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A file photo of Dilip Shanghvi. The chosen set of doctors was sponsored for medical conferences year after year. Sun devised ways to help their patient flows, expand their market, and, in turn, its profits (Bloomberg)
A file photo of Dilip Shanghvi. The chosen set of doctors was sponsored for medical conferences year after year. Sun devised ways to help their patient flows, expand their market, and, in turn, its profits (Bloomberg)

How ethical dilemmas tailed Sun Pharma’s rise

Caught up in a corporate governance controversy, an insider view shows Sun trod ethical grey zones since the 1990s

No single form of growth-driving pharma marketing in India’s generic drug space of the 1990s could be totally free from controversy. Marketing strategies, including that of Sun Pharmaceutical Industries Ltd, which promoted a long-term relationship with doctors, polarized professionals. But was there a choice? Most large companies, which stuck to what they perceived as “ethical marketing" were slipping into a slow-growth zone.

“Sarabhai and some multinationals were fastidious in maintaining hygiene in marketing practices, and a sanitized distance between the doctor and the medical representative (MR) was built into the relationship they cultivated. Some of these companies considered giving anything more than a pen as a gift (to be) a sacrilege. Many of us did go through the initial ethical dilemma of whether what we were doing was the right thing," a professional who had joined Sun said.

Since Sun was changing the game and bringing new drugs to India, it couldn’t afford to play by the old rules and hope to be effective. They had a duty to inform the doctor about how a new drug behaves within the body. Also, Sun was meant to shape the market for chronic drugs. This, by its very definition, was generating business through the lifelong prescriptions of specialists, and in that business landscape, long-term sustainable relationships with doctors were the only framework they had to operate in.

(Founder of Sun Pharma Dilip) Shanghvi also went through the arduous grind an MR faces daily—competing with others in sweat and dust, turned away from a doctor’s door after an endless wait. If he could offer something of value to the doctor, he would have an advantage over his peers.

Before Sun, Torrent Pharmaceuticals Ltd (a competitor) had started forging closer ties with medical bodies like the Neurological Society of India, Cardiological Society of India and the Indian Psychiatric Society. Its founder U.N. Mehta had served as an MR for years and understood the struggle foot soldiers go through just to get a few minutes to tell a drug’s story to the doctor. He started sponsoring conferences, promoting them as platforms MRs could use to mingle with their demigods. This strategy succeeded for Torrent in oiling its customer relations and was adopted in various avatars by Sun, Intas, and others.

The conference fee game

At Sun, (Sundaresh) Raju christened the strategy “Scientific and Academic Services (SAS)". In its basic unrefined form, it meant sponsoring top prescribers to attend medical conferences. “Through SAS, I wanted to give a clear message that it was not a way of spending money on doctors. That spend has to be with a purpose, that being it should ultimately help doctors treat their patients better (with drugs Sun sold)," Shanghvi said. When (Shyamal) Ghosh’s friends from multinational companies (MNCs) derided such practices as inducements to doctors, he tried explaining it to them as he had been told.

“The guys we sponsor for conferences are celebrated specialists and have practices that earn them lakhs every month. Offering them these things for an academic pursuit is like offering them loose change. One must keep in mind that … they could feel awkward when they land in a different city. We wish to take away that headache," he clarified.

Ghosh, T.K. Roy, and other Sun insiders emphasized that unlike other companies which sponsored a lot of foreign junkets, Sun kept it domestic and restricted it to medical conference venues, a move that suited the company’s values and pockets.

“Marketing spends couldn’t be on fun trips as many other firms were practising. This devalued the relationship and made it transactional. It eroded respect for the company and was not sustainable," Raju said.

Reflecting on the practices he named a quarter-century ago, Raju said “services" in SAS was an integral component in the whole framework and literally meant devotion. Raju laughed off any reference to the company’s marketing strategies as a “grey zone". “There is no grey here because we knew our lines and didn’t cross them. Those who referred to it as grey either misunderstood or misinterpreted it," he asserted.

Rivals and detractors claimed that Sun smartly wrapped its commercial motive in a feel-good, emotionally appealing package. “The shrewd ways Sun developed customer relations under various heads can never be caught. Connect it to academics by a long stretch of imagination, and suddenly every form of marketing, even when they were spending so much, becomes palatable to doctors. Highlight the emotional connect, and suddenly the very motive of that relation, which is business, doesn’t sound vulgar. Retrospectively, they outbid all competitors by practising a strategy which people in the industry took a long time to grasp," a top executive of a rival firm admitted with grudging admiration of the model.

He pointed out that behind all the emotion was a cautious arithmetic justifying the business. Sun picked the doctors it wanted to invest in very carefully, classified them into high-return, medium-return and low-return, depending on factors like patient flows, the number of prescriptions generated, and retail sales audit. This marketing spends to sales, according to several former insiders, was roughly 1:10. They however explained that it wasn’t designed to be the quid-pro-quo that it is now being made out to be by some rivals. In fact, the rationale of such a classification was to make best use of the time and energy of the limited number of MRs Sun had at the time.

