Why D&I Is A Powerful Growth Driver For Pharma Industry

‘Diverse India’ now needs an ‘inclusive society’, vowed the Prime Minister of India, after his massive electoral win on May 23, 2019. Many may consider a part of it as rhetoric, notwithstanding, as and when the government policy of Diversity and Inclusion (D&I) gathers wind on its sail, the realization of its importance would reverberate – even in the corporate world, including the pharma industry, especially in India.

I discussed this subject in my article of June 25, 2018 ,in the context of transforminga pharma company to a customer-oriented, profit-making organization, with implementation D&I within the organization. However, in this article, I shall deliberate, over and above, the current status of D&I in the pharma industry, why most drug companies are still not leveraging it as one of the powerful business growth drivers. While opening this discussion, let me recapitulate what these two words mean to us, and their importance in the drug industry.

Recapitulating D&I:

As there are several, but similar definitions of D&I, I am quoting below just one – from the Ferris State University. It goes, as follows:

  • “Diversity is the range of human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, social class, physical ability or attributes, religious or ethical value system, national origin, and political beliefs.”
  • “Inclusion is involvement and empowerment, where the inherent worth and dignity of all people are recognized.”

The relevance and importance of D&I as a corporate growth policy for the drug industry is immense. It will not just, help them recognize and create business policies, based on diversity in people – a wide range of human differences in their consumers or potential consumers. In tandem, it will also help promote, and sustain a sense of belongingness with the society and communities where it operates – their values, beliefs, expectations and desire for a healthy living.

D&I begins within the company, and for the customers:

There are clear indications that many pharma companies are slowly, but surely realizing that for a consistent and sustainable financial performance the whole approach to business needs to undergo a metamorphosis. One such area of transformation, is a sharp focus on effectively satisfying a set of well-defined expectations of both their external and internal customers.

This journey begins with the creation of a Diverse and Inclusive (D&I) workplace. Nevertheless, the key goal remains – meeting expectations of the society where the drug companies operate, including a diverse set of customers – by saving and improving their quality of life, with affordable and accessible medicines.

While talking about diversity to Business Insider on January 10, 2018, GlaxoSmithKline CEO Emma Walmsley also reiterated, for a future facing employer in an industry, D&I should be a priority corporate strategy – for aggressively modernizing the business.

D&I ‘may be most important in the health care industry’:

This has been well-articulated even in the Workforce – a multimedia publication, where it says: D&I ‘may be most important in the health care industry, where the workforce needs to be both business savvy and socially empathetic to serve their increasingly diverse communities.’

Quoting another CEO, a different article titled, ‘Diversity and inclusion in the pharma industry’, published in PMLiVE on June 27, 2018, emphasized: ‘The global Biopharma industry is one of the most powerful and important industries today, directly affecting the lives of billions of people around the world on a daily basis. In order to understand and meet the critical unmet medical needs of patients, the industry must represent the population it serves.’

D&I is a growth driver for an organization:

“Many successful companies regard D&I as a source of competitive advantage. For some, it’s a matter of social justice, corporate social responsibility, or even regulatory compliance. For others, it’s essential to their growth strategy.” This was highlighted in the January 2018 research paper of McKinsey titled, ‘Delivering through Diversity.’

The article further elaborates: ‘D&I is a powerful growth strategy for an organization because it creates ‘a diverse and inclusive employee base – with a range of approaches and perspectives – would be more competitive in a globalized economy.’

Importantly, this research established a statistically significant correlation between greater levels of diversity and inclusion in company leadership and a greater likelihood of outperforming the relevant industry peer group on a key financial performance measure – profitability.

Some drug companies are moving in this direction:

That some drug companies are gearing up to adopt this growth strategy, but still there is a lot of ground to cover in this area, gets reflected in the December 2018 ‘Diversity & Inclusion Benchmarking Survey’ of PwC. The survey included 183 corporate respondents from 5 regions and 15 countries. As many healthcare organizations have publicly declared their commitment to D&I, the study wanted to measure how they have translated strategy into execution and what impact it is leaving on the employee experience. The following are some of the key findings

  • While D&I is a stated value or priority area for 68 percent of organizations, only 51 percent of respondents disagree that diversity is a barrier to progression at their respective companies. Thus, ‘Diversity still remains a barrier to progression.’
  • Only 4 percent of healthcare organization’s D&I programs reach the highest level of maturity.
  • D&I program goals are quite varied. For about 38 percent it’s a way to attract and retain talent – 25 percent – a way to comply with legal requirements – 17 percent to achieve business results – 13 percent to enhance the external reputation and 8 percent to respond to customer expectations.
  • Interestingly, in 39 percent of cases there was no D&I program-leader in place, 32 percent cases the person reports to senior executives, 19 percent of cases the responsibility was assigned to staff with non-D&I responsibilities and only in 10 percent of cases – the leader is a peer to C-suite.
  • Only 29 percent leaders are tasked with specific D&I goals.

