Rethinking
recession in the positive light
The power-packed
conference jointly organized by held by the Federation of Indian
Chambers of Commerce and Industry (FICCI) and the Department
of Pharmaceuticals lucidly illustrated the world of
opportunities the recession can offer to life sciences
companies.
The summit entitled, “Pharmaceuticals 2014: Will India Leap
Forward” was held in Mumbai. The summit was organized by
FICCI with Department of Pharmaceuticals, Ministry of Chemicals
and Fertilizers, Government of India and Observer Research
Foundation (ORF). Cash reserves and liquidity might be at an all time
low, valuations of start-ups especially small and medium size biotech
companies might have shown a nosedive drop, so what? asserted experts
from different spheres of the industry present at the summit.
Here goes the brownie points for the industry. While market pundits
associate recession with a freeze in investments, sitting tight on cash
reserves all amalgamating to the consolidation of the life sciences
industry, speakers on the contrary retorted
otherwise. Perhaps life sciences should take a leaf out of Ratan
Tata’s bold business decision in taking the plunge to launch
the much awaited ‘Nano’ into the Indian market! If
automobile companies, which was most hit by the turmoil, can do it, so
can life sciences companies.
Glenn Saldanha, managing director and CEO, Glenmark Pharmaceuticals Ltd
and chairman of National Pharmaceuticals Committee, FICCI, observed
that the pharmaceutical sector will be less impacted by the economic
slowdown, although, it will see cost containment and its impact on
R&D projects. Also, with the pipeline for new products drying
up, there would be consolidations in the industry.
Dr Dhankar, partner, Mckinsey and Co, New Jersey, gave a
thought-provoking analysis. Life Sciences as an industry is
outside recession’s vicious cycle hence the answer to
the most debated question of “how long will the
recession last and whether it is short lived?” is plain and
simple – ‘It doesnt matter!’The
contention being, companies develop better strategies during times of
uncertainty. With cash reserves drying up, conventional business
strategies adopted by companies would be to sit tight fisted with all
the cash that they have for the next 24 months, as is the basic
prediction about the period of recession, but Mckinsey’s
suggestion to companies was to spend as much as they could
during this period. “From the past recessions it
was observed that companies which emerged stronger after a recession
were the ones that followed countercyclical patterns of utilization and
spending. Average sized companies that had less cash in hand but
decided to spend and invest heavily were the ones which emerged
stronger,” told Dr Dhankar exclusively to
BioSpectrum. There have been companies like El Lilly,
Novartis, Bristol Myers Squibb, JohnThe summit entitled,
“Pharmaceuticals 2014: Will India Leap Forward” was
held in Mumbai. The summit was organized by FICCI with Department of
Pharmaceuticals, Ministry of Chemicals and Fertilizers,
Government of India and Observer Research Foundation (ORF). Cash
reserves and liquidity might be at an all time low, valuations of
start-ups especially small and medium size biotech companies might have
shown a nosedive drop, so what? asserted experts from different spheres
of the industry present at the summit.
Here goes the brownie points for the industry. While market pundits
associate recession with a freeze in investments, sitting tight on cash
reserves all amalgamating to the consolidation of the life sciences
industry, speakers on the contrary retorted
otherwise. Perhaps life sciences should take a leaf out of Ratan
Tata’s bold business decision in taking the plunge to launch
the much awaited ‘Nano’ into the Indian market! If
automobile companies, which was most hit by the turmoil, can do it, so
can life sciences companies.
Glenn Saldanha, managing director and CEO, Glenmark Pharmaceuticals Ltd
and chairman of National Pharmaceuticals Committee, FICCI, observed
that the pharmaceutical sector will be less impacted by the economic
slowdown, although, it will see cost containment and its impact on
R&D projects. Also, with the pipeline for new products drying
up, there would be consolidations in the industry.
Dr Dhankar, partner, Mckinsey and Co, New Jersey, gave a
thought-provoking analysis. Life Sciences as an industry is
outside recession’s vicious cycle hence the answer to
the most debated question of “how long will the
recession last and whether it is short lived?” is plain and
simple – ‘It doesnt matter!’The
contention being, companies develop better strategies during times of
uncertainty. With cash reserves drying up, conventional business
strategies adopted by companies would be to sit tight fisted with all
the cash that they have for the next 24 months, as is the basic
prediction about the period of recession, but Mckinsey’s
suggestion to companies was to spend as much as they could
during this period. “From the past recessions it
was observed that companies which emerged stronger after a recession
were the ones that followed countercyclical patterns of utilization and
spending. Average sized companies that had less cash in hand but
decided to spend and invest heavily were the ones which emerged
stronger,” told Dr Dhankar exclusively to
BioSpectrum. There have been companies like El Lilly,
Novartis, Bristol Myers Squibb, Johnson and Johnson, which have taken
‘bold actions’ even in this period of
uncertainty. Though it has been glottalization of investments
which has aggravated the intensity of the situation, globalization
alone is the answer to reduction of costs and hiking up of innovation.
