Desh Bandhu Gupta’s masterplan to rebuild the pharma giant Lupin

After a decade of Lupin recovering in the corporate equivalent of an ICU, DBG (Desh Bandhu Gupta) did not mistake the consolation of having avoided disaster for good fortune. The decade since 1993 had been a public embarrassment, the balance sheet had been impaired and the company had been distracted. This had blunted Lupin’s product momentum and sales aggression, causing it to drop out of the top ten Indian pharma companies. Ranbaxy and Lupin had similar sales in 1980; by 2003, it was three times larger. Despite the troubles receding by 2003, DBG knew that ‘we do not learn from experience; we learn from reflecting on experience’ and was ready to think honestly about the past to synthesize a new strategy….

DBG titled the 2003 annual report ‘The New Lupin’ and sent a note handwritten with five goals in green ink to Vinita and Nilesh (two of his three children): ‘To build governance and leadership team. To emerge as a global generics player. To enter all advanced markets of the world. To grow our Domestic Market presence. To build an innovation pipeline. These are my goals for Lupin.’ DBG had identified five pillars of strategy to guide the company over the next two decades.

As was his habit, DBG had done his homework before proposing these five pillars. At the start of the 2000s, India was getting ready to introduce a product patent system in line with the TRIPS agreement, which was scheduled to take effect in 2005. This change meant that pharmaceutical companies would need to respect global patent protections for new drugs, marking a major shift from the process-patent regime. The US and European markets were increasingly open to Indian generics as patents expired on blockbuster drugs and cost pressures mounted in Western healthcare systems. The industry was also experiencing a wave of M&As as companies sought to scale and acquire capabilities to compete globally. The period represented an inflection point when the Indian pharmaceutical industry began transforming from primarily domestic generics manufacturing to supplying medicines on a global scale.

Scanning the external landscape in 2003, DBG realized that the last decade had cost Lupin heavily while many of its competitors prospered. Indian companies now held a 75 per cent market share in bulk drugs and formulations within India, with the share of foreign drug manufacturers reduced to less than a fifth. Ranbaxy was the leader with sales of ₹3,465 crore in 2004. Cipla, Dr. Reddy’s, Nicholas Piramal and Aurobindo Pharma followed. Lupin, with ₹1,230 crore (nearly half of which was exports), was no longer among the top five, while Sun Pharma, with ₹ 1,133 crore, was the emerging challenger. While the number of pharma units in the country had proliferated to 26,000, consolidation had begun with the top ten companies controlling 40 per cent of the market. …

DBG’s notes from this period, which speculate about the future of the pharmaceutical industry and reflect on Lupin’s strategy, are extensive and have aged well. However, like everybody else, he missed forecasting two significant changes to the industry landscape over the next two decades: Ranbaxy’s self-destruction and Sun Pharma’s breakout. …

Turning his gaze internally, DBG was happy to see Lupin’s robust R&D capabilities, as evidenced by over 100 patent filings by 2002, which positioned it well against competitors focused on generics markets. It partnered with Baxter Healthcare and Watson Pharmaceuticals in the US, as well as Merck Generics in Europe, to sell its first few products. It had established itself as a global leader in the anti-TB and cephalosporin segments. Its FDA-approved API (active pharmaceutical ingredients) cephalosporin manufacturing facilities enhanced its credibility and access to regulated markets like the US, a feat not all competitors had achieved at that scale.

Additionally, Lupin’s mission of affordable medicines appealed to cost-sensitive markets. However, there were areas in which Lupin’s loss of momentum showed. The company’s heavy reliance on API sales in the North American and European markets was a looming vulnerability, exposing it to regulatory and pricing pressures that competitors like Cipla could mitigate with a stronger domestic foothold. While strong in TB and cephalosporins, its product portfolio was less diversified than that of Ranbaxy and Dr. Reddy’s, which had broader offerings across cardiovascular and oncology segments.

Furthermore, Lupin’s scale and global footprint were still developing, lagging behind competitors with more established international networks and higher market capitalization. As the industry entered its most productive phase, marked by the rise of generics, exports to the US and Europe were the primary drivers of growth. From 7 per cent in 1999, export growth had quadrupled over the next two years. Lupin’s exports of ₹100 crore were less than a tenth of its total sales for the financial year ending March 2003. In his annual address, DBG stressed that ‘advanced markets will be our growth driver for the future.’ Much work remained to fulfil that ambition.

DBG noted in the 2003 annual report that domestic market conditions remained challenging for pharma firms, with ‘increased competition and regulatory price controls’ resulting in a stagnant domestic market. But others forged ahead where Lupin lagged. In response to these shifting patterns of demand and changes in the competitive environment, DBG outlined his five pillars. Each of these aims were carefully chosen. The first was based on events over the last few years and changes in the regulatory framework governing corporate behaviour, which had convinced him that he needed to put governance guardrails in place if Lupin was to continue enjoying investors’ confidence.

The next two growth pillars were to become a global generics player and enter global generics markets. Lupin would forward integrate its API and target difficult-to-replicate generics, as well as enter areas such as oral contraceptives, ophthalmics, dermatology and inhalation, which faced lower competition due to high entry barriers. That would require leveraging its expertise in complex APIs and building a vertically integrated model that ensured quality and cost competitiveness. DBG’s words for the generics aspiration were carefully chosen: ‘sustained presence over the long term’.

He recognized that the Indian market was poised for substantial growth and identified it as the fourth pillar by expanding the sales force and transitioning products from acute to chronic diseases such as diabetes and cardiac and respiratory conditions. The final pillar of Lupin’s strategy for the twenty-first century was to establish an innovation pipeline that consistently produced breakthrough products. This was easier said than done: It needed a combination of the right products at the right time, R&D investments in New Drug Delivery Systems and NCEs, a culture of good manufacturing practices (GMP) for quality and the frugality of product and process innovation. DBG’s five pillars marked a turning point in the company’s history, coinciding with a radical shift in the industry dynamics.

Edited excerpt fromMade in India published with permission from Juggernaut.