The chosen set of doctors was sponsored for medical conferences year after year. Sun devised ways to help their patient flows, expand their market, and, in turn, its own—by bringing new drugs in their therapies and quenching the academic thirst of doctors in ways that the medical industry in India had not witnessed till then. Sun spent its marketing budget on doctors by gifting them books, which they wanted but were not inclined to buy. Doctors in Calcutta credited Sun with building their libraries over the years. This was a practice which was later emulated by most other firms flogging psychiatric drugs.

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Book dole-outs

Once we had started doing well, boss exhorted us to do things differently and introduce some new practices. (Marketing director) Subbarao (Chaganti) had just authored a book on pharma marketing and that became the first book we distributed," Roy recounted. Subsequently, Subbarao introduced Shyamal Ghosh and T.K. Roy to P.T. Rajasekaran, who ran Panther Publishers in Bengaluru.

They met Rajasekaran and thrashed out a deal. Rajasekaran reached out to major international medical publishers. He brought to the table a commitment to buy books in bulk at discounted prices and print them in India. On their part, international publishers would have to promise to make it a limited exclusive edition and not bring those titles to India for at least six months. It made sense for most international publishers because their books priced upwards of $20 were not popular with bookshops.

By the late 1990s, medical soirees had not only been adopted by many more companies but were also getting grander, hosted in foreign locales, and plush five-star hotels. Sun consciously opted for a venue away from the city, where there wasn’t much to do even if you got away from the conference hall.

Some industry veterans, however, hurl accusations at Sun’s practices. “As a pure business strategy, SAS was a stroke of absolute brilliance.Many companies which made a noise about Sun polluting the market initially, ended up blatantly aping its marketing moves. Even then, they couldn’t copy the execution, which has set Sun apart. But when it comes to ethics, I couldn’t out Sun above others. In the pharma marketing practices of the Indian market, if doctors and pharma companies went to bed together, you could not absolve Sun from that responsibility," a top executive of a rival firm felt.

Shanghvi said, “My belief from day one is that the doctor will support the company only if he respects it. If I do anything to reduce the respect of a doctor, I will attain suboptimal results. Above that, I have a resource constraint and I have to operate within that to earn their respect. So we focused on training our MRs on scientific awareness. My advantage was that I was an outsider, so I was not viewing things from a coloured perspective. I saw the problems just as they were and sought solutions that would work."

Emotional connect

Cardiologists and psychiatrists agreed on the emotional connect. A senior cardiologist from Mumbai was in Delhi to attend a medical conference in the winter of 1999. His trip was being sponsored by one of Sun’s rivals. Early in the morning, he broke into a cold sweat, panting for breath, and felt his heart sinking. Being a cardiologist, he could diagnose himself and the first call he made was to a manager of Sun, managing to utter, “Kunal, I am having a heart attack." One came across several such cases of Sun boys rushing to help when doctors turned patients.

Ethics in the pharma industry continues to be a sticky subject. While responding to the word “ethical", a number of doctors, particularly psychiatrists, perceived Sun as more ethical than its competitors. Factors that helped the perception included continuity of the same people over years, which made specialists familiar and comfortable with Sun boys, prompting most to conclude that there must be something good about the firm.

The second factor was that Sun boys wouldn’t commit to something that they couldn’t do. They felt Sun operated under broadly set guidelines, which empowered the first-line managers to take decisions and stick to it.

Some drew a strangely abstract connection between ethics and Sun’s academic orientation in marketing. Somehow, Sun’s gifts of books and journals, its promptness in helping consultants build their name by publishing and presenting their papers, and the academic events made it appear more “ethical".

The seed for the credibility Sun enjoyed among psychiatrists, cardiologists and endocrinologists were probably sown in 1992-93. Shanghvi, early in his career when he was working in the field, was sitting with a senior specialist who told him, “A senior bureaucrat’s wife was here and I prescribed her an MNC’s product." It was a product that Sun was also selling.

Shanghvi recalled, “What was important was this: he not only prescribed a med of an MNC, but also said it to me, which meant he took pride in his action. With no amount of convincing, would I get him to prescribe my meds unless I earned his respect and trust? With this realization, our focus to earn the customer’s respect got stronger. It’s this in-depth understanding of the doctor’s behaviour that helped us design our policies. We were clear that it is through our actions that we have to earn his respect because I have no parents sitting in the US and Europe who have created a legacy of credibility. Either I create it through my actions or I don’t get it."

At a time when large MNCs and Indian giants like Sarabhai kept a distance between MRs and doctors, and fast-growing lifestyle drug companies jumped to do anything, Sun chose the middle path. It spent heavily on marketing and doctors but made the core incentives it offered academic. This made the favours appear acceptable to the community, which was struggling to cope with the rapid transition in the pharma industry, and was stuck in a moral dilemma between the temptations dangled by the corporate sector and a conscience call.

One elderly psychiatrist called it a pull between “Lakshmi" (the goddess of wealth) and “Saraswati" (the goddess of knowledge). “Sun’s Lakshmi (marketing spend on doctors) came as Saraswati (academic focus of marketing), resolving a deep-seated conflict in the doctors’ minds and making it acceptable to our community," the psychiatrist concluded.

Excerpted from The Reluctant Billionaire: How Dilip Shanghvi Became the Richest Self-Made Indian by Soma Das with permission from Penguin Random House; 520 pages; Hardback 799.

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