With buyouts and acquisitions being the latest mantra for global
companies, the assumption that Indian companies are ripe for being
acquired holds no water in this period of credit crunch though the
possibility cannot be ruled out totally. On the other hand, this is the
conducive time for Indian companies being aggressive and buying out
companies, biotech in particular, in the US.
What will the economy look like during and post recession?
McKinsey presents four diverse scenarios that the economy might land
up, though the outcomes are hard to predict. Scenario one is a
situation where the global credit and capital markets open up, this
will see a regeneration of global momentum which is moderate
recession spanning over 3-4 quarters followed by strong growth and
changes in the regulatory regimes. Scenario two is a
situation where the global credit and capital markets reopen and
recover but is coupled with severe global recession. This
will see an economy which is battered but resilient marked with
a prolonged recession of 2-4 years with recovery led by
effective fiscal, monetary and regulatory policies. Scenario
three is a situation which is an amalgamation of moderate recession
with global credit and capital markets being volatile and closed down.
This will see a ‘stalled globalization’
with a moderate recession for 1-2 years followed by slow economic
growth and significant government involvement in bringing about credit
allocation and regulatory changes. Lastly, Scenario four consists of
two extreme factors, severe global recession coupled with global credit
and capital markets which are volatile and not opening up. This will
lead to a scenario of a so called ‘long freeze’
where we see a recession for over five years, stagnation and regulatory
irregularities, and ineffective monetary and fiscal policies
Graham Lewis, vice president-Europe, IMS Health UK, gave
another angle to the solution. “A recession like this adds
urgency to the situation and as a result companies start rethinking
their strategies and sort out issues. This is where there
will be a rise of the ‘pharmerging markets’ which
will see a double digit growth.” The US might show
a flat growth but reality for all companies is that
the US is still the dominant market having 40 percent of global
shares. So companies need to be in the US despite its almost
stagnant growth. However for companies aspiring rapid growth,
‘pharmerging markets’ which will show a strong
double digit growth, is the right place to be.
Sameer Savkur, managing director, ORG IMS Research Pvt. Ltd, gave the
India perspective, “ True, recessions like this does impact
all stakeholders in the value chain which includes patients,
manufacturer, distributors, healthcare providers and payers. Growth
might be impacted but in the process companies should not exit
commercial areas where there are growth
opportunities.” IMS was optimistic and stated that
recovery was a possibility in 2009 itself with a growth of 14 percent
despite the recession. In terms of approaches companies need to revise
their business strategies, rethink their R&D strategies, look
at their product portfolios, even look at hospitals and rural areas and
make their sales forces more effective.
The instant reaction might be everything is easier said than done.
There are issues and obstacles like regulatory issues, talent and
infrastructure hurdles, but the key now is the government
intervention. The US, Canada, Singapore and China governments are
taking proactive roles as far as investments are
concerned. The Chinese government has invested around $1.5
billion while the Singapore government is invested $1.2 billion.
Neighboring country and rival China is focusing on surging up academic
institutions, incentives for overseas talent to return, tax exemptions
and to start five bioscience parks.
The Government of India too has decided to take the step and
push the envelope forward. Ashok Kumar, secretary of Department of
Pharmaceuticals, which has been recently set up by the Government of
India, shared the proposed initiatives for making India as one of the
top five global pharmaceutical innovation hub by 2020. He mentioned
that the economic and social returns of the proposal are estimated to
create 5 lakh high end jobs for scientists and specialist, and also
provide the country with low cost healthcare for chronic and life
threatening ailments including some of the neglected diseases. As a
part of this effort, the government will deliberate action on four
fronts – infrastructure and manpower, PPP, financial
incentives and models as well as a favorable regulatory model for drug
or molecule discovery. It is estimated that the annual expense towards
achieving the aspirational innovation hub status would be as much as $2
billion, for which a substantial public private partnership would be
required.
“The global economic slowdown presents an opportunity for the
Indian industry to work on low cost medicines, one of the key strengths
that we have,” Ashok Kumar added. FICCI then
organized a closed door discussion with prominent industry persons on
“Drug Discovery – A Business Opportunity”
in order to critically analyze the opportunity and the short comings to
work out a detailed plan to accomplish stated roles of the government,
industry and associations. FICCI will prepare a report and action plan
for implementation and will work closely with the government and
industry to help achieve the proposed vision 2020 for the
pharmaceutical sector. n
Nayantara Somson and Johnson, which have taken ‘bold
actions’ even in this period of uncertainty. Though
it has been glottalization of investments which has aggravated the
intensity of the situation, globalization alone is the answer to
reduction of costs and hiking up of innovation.