These may not be the points to cheer about – not yet, nonetheless, the survey findings send a clear signal about the beginning of D&I in the pharma industry.

Two facets of D&I for a pharma company:

As I said before, D&I is more important in the health care space, especially for drug companies, where the employees across the organization not just be business savvy with patient orientation, but also be inclusive and socially compassionate to benefit the diverse communities.Thus, there are two clear facets, I reckon, around which organizational D&I policies, especially for pharma players, should be formulated, as follows:

  • For employees within the organization.
  • For stakeholders outside the organization – putting patients at the core of the business strategy.

The above PwC survey is on the first one – D&I for employees within the organization. However, a holistic D&I policy requires dovetailing business savviness with a socially empathetic mindset to serve increasingly diverse communities, is even more challenging.

More challenging is dovetailing business savviness with social empathy: 

To serve increasingly diverse communities, dovetailing business savviness with socially empathetic mindset, appears to be more challenging for the pharma industry, in general. Its manifestations are varied, such as, dented image or its declining reputation – leading to trust deficit with many stakeholders, including patients. Likewise, one of primary causative factors that give rise to such manifestations is considered to be in the drug pricing area.

The current scenario in this area has been captured in a paper titled, ‘Curbing Unfair Drug Prices’, published by The Yale Global Health Justice Partnership (GHJP), Yale Law School, Yale School of Public Health, National Physicians Alliance and Universal Health Care Foundation of Connecticut. The article unambiguously states, the high cost of prescription drugs is unsustainable, wherever it is. Spending on prescription drugs is increasing, either for different payers, or directly to patients through ‘out of pocket’ expenditure – at a faster pace than any other component of health care spending. Consequently, it is forcing many patients to skip doses of critical medicines, and several others to choose between their health and necessities, like food and rent.

The paper adds: “Meanwhile, the pharmaceutical industry continues to launch new drugs at exorbitant prices, increase prices of many old drugs without justification, and reap record profits. Evidence has unequivocally shown that high drug prices are not linked to the actual costs of research, development and manufacturing. Instead, inflated drug prices are a result of drug manufacturers’ power to charge whatever price the market will bear. The need for legislative action is urgent.”

One of the most recent examples of such jaw-dropping drug price was reported by Reuters, along with many others, on May 25, 2019 as: “Swiss drug maker Novartis on Friday won U.S. approval for its gene therapy Zolgensma for spinal muscular atrophy (SMA), the leading genetic cause of death in infants and priced the one-time treatment at a record $2.125 million.”

That said, achieving this facet of D&I, is not just desirable, but also necessary to gain a sharp and well-differentiated competitive edge in sustainable financial performance. It is noteworthy that to be successful in this area, one of the key requirements is to assign specific accountability for D&I to that individual, where the bucks stop.

Assigning specific accountability for D&I implementation:

Yet another article titled, ‘Diversity and Inclusion: A Pharma 50 Perspective’, published in PharmExec on June 23, 2016, asserted that there is little point in tackling diversity without solving for inclusion.

It underlined: ‘Whereas diversity is the hardware bringing different machines together, inclusion is the software that brings the system to life.’ The authors suggested, as many others would: ‘Hiring a chief diversity officer can help, accelerating the process at the highest levels.’

Conclusion:

The good news is, the above McKinsey research study also found: ‘Corporate leaders increasingly accept the business imperative for D&I, and most wonder how to make it work for their firms and support their growth and value creation goals.’ The article reiterated the correlation between D&I and company financial performance. Thus, to effectively leverage this factor, developing a robust corporate D&I strategy aimed at both – the employees and the society, at large, appears to be the right choice.

From this perspective, a diverse and inclusive pool of employees, with varied range of approaches and perspectives are expected to meet both business expectations and the health needs of the society with more innovative ideas. Consequently, this deserves to be an organizational growth strategy, having a sharp competitive edge. It is mainly because, the initiative will uncover newer and unconventional pathways for providing greater access to affordable medicines, to save and improve the quality of many more lives. As the process rolls-out, it will keep gathering critical momentum, with support from all around and, more importantly, the enormous goodwill that the D&I strategy will attract from public, in general.

By: Tapan J. Ray  

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Managing Pharma Investors’ Expectations When The Chips Are Down

Triggered by several critical factors, over a relatively short period of time, a downward spiral is visible with most Indian Pharma stocks, with a significant erosion in market capitalization of many large players in the country.

