McKinsey Quarterly

Why a cut-and-paste approach to digital transformation won’t cut it: An interview with the founder of Biocon

Asian companies can reap many benefits if they not only embrace but also truly understand digital innovation, says Kiran Mazumdar-Shaw.

Kiran Mazumdar-Shaw cuts a formidable figure in India’s pharmaceutical industry. The chair of the country’s largest biopharmaceutical company, which registered more than 65 billion rupees ($930 million) in revenue last year, established Biocon in 1978 with initial capital of just 10,000 rupees ($140). Mazumdar-Shaw has increased Biocon’s stable of products from a single papaya enzyme, used to arrest the clouding process in beer, to scores of diabetes, oncology, and immunology treatments reaching more than 120 countries. Its mission, says the company, is to make drugs and medicines affordable to all, with an innovation model seeking to “reduce disparities in access to safe, high-quality medicines, as well as address the gaps in scientific research to find solutions to impact a billion lives.” Biocon’s “Mission 10 cents,” for example, offers human insulin to diabetes patients in lower- and middle-income countries for less than ten cents a day.

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COVID-19 has touched Biocon’s founder in an especially personal way. On August 18, Mazumdar-Shaw, who maintains a lively social-media presence, tweeted “I have added to the COVID count by testing positive. Mild symptoms n [sic] I hope it stays that way.” Still, she continued to oversee Biocon from home as she recovered and even found time in September to participate in a videoconference interview with McKinsey’s Sathya Prathipati and Joydeep Sengupta.

The Quarterly: Before we start, how are you recovering from COVID-19? What insights have you gained from the experience?

Kiran Mazumdar-Shaw: My experience with COVID-19 was mild and uneventful. I did not experience a loss of smell or taste, nor did my oxygen saturation drop. I recommend to everyone with mild flulike symptoms to test and decide on hospitalization or home quarantine based on the viral load. I asked for the CT [cycle threshold] value to assess my viral load, and when I saw it was 23 I felt the load was safe enough to be home-quarantined under telesupervision. Monitoring oxygen saturation several times a day is psychologically good for your virus-fighting morale. I also recommend that you try and exercise or go for a short walk every day to keep fit. I did not experience any loss of appetite, and I suggest a diet of fruits, vegetables, lentils, and cereal. Soups and salads were a daily feature of my meals. My doctors put me on a course of favipiravir, azithromycin, and paracetamol. Apart from this, I continued with my daily dose of vitamin C, vitamin D, zinc, baby aspirin, chyavanprash, and, twice a week, a 200-milligram dose of hydroxychloroquine.

My constant companions during the period were online video-streaming services. I also avoided TV and social media, as negative news is bad for fighting COVID-19!

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The Quarterly: What are some characteristics that differentiate Asian companies?

Kiran Mazumdar-Shaw: While Western companies focus on value capture, Asian companies have tended to be really focused on scale, size, and market share. The Indian pharmaceutical sector has a huge global market share of vaccines and generic drugs—50 percent and 20 percent, respectively—but when you look at the value capture, it’s only 3 percent. We have not really focused on innovation to capture value, whereas the Western model is to capture a big piece of the value share with innovation and IP [intellectual property] and to outsource whatever you need in terms of vertical integration.

Indian pharmaceutical global market share of...
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An example of the volume-versus-value play is Apple, of course. Apple may not have the large market share of Samsung or others. Apple outsources its manufacturing globally even as it closely guards the IP. On the other hand, Samsung wants to make almost everything itself and has built that scale to ensure vertical integration. That’s what’s happening in pharma as well.

Actually, I think it’s a good model for Asian companies. The question you have to ask is if everyone wants to pursue the Western model, who’s going to make the products? There’s merit in what Asian companies bring. But there is also an opportunity for Asian companies to innovate and mimic some of what Western companies do. This way they’ll get the best of both worlds. India has to do a value-twin track of the services model—the generics model, on the one hand, and the innovative, high-value model, on the other. We need to know how to move up the value chain.

The Quarterly: Is Biocon moving toward that?