With buyouts and acquisitions being the latest mantra for global
companies, the assumption that Indian companies are ripe for being
acquired holds no water in this period of credit crunch though the
possibility cannot be ruled out totally. On the other hand, this is the
conducive time for Indian companies being aggressive and buying out
companies, biotech in particular, in the US.
What will the economy look like during and post recession?
McKinsey presents four diverse scenarios that the economy might land
up, though the outcomes are hard to predict. Scenario one is a
situation where the global credit and capital markets open up, this
will see a regeneration of global momentum which is moderate
recession spanning over 3-4 quarters followed by strong growth and
changes in the regulatory regimes. Scenario two is a
situation where the global credit and capital markets reopen and
recover but is coupled with severe global recession. This
will see an economy which is battered but resilient marked with
a prolonged recession of 2-4 years with recovery led by
effective fiscal, monetary and regulatory policies. Scenario
three is a situation which is an amalgamation of moderate recession
with global credit and capital markets being volatile and closed down.
This will see a ‘stalled globalization’
with a moderate recession for 1-2 years followed by slow economic
growth and significant government involvement in bringing about credit
allocation and regulatory changes. Lastly, Scenario four consists of
two extreme factors, severe global recession coupled with global credit
and capital markets which are volatile and not opening up. This will
lead to a scenario of a so called ‘long freeze’
where we see a recession for over five years, stagnation and regulatory
irregularities, and ineffective monetary and fiscal policies
Graham Lewis, vice president-Europe, IMS Health UK, gave
another angle to the solution. “A recession like this adds
urgency to the situation and as a result companies start rethinking
their strategies and sort out issues. This is where there
will be a rise of the ‘pharmerging markets’ which
will see a double digit growth.” The US might show
a flat growth but reality for all companies is that
the US is still the dominant market having 40 percent of global
shares. So companies need to be in the US despite its almost
stagnant growth. However for companies aspiring rapid growth,
‘pharmerging markets’ which will show a strong
double digit growth, is the right place to be.
Sameer Savkur, managing director, ORG IMS Research Pvt. Ltd, gave the
India perspective, “ True, recessions like this does impact
all stakeholders in the value chain which includes patients,
manufacturer, distributors, healthcare providers and payers. Growth
might be impacted but in the process companies should not exit
commercial areas where there are growth
opportunities.” IMS was optimistic and stated that
recovery was a possibility in 2009 itself with a growth of 14 percent
despite the recession. In terms of approaches companies need to revise
their business strategies, rethink their R&D strategies, look
at their product portfolios, even look at hospitals and rural areas and
make their sales forces more effective.
The instant reaction might be everything is easier said than done.
There are issues and obstacles like regulatory issues, talent and
infrastructure hurdles, but the key now is the government
intervention. The US, Canada, Singapore and China governments are
taking proactive roles as far as investments are
concerned. The Chinese government has invested around $1.5
billion while the Singapore government is invested $1.2 billion.
Neighboring country and rival China is focusing on surging up academic
institutions, incentives for overseas talent to return, tax exemptions
and to start five bioscience parks.
The Government of India too has decided to take the step and
push the envelope forward. Ashok Kumar, secretary of Department of
Pharmaceuticals, which has been recently set up by the Government of
India, shared the proposed initiatives for making India as one of the
top five global pharmaceutical innovation hub by 2020. He mentioned
that the economic and social returns of the proposal are estimated to
create 5 lakh high end jobs for scientists and specialist, and also
provide the country with low cost healthcare for chronic and life
threatening ailments including some of the neglected diseases. As a
part of this effort, the government will deliberate action on four
fronts – infrastructure and manpower, PPP, financial
incentives and models as well as a favorable regulatory model for drug
or molecule discovery. It is estimated that the annual expense towards
achieving the aspirational innovation hub status would be as much as $2
billion, for which a substantial public private partnership would be
required.
“The global economic slowdown presents an opportunity for the
Indian industry to work on low cost medicines, one of the key strengths
that we have,” Ashok Kumar added. FICCI then
organized a closed door discussion with prominent industry persons on
“Drug Discovery – A Business Opportunity”
in order to critically analyze the opportunity and the short comings to
work out a detailed plan to accomplish stated roles of the government,
industry and associations. FICCI will prepare a report and action plan
for implementation and will work closely with the government and
industry to help achieve the proposed vision 2020 for the
pharmaceutical sector.
Nayantara Som