A set of important factors has been fueling this current downturn since around the last four years. These include, issues related to serious regulatory non-compliance with US-FDA and other foreign drug regulators, pricing pressure both in the domestic and the overseas markets, including the United States, delayed approval of several new generic drugs in the number-one pharma market of the world, for various reasons. Initial rollout period of GST expected to commence on July 1, 2017, may also prompt some major readjustments in the distribution setting of many pharma organizations. This has been further compounded with the wholesalers’ and retailers’ demand for compensation for any losses on input credit arising out of this critical reform.

As eroding market cap generally leads to commensurately lower market valuation of a company, it adversely impacts company’s many business growth related activities, which encompasses attracting low cost – high value investments, and M&A related activities, besides many others. Consequently, this negative swing has alarmed many investors, making them more demanding on company performance – uninterrupted, almost at any cost, as it were.

Not much headroom for necessary course correction:

Unrelenting expectations of this nature from the investors, inclusive of activist shareholders, to continue driving the business growth engine up the steep slope of ever increasing return on investment, is not expected to die down, anytime soon.

They may not be willing to leave enough headroom for the respective pharma management teams to realign their growth path with the changing and challenging needs of time, if it adversely impacts business even in the short-term. Nonetheless, if it is not allowed, the tailspin is likely to continue, as has been happening since, at least, the last couple of years, pushing the business at a dangerous level of sustainability.

Such demand of the investors and shareholders, irrespective of the gravity of the situation where their respective companies are in, may not be too uncommon, even in the global arena. However, many experts are now raising a key question in this area. In this article, I shall try to look at this issue, not just from the investors’ perspective, but also from what the concerned pharma players can and should do in this area, sooner the better.

A pertinent question needs to be addressed:

This important and relevant question is: what is the accountability of the investors, if their pressure for performance when the company is at a crossroad of this nature, causes a long-term irreparable damage to the business?

The very issue has been discussed immaculately in an article titled, “The Error at The Heart of Corporate Leadership”, published in the May-June 2017 issue of the Harvard Business Review.

The paper reiterates that attributing ownership of the corporation to its investors involves a challenging problem of accountability. This is because, ‘shareholders or private investors have no legal duty to protect or serve the companies whose shares they own and are shielded by the doctrine of limited liability from legal responsibility for those companies’ debts and misdeeds.’ Moreover, they are both physically and psychologically distant from the activities of the companies they invest in, and may generally buy and sell these shares without restrictions.

Nevertheless, such strong and ever increasing demands put the top pharma managers under increasing pressure to deliver faster and more predictable returns, regardless of the headwind that the business is facing. The issue becomes more complex when temporary-holders of large blocks of shares intervene to reconstitute a company’s board, change its management, or restructure its finances to drive up the share price, only to sell out and move on to another target, without ever having to answer for their intervention’s impact on the company or other parties, the article highlights.

Export business – the pain points:

“Pharma stocks take a beating on renewed US FDA scrutiny” – flashed the headline of a recent media report of June 12, 2017. As I see it, in the export business, especially in the top pharma market in the world, there appears to be a strong possibility of further worsening the business environment, especially for the Indian drug exporters.

Wave after wave of US-FDA import bans involving many India made drug formulations and Active Pharmaceutical Ingredients (API), since over last four years, have significantly affected the short-term export sales of the domestic pharma exporters. Alongside, these have seriously dented the image of the Indian pharma players, collectively, which encompasses the critical area of regulatory compliance – to offer well-documented safe and effective drugs, as required by the regulator, for the patients in the United States.

The situation gets messier with media headlines, such as, one from Bloomberg’s on January 24, 2017, conveying to the world community – “Document Shredding at Night Raises FDA Eyebrows During India Visit.”

Besides current drug pricing pressure, President Donald Trump’s election pledge for local manufacturing of products consumed in the United States, for more job creation in the country, sends another possible storm signal in this area. This is serious too, as Indian generic drug producers cater to around 40 percent of the total generic drug consumption in America.

Overcoming the odds in export business:

While taking corrective and effective measures for a sustainable long-term business performance, doing the same things more intensely that precipitated the current crisis, would be counterproductive.

Improving the situation, would also call for a strong preparedness for launching new generic products at a regular interval. However, in tandem, there is a crying need for the concerned pharma companies to take a pause, and conclude, a well-structured and expert-guided corporate introspection and brainstorming process, on priority. This will help them to arrive at a set of actionable strategic plans to effectively address each of the pain points, in a meticulous and time-bound manner.

Investors must necessarily be taken on board by opening appropriate communication channels, accordingly. This is to enable them to understand and accept the reasons for a short-term pain for a sustainable long-term gain. The tangible results of corrective measures should subsequently unfold to all concerned, with minor course corrections on-the-run, wherever necessary.

