The Indian pharmaceutical industry has witnessed resplendent growth over the past three decades, establishing itself as the global pharmacy for generic medicines. It has greatly contributed to economic development of the country and has played a major role in improving healthcare outcomes in India and worldwide.
The industry being ready for robust growth in the next decade with plethora of opportunities for companies of all scales and sizes will face challenges that will need to be addressed strategically and operationally. We operate in a highly regulated environment where there is stringent compliance and rigorous quality controls. Excellent strategic planning, prudent capital allocation, persistent focus on R&D and innovation, and robust operational workflows are not alone sufficient to ensure sustenance and growth, and thus, these elements in isolation fall short of stakeholder expectations and regulatory requirements.
The $50 billion industry which is nearly equally split between exports and domestic market, is expected to grow to at a CAGR of 10% upto 2047 to become $500 billion. In the next 5-10 years, it is well set to touch $73 billion and $120 billion respectively. Quality drives reputation and growth in our noble industry before innovation and commercial excellence. Without focus on quality and risk, the existence of the pharmaceutical industry will always be in grave danger. Quality is seen as first-amongst-equals in the list of management focus items by best of the pharmaceutical companies.
ISO 31000 defines risk as "the effect of uncertainty on objectives, whether positive or negative”. From regulatory compliance to product development, risks inherent in the pharmaceutical industry are multifaceted and ever evolving. However, there is an opportunity for Indian companies especially the small and mid-size companies to embrace good governance to mitigate risks effectively, foster sustainable growth and increase stakeholder confidence. Traversing through the risk landscape is paramount to ensuring not only the success of individual companies but also safety and well-being of patients and consumers.
To ensure quality, pharmaceutical companies invest resources and efforts towards risk management at various points of the value-chain. Some companies take a siloed-approach to risks, while others delve wide and deep to create comprehensive risk management systems which are enterprise-wide led and applicable to the entire gamut of a company’s operations.
Pharmaceutical companies strive to reduce risk and ensure continuity at both strategic and operational levels with risk portfolios and continuity management audits however a robust Enterprise Risk Management (ERM) programme can help build resilience and enhance reputation, compliance and governance for long term growth.
The Institute of Risk Management (IRM) defines ‘ERM’ as an integrated and joined up approach to managing all areas risks across an organisation and its extended networks. This means that ERM goes much beyond the traditional risk approach, covers detailed analysis of the entire risk universe including ESG and has potential to drive risk intelligence in every business vertical and decision across the company.
There is also an interesting concept of ‘Risk Culture’ which the IRM defines as the values, beliefs, knowledge, attitudes and understanding about risk shared by a group of people with a common purpose. One needs to be pragmatic to reckon that risks cannot be escaped but only managed through proactive and reactive mechanisms whilst also setting the tone at the top and defining a clear risk appetite. Every company has different risk profiles and risk management maturity.
In Jun 2012 article “Managing Risks: A New Framework” in Harvard Business Review, Robert S. Kaplan, and Anette Mikes, advocated for rules-based approach for risk management, which is relevant across industries especially more for heavily regulated ones like the pharmaceutical industry. Some companies have evolved to have “risk and resilience” frameworks that encompass risk and crisis management, business continuity, IT, compliance management, and third-party risk management.
Regulatory agencies and international consensus also drive risk management particularly focused on quality in the pharmaceutical industry. For example, the International Conference on Harmonisation (ICH) guideline Q9, Quality Risk Management (QRM), represents the first internationally recognised guideline specifically addressing QRM for the pharmaceutical industry.
Published in June 2005, the guideline offered an overview of general principles, example of a risk management life cycle, discussion around the activities that occur in each life cycle phase, and a list of risk tools and quality system areas to which QRM can be applied. The Government of India has taken proactive and reactive measures to enhance quality in drugs made in India. Risk-based inspections are the order of the day and defaulting companies are rightly receiving show cause notices, closure notices, heavy penalties or fines, product recalls, and irreversible damage to reputation.
The pharmaceutical industry esp. the Indian Drug Manufacturers’ Association (IDMA) has welcomed disciplinary measures from CDSCO and various state government FDA agencies as leaving a handful few non-compliant companies, most of the Indian companies i.e. growth aspirational and serious-for-compliance ones have been earnest in their commitment to improve quality and risk culture in the past, present, and future.
We see quality and risk management not merely from a compliance perspective but a very important element of our strategic decision making and managerial control systems. India’s leading pharmaceutical companies and IDMA transparently discuss risk concerns with regulators to resolve them and elevate their quality systems. Most regulators including US FDA, EMA, and India’s CDSCO are having open and constant dialogue with the industry to address current and potential risks with effective measures.
