Venkaiah Chowdary Nannapaneni believed that no patient should go without medicine or treatment due to financial constraints. His belief inspired him to start NATCO Pharma Ltd with a vision of “making speciality medicines accessible to all.”
Today, the company is a market leader in general oncology, and is known for its new path-breaking discovery of drugs at affordable prices. The chairman and managing director (CMD) of NATCO Pharma is a visionary and a humanitarian and his son, Rajeev Nannapaneni, is a chip off the old block. His entry into the business in 2000 spurred the company into a period of high growth till about 2016-17, after which, various external factors seem to have slowed things down.
The grand vision to make specialised medicines accessible to ordinary people did not just remain on paper and NATCO was a trail-blazer in invoking the dispensation of compulsory licensing of life-saving patented drugs to be supplied to people at affordable prices, a provision that checks multinational inventors from profiteering from their discoveries at the expense of the common people.
Thus, a key drug in the treatment of cancer was born at a fraction of the price at which the multinational pharma firm that discovered it was selling. This licence is invoked only where the drug controller has been provided with an incredible amount of information on the number of people ailing and needing treatment and specific details, which demand great rigour in the process and time and resource commitment.
This practice also carries a significant risk of litigation as the offended multinational corporation (MNC), with money power, can battle endlessly and is rarely invoked in the pharma industry in India. Yet Rajeev Nannapaneni was not deterred from taking the plunge, which has not only helped achieve the goal of reaching a life-saving medicine to the needy but has also given a fillip to the company to broaden its offering in the fastest-growing speciality of oncology drugs.
NATCO’s corporate and governance culture has been built around the theme of ‘business with a social objective’ and concern for all stakeholders in an equitable fashion. Being in the pharma industry carries the responsibility of a high standard of hygiene in the management, as overseas drug regulators make it a point to clinically assess the concerned company’s compliance with quality in processes and management practices. Transparency becomes a natural outcome of this expectation of the regulators and permeates people, processes and practices.
While the specialty segments have been a setback in the past two years, where the focus shifted to managing the ongoing pandemic and thereby significantly reducing the top-line from this segment in oncology and cardiology, the overall buoyancy in the pharma business globally has helped in the growth of active pharmaceutical ingredients (APIs) and generics through exports.
The company has not withheld its investments in physical assets and people; it transparently explains in the annual report the current challenges and iterates its confidence to overcome and regain its growth momentum.
Unlike most annual reports where the management discussion would be touching on vague generalities, the company provides specificity to the areas of concern and how the gaps would be addressed.
While the promoters hold a sizeable stake just below the halfway mark, the level of professionalisation and parity in remuneration between the top management personnel provides a good view of the culture of each promoter being one among equals.
The shareholders are treated fairly, with the total dividend pay-out amounting to Rs956.48 million resulting in a pay-out of 30.90% of the stand-alone profit after tax (PAT) of the company, which is higher than the average distribution among the Indian corporates.
However, the investment of surplus funds in the bonds of a non-banking financial company (NBFC) and debentures of a bank are debatable. Corporates should just hold in liquid mutual fund (MF) schemes and in the absence of a long-term need for surplus funds, or return the money to the shareholders by one of the means.
The commitment to treat the workforce with due consideration is reflected in the fact that, while every employee is provided with health insurance coverage, last year, the company doubled the insurance cover due to the COVID-19 occurrence.
Continuous health monitoring and training for safe behaviour is the new normal, continued assistance for employees and dependents in the form of healthcare, emergency supplies and other such steps are examples of the empathetic leadership and a culture that have allowed the company to emerge stronger from this experience.
With just two promoter representatives on the board, the culture of broad-basing the governance structure is evident and all the board committees are headed only by an independent director. However, it happens to be the same person.
At a personal level, the promoters are known to be highly charitable and the media have reported their contributions to public causes in many instances. As the promoters are expected to helm the organisation for a long time, their personal character becomes a key ingredient in the way the organisation evolves.
In this regard, NATCO would appear to be on a safe wicket with the patriarch and the scion both being passionate about the role of the pharma industry in making healthcare affordable, taking the right level of risks in the business, being fair to the stakeholders, recognising that employees are a key long-term resource and having enough experience of having seen the company through various ups and downs in the four decades of its existence.
NOTE from Editor
NATCO Pharma Ltd is one of the companies shortlisted for Moneylife’s first-ever Corporate Governance Awards based on direct nominations from active investors, rigorously processed and analysed to eliminate biases.
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(Ranganathan V is a CA and CS. He has over 43 years experience in the corporate sector and consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)