Domestic business – the pain points:

This is again another complex issue, which is often manifested through pressure on drug prices. The blame for such a situation, though originates from somewhere else, generally falls on the Government and the drug price regulator, for obvious reasons. It has a palpable boomerang effect, that is brought out by various research studies, and captured in consumers and the expert opinion, such as one that was published by the Washington Post on June 14, 2017 with the title, “The pharmaceutical industry puts profits above people.”

In the United States, where the drug pricing pressure is widely believed to have primarily originated from the escalating cost containment pressure of the Government and the key health care providers – triggered by a dangerous drug-pricing trend. Whereas in India, in addition to the latter that is related to non-schedule branded generic drugs, it is mostly related high out of pocket expenses on drugs, attempts to dodge various drug price regulations, and ignoring several ethical marketing practices related issues. The net outcome of all this is growing trust deficit on the pharma industry, in general.

Let me illustrate this point with a very contemporary example.  On May 18, 2017, Reuters reported, “India’s drug pricing regulator has demanded explanations from 65 domestic and global drug makers for selling new forms of essential diabetes and antibiotic drugs without its approval.” Interestingly, these companies reportedly include many big names, such as, Abbott Laboratories, Sanofi, Novartis and Indian firms such as Sun Pharmaceutical Industries and Lupin.

According to a circular of the National Pharmaceutical Pricing Authority (NPPA) of May 17, 2017, the above companies have allegedly launched formulations by altering an essential drug formulation with strength/dosage other than as specified in the Drug Price Control Order (DPCO) 2013 or combination with another drug not under price control, without even applying for price approval from NPPA as required. NPPA also doesn’t seem to be sure, whether such Fixed Dose Combinations (FDC) are rational or irrational and have the approval of the Central Drug Standard Control Organization (CDSCO).

If so, it’s indeed a sad development and a sorry state of affair, especially for those companies, which do some chest-thumping on ethics and compliance, often browbeating many Indian players, especially on USFDA related issues, besides pharma marketing practices.

As on date, Union Ministry of Health has banned several hundreds of such FDCs – on the ground of being irrational, launched without proper regulatory approval, lacking in therapeutic efficacy and safety profile, which may even cause harm to patients. March 11, 2016 notification of CDSCO banned 296 irrational FDCs.

However, many pharma players have succeeded in obtaining stay orders against almost all such regulatory bans from various High Courts. Nevertheless, the good news is, from July 2017, the Supreme Court is expected to hear all these cases, collectively. There could be another possible downturn in the market, if the Government wins the case.

Overcoming the odds in domestic business:

In these specific areas, there doesn’t seem to be any other option left to satisfy the long-term interest of the investors, other than addressing the ethics, values and compliance issues of the company on the ground, head on. It doesn’t really matter, what is displayed on the subject in their respective websites. Thus, in this area too, there is a crying need for a well-structured and expert-guided corporate introspection and brainstorming process to disrupt the status quo from its very root.

The above process would help the pharma players to arrive at a set of actionable strategic plans to effectively address the ethics and compliance issues in all the pain points – regulatory, marketing or financial, in a meticulous and time-bound manner. Alongside, all the stakeholders, including the investors, to be taken on board through customized content and the engagement platforms, to put the companies back into the long-term growth trajectory.

In conclusion:

Investors are very important, but if they aren’t an integral part of the corporate management team, should not try to overwhelm the business management process, especially for any short term financial gain. Attributing such authority to investors, involves a challenging problem of accountability for action, as they can get in or out of their investments at any time they choose to do so.

However, it’s also one of the key responsibilities of the management to listen to them, seriously. Take them on board by appropriately explaining to them in every critical situation, the broad strategic direction that the company would follow in pursuit of excellence. Thereafter, demonstrable outcome of all management action against the top operational goals, should be placed before them at a periodic interval, on an ongoing basis.

This process, if carried out with absolute transparency, integrity and seriousness, could help the Indian pharma players getting enough breathing space from the investors, for making the right operational interventions, before it’s too late.

Earlier this year, stepping down of former CEO of GSK – Andrew Witty, was reported to be due to pressure from investors for below par sales and profit in the past three years, besides a few other reasons. Another recent report of June 15, 2017 on “rebel investors looking to remake the board of Mylan” would possibly reinforce this point, further.

Outside the pharma industry, such a situation is not uncommon now, even in India. Besides, what happened recently in Tata Sons,  the June 14, 2017 media headline highlighting “Infosys flags ‘activist shareholder’ as risk factor”, vindicates the same point, yet again.

Thus, managing pharma investors’ expectations through a process of continuous engagement with them, effectively, especially when the chips are down, as it is today, is so critical for the long-term success and sustainability of pharma business.  Maintaining the status quo any further, would possibly make a high-flying pharma player to experience the strong gravitational pull, uncontrolled, with its its serious but avoidable consequences.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.