There are other risks as well that affect the industry often. The long capital-intensive drug development process often yields uncertain clinical trial outcomes and thus, adds tremendously to financial risks of companies. In strategic transactions like M&A, divestments, fundraising, and public listing one must objectively clear on synergies or value-accretion from such often-irreversible actions. Many M&As fail to create value for failure to envisage risks in post-merger integration and other eventual developments.
Another set of risks emerge from intellectual property dimensions of patent expiry and growing threat of generic competition especially from shifting manufacturing base to other emerging countries in Asia and focus on indigenous manufacturing for self-reliance compounds the challenges faced by Indian pharmaceutical companies.
In supply chain, we recently saw disruptions globally on logistics forefront, where COVID-19 and geopolitical tensions, disrupted availability of medicines and created threat to life. A few instances were also reported on IT system breaches and leakage of patient medical records that created chaos for all stakeholders.
An often overlooked and peculiar risk of today is on talent, companies need competent and committed people to ensure softer elements of organisational dynamics do not become an impediment in realising business outcome. Leaders often belatedly realise importance of qualified people only when latter leave their organisations.
Therefore, beyond competitive compensation and benefits and career growth plans, companies have to invest in people and nurture them for greater responsibilities in the long-term. Best companies invest in upskilling their employees ahead of business need and ensure that technology is adopted for improving productivity and enhancing capabilities rather than with the intent of myopically reducing headcount.
A company may have industry’s best SOPs and control mechanisms for quality management; but such elements would be of no utility if employees have a lackadaisical approach or haven’t been aligned with larger organisational purpose. The significance of values and people-centric culture has to be percolated often and that is the responsibility of top management.
Effective ERM requires a top-down approach and patronage by senior leadership. “Out of sight, out of control” is well understood by highest echelons in the industry. Beyond documentation and processes, leadership at a pharmaceutical company are unreservedly responsible for building a culture that identifies, quantifies, and responds to risks of various types.
Some companies themselves or with help of subject matter experts or consultants develop simulation-based models to articulate standalone and cumulative impact of risk on one’s prospects decades into the future.
Developing IRM-certified risk champions who are process owners and business owners across the company and identifying an IRM-qualified Chief Risk Officer can provide huge impetus to the overall risk management maturity. The risk champions can be drivers of change by wearing the risk lens in everything they do whilst reporting and monitoring uncertainties on an ongoing basis.
Anticipating, understanding, and analysing risks improves resource allocation and strengthens monitoring and control. In bygone three-years, the use of tools like IoT and AI/ML has gained traction in the pharmaceutical industry. Digitalisation is bringing science and religion together as companies are addressing data and process integrity concerns with transparency and responsibility.
Transparency is the bedrock of good governance. Drug pricing, operational shop floor data, and clinical trials data are subject to regulatory scrutiny. Best companies set examples by embracing transparency across the organisation and also with external stakeholders.
They establish a culture of risk awareness, make timely and complete disclosures, invest in technology and analytics, stay abreast of regulatory developments, proactively improve their quality systems, regularly conduct risk assessments, and track key risk metrics to drive business decisions.
Good governance is not a choice, but a responsibility in the pharmaceutical industry, a noble industry of serving mankind with safe and effective medicines. Billions of people are dependent on medicines to lead happy and prosperous lives; they discharge their roles and responsibilities to best of their physical and mental well-being.
There are serious consequences for taking quality and risk management for granted. Indian pharmaceutical companies have long ago realised that transparency, accountability, and ethical conduct ensure corporate existence and growth while fostering trust and respect amongst all stakeholders.
Amidst the rapid evolution of the pharmaceutical industry, marked by escalating regulatory intricacies, focus on novel drugs and complex generics, proliferation of technology across the value-chain, and data-centric advancements, the imperative for Indian pharmaceutical companies to enhance their risk management capacities has never been more pressing.
A concentrated and comprehensive effort on risk management will provide Indian pharmaceutical companies with optimal tools to flourish amidst the uncertainties of the contemporary landscape.
Let us pledge to elevate equality, accelerate business performance, and grow our respective companies and entire industry by a sincere and long-term commitment to enterprise risk management by upholding universal principles of ethics to serve and safeguard life on our planet.
The authors, Mehul Shah is Honourary General Secretary at Indian Drug Manufacturers' Association (IDMA), Managing Director of Encube Ethicals, the global leader in topical pharmaceuticals and Governance Board Member of IRM India Affiliate and Hersh Shah is the CEO of IRM India Affiliate. The views expressed here are personal.
(Edited by : Priyanka Deshpande)
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