Kiran Mazumdar-Shaw: Yes. We have built a vertically integrated model and pursued lower-risk products with predictable market opportunities. But, in the bigger scheme of things, we’ve taken higher risks than most pharmaceutical companies, because biosimilars are higher risk in terms of regulations and, at the same time, offer higher value.

Now, given our skills and capabilities, we’re saying, “Look, we’ve got this nice bread-and-butter business; we should take higher risks and innovate, like Western companies. Let’s focus on the IP and getting the value share that we ought to.” This won’t happen overnight, but we took this bet a long time ago, and today we find that it is panning out for us.

We’ve invested in an antibody called itolizumab. We developed it and launched it in India in 2013 as a treatment for psoriasis. But I knew that India was not going to value this asset the way Western markets would, so I licensed it in 2017 to a US biotech start-up, which is developing it for niche orphan indications to address many unmet needs, like for graft-versus-host disease, which is a potentially life-threatening complication experienced by transplant recipients.

To get a deeper understanding of how innovation works in terms of the lab-to-market journey, we started a US company for some of our other assets, such as bi-specific antibodies 1 for cancer. Instead of developing this in India and doing the trials here, doing it in the US would earn us the credibility—and help us enjoy the value capture.

Nationalism may be a natural response to COVID, but it’s not going to last forever. You cannot be insulated and think you can do it all. Countries and economies with interdependent relationships grow faster.

The Quarterly: What is Biocon doing in the race to find treatments for COVID-19?

Kiran Mazumdar-Shaw: Itolizumab can actually help address some of the complexities that arise from people’s hyperimmune response to the COVID virus. We did a proof-of-concept study in India, which got us the authorization for emergency use there. Based on that, our US partner plans to do a global study. The FDA [US Food and Drug Administration] has accepted it as a BLA [biologics license application], saying that if we’re doing the study the way we’re saying, it’ll give us full approval.

The Quarterly: Are there trends arising from COVID-19 that worry you?

Kiran Mazumdar-Shaw: Nationalism may be a natural response to COVID, but it’s not going to last forever. You cannot be insulated and think you can do it all. Countries and economies with interdependent relationships grow faster. The US, India, and China are all talking about being self-reliant, based on the belief that we have large domestic markets. Here we call it atmanirbhar. What we don’t realize is that the Indian market is not an ideal market. It’s not about numbers but the value of the market.

Furthermore, Indian companies may believe that they don’t need anybody else, because they have access to all the digital opportunities in India. But there are much smarter technologies in other parts of the world. If we shut them off, we’re going to end up with a very inefficient digital system. To attain self-reliance, Indian companies still need to harness innovation through international partnerships and collaborations.

The Quarterly: Has COVID-19 accelerated Biocon’s digital transformation, as it has at many other companies?

Kiran Mazumdar-Shaw: COVID-19 is a true inflection point. In India, e-pharmacies are becoming a reality, and we see a lot of opportunities to use technology in daily life. We need to leverage and build on that. There was so much resistance to e-pharmacies, but this is a new opportunity.

Biocon started its digital journey before COVID, when we realized that a lot of our regulatory processes were archaic and too dependent on manual entries. We started digitizing everything six or seven months before COVID and were able to finish before the pandemic. It’s given us a lot of benefits and showed the huge transformative potential of digital technologies.

We have to look at digital ways to reach customers, patients, and prescribers. It is the way forward. The acceptance is not there yet. Many people are still not comfortable with it.

We need to be realistic. It’s all very well to say that everyone is using digital payments, but at the vegetable market near my house, the stall owners are not taking digital payments. I still see people walking around with wads of money doing business.

There’s a huge distrust of the private sector by both society and governments, which is very unhealthy for business. The government has to play the leading role of building that trust; we need governments to trust the private sector for society to trust the private sector.

The Quarterly: How then should we approach digitization?

Kiran Mazumdar-Shaw: In a very thoughtful manner. Digitization is not a panacea for everything. For instance, everything today is online, and the government is willing to allow you to do e-documentation, but the biggest problem is that they have basically done a cut-and-paste, in the electronic world, of what happens in the physical world. For example, documentation for a pharmaceutical license. In the physical world, you have to give the director’s name, their father’s name, mother’s name, bank card, this card, that card—the list goes on. Now, instead of being smarter and using an ID number with all of this data, they’re still asking for all this information individually. It shows that we haven’t learned what the digital world is about. Where’s the transformation?

