Methergine and the calcium range were not strictly generics under the Sandoz arm, Novartis’ review could well extend to all the mature or ‘established’ brands in its portfolio, including these.
That said, it has become quite obvious that MNCs were never truly interested in India. They used its massive market size to sell their products but did precious little to develop the market for the potential it has. Some efforts, when taken, were disparate and in pockets. Unfortunately, neither have the domestic players. It just happens that MNCs have a choice of other markets open to them and so can reduce their interest in this geography temporarily.
At the moment, the policy framework in India doesn’t do much to discourage them from losing interest in India. With the govt mulling about stepping up compulsory licensing, not formalising the UCPMP, leaning towards import substitution and expanding price controls, it is unlikely that we will see MNCs think really hard about growing their businesses in India. However, India is not a small market to ignore and therefore, commercial interest in the geography will definitely remain strong.
With India steadily migrating from a growth market to one that needs deft management of operations, companies will opt for a lean structure. If shedding flab is what the doctor prescribes, the easiest way to do so, is to outsource. If Dr. Reddy’s takes care of sales and distribution, Novartis can easily lay off 400 employees.
However, shareholders saw it differently and accused the company of deliberately trying to weaken the Indian listed company and strengthen its unlisted entities in India. The move was perhaps construed as a precursor to a delisting effort by Novartis India considering that a majority of their employees are now in the unlisted entity which will also be the way through which the company will launch all its future businesses thus depriving minority shareholders of dividends.
Over the last decade, the Indian industry rose to popularity as the world’s destination for contract research and manufacturing services (CRAMS). While that acronym cramped up quickly, a new one is replacing it. CDMO that stands for contract drug manufacturing organizations. With ‘innovative’ MNCs all but giving up on India, and the domestic industry looking at ceding its customer relationships to strong non-traditional competition in digital health platforms, is the industry now slowly moving towards becoming a hub of outsourcing?
Novartis india management doesn't care & respect feeling of 400 people, least bothered about law of land.
Novartis India have illegaly terminated the 400 employees.