Gen Next turns its back on small, medium pharma companies

February 23, 2009 Source : Business Standard


Chennai-based T S Jaishankar and his wife Rajam are worried about the future of their healthcare businesses. They are not sure whether their only daughter Swetha and son-in-law and Indian tennis player Mahesh Bhupathi would takeover the reins of Chemech Laboratories and contract research company Quest Lifesciences when they decide to retire.

"I don't think that will happen unless we make it a great business of interest for them. They are already more successful than us," says Jaishankar, who is in his early 50s and an industry leader as the chairman of Confederation of Indian Pharmaceutical Industries (CIPI). Jaishankar now takes care of Quest, while Rajam, a renowned gynaecologist, runs Chemech.

Succession is an issue with many drug companies, especially in the medium and small scale segment. "I estimate about 90 per cent of the drug companies in the SME segment don’t have a proper succession plan in place. Several of them will have to either merge or sell off because of lack of interest among the next generation," says Jaishankar. Chemech has been downsizing the business by selling some of its major brands to Solvey, a European drug maker.

The Rs 65,000-crore Indian pharmaceutical industry, which has largely evolved as a global force in the past three decades, is now floundering. With the second generation of the country’s largest drug maker, Ranbaxy Laboratories, selling out the business, doubts on the continuity of the existing business have surfaced.

Recent reports of Piramal Healthcare exiting the business has strengthened speculation on the interest of the second generation in running the pharmaceutical businesses. Indian drug industry is facing increasing competition, patent-related issues and narrowing margin.

"I do not agree with this. This business has good potential in the future and if you are confident of managing it there is no need to exit an established business and look at other pastures,’’ says Alok Saxena, director of Elder Pharmaceuticals and son of J Saxena, who started the company in 1989.

India was import dependent on drugs till 1970, when Indira Gandhi, the then prime minister, decided to amend the Patent Act to legalise process patenting or copying of drugs innovated by multinationals.

In the next two decades, numerous drug firms came up in India, mainly in Gujarat, Maharashtra, Andhra Pradesh and Tamil Nadu. Many young and aspirant pharmacists, drug traders and salesmen with multinational companies risked their safe jobs to start own pharmaceutical companies.

From a handful number of players, Indian pharmaceutical industry grew to over 8,000 companies within two decades. Some of them went on to become large corporate houses such as Dr Reddy's Laboratories, Wockhardt, Sun Pharma, Lupin, Elder Pharma and Glenmark.

Most of their sons and daughters chose management studies and not pharmaceutical science. The Generation Next shows more interest in more glamourous and high-profit business sectors, than the complex and low profit world of generic drug business.

Malvinder Mohan Singh may not have sold Ranbaxy Laboratories last year if he had a pharmaceutical background like his father Parvinder Singh, said an industry observer.

Suresh Kare, a veteran pharma professional and chairman and managing director of Indoco Remedies, laughs at the question on succession. His company’s annual turnover is Rs 300 crore. "I am sure the next and next generations are capable of taking Indoco to more heights," he says and notes that his eight-year-old grand daughter is already capable of explaining what sub-prime crisis in the US is all about. Kare's daughter Aditi is a director on the company's board and is in charge of its business development and human resources.

However, the scene may be a bit different at bigger drug companies as they see a brighter future for themselves and their companies. The overseas-educated second generation is ready to take over the responsibilities.

At Dr Reddy's, chairman Anji Reddy has handed over the reins to son Satish and son-in-law G V Prasad — both US-educated management experts — to pursue his dreams on drug discovery. "Often I wake up in the middle of night to discuss my ideas with our senior scientists in the US and we still enjoy the passion associated with drug discovery, the amazing chemical compositions that can cure diseases of the world," Anji Reddy told Business Standard in an interview last year.

A pharmaceutical scientist with the public sector Indian Drugs and Pharmaceuticals for six years, he had left his job in 1975 to start Uniloids, Standards Organics and in 1984 Dr Reddy's Laboratories, now India's second largest drug company.

At Lupin, chairman D B Gupta is assisted by daughter Vinita as group president and chief executive of its US business and son Nilesh as group president and executive director in India.

Similarly, at Wockhardt, chairman Habil Khorakiwala still heads the company in its day-to-day activities with the assistance of sons Huzaifa and Murthasa, both executive directors.

Twenty-year-old Aalok D Sanghvi joined Sun Pharma a few months ago as a trainee to learn the tricks of his father Dilip Sanghvi's business.

"Generation Next thinks global unlike us, who preferred to focus more on domestic business in the early years and was reluctant to take risks," says Kare.

An example is Glenmark Pharmaceuticals. When Glen Saldanha — a pharmacy graduate who took his MBA from the Leonard Stern School of Business in New York — joined as director of his father's business after a brief stint as an employee with a famous consultancy in 1998, Glenmark was selling drugs in the domestic market with less than Rs 250 crore turnover. Now, the company sells its products all over the world and has grown to become one of the largest drug houses in India.

The Generation Next of pharma industry thinks global — and will have to — to survive in an industry, which transformed a lot globally in the last three decades.