Yes, the digital world has the potential to accelerate transformation, but you need to understand exactly what digital can do to get the benefits. In our business, data analytics can help us make decisions with lower risks. We just hired a CIO whose whole mandate is to look at our digital infrastructure and see how we can future-proof ourselves. We are thinking about this very carefully, not just a cut-and-paste. That’s why I would rather bring in people from the digital world—from the tech industry—instead of the pharmaceutical industry. We want them to transform old mindsets.

The Quarterly: COVID-19 has impressed on many the need for greater collaboration among stakeholders. Do you see potential for more robust public–private partnerships?

Kiran Mazumdar-Shaw: I hope so. There’s a huge distrust of the private sector by both society and governments, which is very unhealthy for business. The government has to play the leading role of building that trust. For society to trust the private sector, we need governments to trust the private sector. This is a huge problem in healthcare and tech. You see so much mistrust regarding privacy and data—society simply doesn’t trust companies anymore. People feel their private lives are being intruded on. In healthcare, the private sector is being accused of profiteering from patients. That’s why we keep saying that we are here to disrupt the sector by providing affordable access. We want that to resonate well with both governments and patients.

I want to use technology to lower the costs in healthcare systems. It’s not just the cost of the product. You have to assess impact and outcomes for all the patients and go beyond medicine. You have to think about treatment outcomes and sustainability. There’s no point saying, “I’m only going to treat diabetes with oral antidiabetics because it’s less expensive than insulin.” That will lead to more costs in the long term because patients are more likely to suffer medical complications and develop co-morbidities. Early insulinization is extremely important, so that you can save dollars downstream. So you have to get into discussions with governments.

I’m involved in the Lancet Commission, which is reimagining India’s healthcare system—specifically, the technology-and-governance bit of creating private and public partnerships within well-governed, regulated systems. Technology should not be top down; it’s not about getting a tech company to tell you how to use it. In India, 66 percent of the population live in villages, and while they may know how to use a phone, they may not know how to download an app. We need ASHA [accredited social-health activist] workers and tech assistants trained to deliver technology to the masses instead of expecting the masses to deliver technology to themselves. The healthcare challenge we face is in those rural areas. We can’t leave out the most important people, at the bottom of the pyramid.

Doing business in Asia is all about growth. A high-value, low-volume business model won’t work. You have to get a balance where you have a very large market opportunity that attracts businesses.

The Quarterly: What else should India do to realize its potential?

Kiran Mazumdar-Shaw: Let’s face it, doing business in Asia is all about growth. A high-value, low-volume business model won’t work. You have to get a balance where you have a very large market opportunity that attracts businesses. But you also have to have stability in terms of policies and simple and clear regulations.

People are talking about shifting supply chains these days from China to other parts of the world, but India is being bypassed. It takes a huge amount of time to get through regulations in India—unlike Vietnam, Thailand, and even Malaysia, where the government has implemented very smart and agile business rules. Since government policies and commitments here are inconsistent and unpredictable, foreign investors feel very uncomfortable making huge investments in India. We have to focus more on the actual ease of doing business instead of just rhetoric and sloganeering.

The Quarterly: Where do you see Biocon in a decade’s time?

Kiran Mazumdar-Shaw: I think Biocon is going to be a healthcare disruptor by focusing on affordable access. Our aspiration is that one in five insulin-dependent people with diabetes would use a Biocon product and that our cancer drugs would have similar reach. Cancer and diabetes will continue to be the areas we want to focus on, maybe along with some novel products in other areas.

I’ve always believed that you have to have a purposeful mission to focus your strategy. It’s the pivot that sets what you’re doing. If you’re just trying to emulate others, you’ll get very confused and easily swayed. People sometimes ask me, “Why don’t you get into vaccines? They’re going to be the next big thing.” Listen, guys. I don’t want to do everything. I have to do what is good and what I’m good at. There are people who are very good at vaccines—let them do it. While we can certainly help to develop new vaccine technologies and work with people who can take them to market, we don’t have to do everything.

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