Desh Bandhu Gupta (DBG) grew up at a time when healthcare was still out of reach for many. When he was 10, his father carried him on his shoulders for 20 km for treatment.
He was persistent, and such early encounters did shape his understanding of policy.
So much so that DBG would later credit the role of two policies by two governments on opposite sides of the world-the Indian Patents Act of 1970 and the US' Hatch-Waxman Act of 1984-for the existence of the Indian pharma industry.
When companies had 'hostages'
India today is very different.
Back then, Sabharwal says, "The socialism that we had was a peculiar distortion that, in the name of the poor, you were keeping people poor. We have created the world's largest democracy on the infertile soil of the world's most hierarchical society."
But, he asks, "Why didn't we create mass prosperity? I mean, why are we 128th in per capita income?"
"And I think that is our treatment of entrepreneurs."
There was no shortage of land, labour, or capital. "You could give every Indian household half an acre and they would fit into Rajasthan and Maharashtra. So, we don't have a shortage of land. We don't have a shortage of capital. 50% of India's foreign direct investment since 1947 has come in the last 7 years, and 90% of India's venture capital and private equity has come in the last 10 years. So, when we make ourselves worthy of capital, we get it. And we don't have a shortage of labour. So what is the problem?"
It is how land, labour, and capital combined, he says.
"Now economists call this total factor productivity but we can just call it entrepreneurship. So entrepreneurs take land, labour, capital and combine it in ways that no bureaucrat, no spreadsheet, no economic model can because it's not an algorithm. It's a heuristic."
During the Licence Raj, "Companies didn't have clients; they had hostages."
After the Indian Patents Act of 1970, a policy that DBG appreciated, about 25,000 pharma companies were founded. Back then, he says, of the top 10 pharma companies in India, nine were multinationals. Now, of the top 10, only one is multinational.
Lupin's lost decade
Lupin's toughest phase came from decisions DBG himself made.
At one point, "DBG had gambled on real estate and the stock market, and both had turned to dust," says Sabharwal. The company's market value collapsed-from Rs 1,000 crore to Rs 286 crore. The CEO quit.
It was a sharp fall, and a personal one. Sabharwal says DBG "overextended himself… he confused liquidity with solvency." It was also the only time in his life he tried to diversify outside his core business, and he would later say he regretted it.
The impact went beyond numbers. There were moments when DBG thought of stepping away.
What followed was not a quick turnaround. It was a long grind. Sabharwal calls it "the lost decade of Lupin," from 1992 to 2002.
He says, "So while the weather of the moment was very tough, he didn't give up his long-term thinking… You know, the most dangerous lies are the lies we tell ourselves. And for me, in the first few years of the crisis, DBG was sort of hoping that the crisis would go away."
But, he says, "The change came when he recognised that this crisis is not going to go away. I'm going to have to solve it, which means I'm going to have to merge the companies. I'm going to have to cut my costs, I'm going to have to sell the real estate at a huge loss, and I'm going to have to get help. One of his daughters dropped out of Harvard and came. And there were so many things that happened in those 10 years, each of which was not sufficient to solve the crisis."
Sabharwal says, "But when all the 20 things DBG did in those 10 years came together, by 2002, it was clear that not only was the company going to sort of survive, but it was going to go places."
For Sabharwal, it was important to write about the crisis in the book. He says he is grateful to everybody in the family and to DBG, "who used to talk a lot about the crisis as very important rather than sort of sweeping it under the carpet."
The time of the crisis was also significant. It was after the dismantling of the Licence Raj. As Sabharwal puts it, the period around 1997 was the 'Trishanku' stage, where the old had not died, and the new had not been born yet."
In today's India, he says, there is a much bigger acceptance of financial restructuring, of writing down equity, of debt restructuring, "which is what a modern economy should do."
Lessons from Ludo
DBG saw the pharma business as Ludo, and not Snakes and Ladders.
Sabharwal says, "The most underappreciated concept in the world is compounding. The human mind just doesn't understand compounding."
He says, "I often go to business schools, and I tell them, will you take one paisa doubling a day for 31 days, or will you take Rs 10 lakh today? And most people will pick Rs 10 lakh."
The scenario wherein one paisa doubles daily over a month yields Rs 1.06 crore.
"But the catch here is that till the 24th day, you're better off taking Rs 10 lakh. The key to compounding is that 80-90% of the results come in the last 10-20% of the time."
He says, "Entrepreneurship is hypothesis testing. You can't prove anything right. You have to prove it wrong. Entrepreneurship may be the art of staying alive long enough to get lucky. Ludo is a game of compounding; it's predictable. You know where you're going; it's much slower, but eventually you will get there if you stay the course."
DBG had a long-term view. He set up a US FDA plant 15 years before Lupin exported. He set up US operations 10 years before he knew what the company would do with it.
Sabharwal says, "So many of his bets were with the anticipation of taking it in the last 10-15 years."
But DBG did not view capital as a differentiator, he says. He, like many others who have been in business long enough, recognised that, in the long run, all that matters is return on equity. "Doesn't matter how much money you make, it matters how much money you spent to make how much money you make."
Sabharwal says, "In military strategy, this has been understood for a long time. Field Marshal (Erwin) Rommel used to say, 'Sweat saves blood, blood saves lives, but brain saves both.' Sort of view capital as sweat and blood, but brains is what is innovation, what is entrepreneurship, (and) what is technology. That is really what creates a great company."
And so, he says, "The game of snakes and ladders is a much better analogy because it forces you to think about compounding rather than lottery tickets."
A force for the good
With the Indian pharma industry today producing about half of the world's pills, what is next?
Sabharwal talks about five opportunities: the first is to move up the value chain in generics, especially with specialised generics; the second is to build capabilities in biologics, as "the world of pharma is shifting from chemistry to biology"; the third is to invest in innovation and research, so that new chemical entities are developed not just for India but for the world; the fourth is to build stronger domestic competitiveness; and the fifth is to tap in contract manufacturing and research.
But the challenge in tapping into these opportunities, he says, centres on the research ecosystem. "We don't have universities like Harvard or Johns Hopkins."
Sabharwal says, "Harvard gets $90,000 per student per year from the government. Their average tuition is less than that. But that money, which they were getting from the government, was for research in biology and physics and stuff like that."
"The renovation of our intellectual infrastructure is also key," he says.
Sabharwal reckons Indian pharma has been a force for the greater good. "The richest man in the world, Nathan Rothschild, died about 200 years ago, for an antibiotic which would cost Rs 20 today. I don't think medicines would be globally affordable and available without Indian pharma."
Western pharma had no interest in tropical diseases and infectious diseases, he says. "It thrives on lifestyle diseases. They've now invented something for weight. They'll soon invent something for baldness. They'll invent something for mental health, and these are all very important things."
"But Indian pharma has shown that for the mass of the population, it doesn't have to be expensive medicines because the raw material is not that expensive."
That's a completely different India from the one DBG grew up in.
Edited by Sriram Srinivasan