Insulating Against Disruptions

Risks are inherent to our business as our operating environment is complex, highly regulated, and dynamic. Identifying, analyzing, and responding appropriately to these business risks is important to attain our strategic growth objectives, thereby protecting the interests of our stakeholders and meeting legal requirements.

At Lupin, we have a well-embedded Risk Management Framework to ensure that we are well-placed to manage any adverse effect posed by financial, operational, strategic or regulatory related risks. Our framework adopts appropriate risk mitigation measures for identified risks across functions. A report on risk management is periodically presented to the Board committee responsible for risk governance. Some of the identified risks and our proposed mitigation strategies have been listed below.

Insulating Against Disruptions

Uncertainty Due to COVID-19

The COVID-19 pandemic has created uncertainty and many challenges. Lockdowns have impacted operations, supply chains including raw material supplies, logistical bottlenecks and dampened demand due to slowdown in marketing activities, limited access to healthcare services, fewer doctor visits and delays in starting new treatments. Despite this, pharmaceutical companies have adopted new ways of working to remain resilient and responsible to meet the global demand for medicines.

Our mitigation measures

With our effective business continuity plans and safety measures, our focus in FY21 was squarely on securing the well-being, health and safety of our people; developing and maintaining business continuity plans and supporting our communities. Right at the onset of the pandemic, we mobilized efforts and established strict COVID-19 protection and contract tracing measures for our employees to minimize disruption, especially at our research and manufacturing sites. A virtual workplace policy was announced for all nonsite employees. We continue to monitor the situation, adapting our response to minimize the impact on employees, customers, and patients.

Market Dynamics

Lupin’s commercial prospects may be impacted by policy regulations such as bans on certain products or combinations, increased competition from new players, and the rise of e-pharmacies; which offer better pricing, lower transaction costs and convenience. Several risks are also posed by fluctuation in demand, volatile markets and changes in drug approval patterns or price erosion in due to customer consolidation.

Our mitigation measures

We continually invest in our commercial structure and processes and reshape our portfolio basket where opportunities are better.

  • We assess our therapy-wise product mix and amend the product portfolio and pricing according to market needs
  • Lupin aims to maintain a robust pipeline of high entry-barrier and complex products, which are relatively insulated against price erosion
  • We leverage our sales force to build strong relationships with distribution partners to be their preferred choice

Financial Risks

In course of its business, Lupin is exposed to fluctuations in foreign currency exchange rates, interest rates, equity prices, liquidity, and credit risks.

  • Tax Risk: Tax risks and exposure can be associated with specific transactions undertaken by us, including associated compliance risk.
  • Forex Risk: Lupin has more than two-thirds of its revenues from exports/sale in entities outside India; hence, the company is exposed to forex risk arising out of a good part of its sales and operating expenses being denominated in currencies other than INR.
Our mitigation measures

Lupin has a well-diversified liability profile and we raise funds from domestic and international markets. We consistently work towards increasing our debt maturity and opportunistically tap into pools of liquidity to reduce our financing costs.

  • Tax Risk: All tax liabilities due under the law are correctly recorded, accounted and paid for. We ensure:
    • Maintaining cooperative relationships with tax authorities
    • Having strong internal tax team
    • Having strong technical support for tax positions, including opinions from external experts
    • Maintaining strong compliance procedures ensuring accurate and complete tax returns, including robust and well documented transfer pricing documentation
  • Forex Risk: Our forex strategy for the short, mid and the long-term through appropriate forecasting and hedging tools helps us to minimize forex volatility.

We manage our transaction risks by using forward contracts and options. We manage our economic risks by following developments in our geographies of interest closely and initiating checks and balances in geographies exposed to instabilities.

 Financial Risks

Safety and Product Quality

Quality requirements for Lupin are rigorous across our entire supply chain. Our complex technical manufacturing processes and product specifications increase the inherent risk of quality deviations and batch rejection. Additionally, failure to comply with CGMP regulations at any of our production sites or for any product can impact the regulatory certifications of our sites or pose risk for our patients. Most of our sites are approved by regulatory authorities such as the USFDA, UK MHRA, Japan’s PMDA and the WHO amongst others, and any adverse finding during inspections impacts our ability to successfully execute our pipeline and manage our reputation.

Our mitigation measures

Our Pharmacovigilance function monitors and manages the safety of all our products using robust systems and processes to monitor manufacturing standards in compliance with CGMP and other regulatory requirements. Our Quality team conducts internal and external audits to ensure adherence to high-quality standards.

  • We have launched a Global Quality Action Plan that ensures that our sites remain in an acceptable state of compliance and are 24x7 audit ready
  • Emphasis on product life cycle management to ensure product quality
  • Pharmacovigilance team tracks any incidence of adverse event caused by any Lupin medication and ensures that the company addresses it
  • Lupin ensures timely recalls of any product flagged by a regulatory authority or through its internal assessment for any defect or failure to meet specification standards

Cyber Security & Data Privacy

Lupin’s information protection risk is one of the principle enterprise risks. An attack on a company’s IT systems or non-compliance with data privacy laws can lead to loss of critical business intelligence, financial loss and loss of reputation. The relevance of this risk has been made even more acute due to COVID-19 requiring office-based workforce moving to a workfrom- home model. Information security risks have increased because of malicious emails and malware.

Our mitigation measures

While COVID-19 presented significant threats and challenges, it also created opportunities to advance the security of the company.

  • Lupin has implemented an effective cyber security infrastructure to protect against data loss and malicious attacks. It continuously monitors the effectiveness of its existing systems to identify and address security gaps. From an infrastructure and security point of view, state-of-the-art solutions such as EDR, ThreatIntel, Zero Trust solutions, different networking solutions, Microsoft O365 package, AntiVirus and Cloud offerings like Azure and IBM/HPE/Dell have been deployed for the company’s servers and laptops.
  • Continuous employee education campaigns and online certification programs are carried out to foster a cyber-security mindset.
  • Lupin has a mature Information Security compliance process in place and is certified at ISO 27001:2013 standard of Information Security Management Systems. We have an SOC team assessing Security risk round the clock both at perimeter level and endpoint level. A Zero Trust based architecture has been implemented at Lupin for VPN and Internet Gateway Solution, ensuring that security is not compromised even when users are working from remote locations.
Safety and Product Quality

Environmental Health and Safety

Environmental Health and Safety regulations have increased and are likely to become more stringent. There is growing activism and awareness surrounding EHS regulatory compliances. At Lupin, managing these impacts and educating our stakeholders about our approach to environmental stewardship is important.

Our mitigation measures

At Lupin, managing these impacts and educating our stakeholders about our approach to environmental stewardship is important.

  • We ensure all legal compliances in India with the mandates of the governing legislations all the time. We have also adopted risked based approach to identify the EHS risks associated with our activities and efforts are initiated to review and upgrade the established controls periodically.
  • As a part of our Extended Producer’s Responsibility, we are creating new opportunities for recyclable packaging of inhalation products. This will also provide us a competitive advantage in the market.

Supply Chain Risk

Supply chain risk for Lupin is two-fold – in securing supplies of APIs and other key starting materials for our own production and in maintaining consistent supply of final products to our global customers. Delays might occur at manufacturing sites or in logistics, leading to challenges in procurement of ingredients and components as well as dissemination of our final products.

Our mitigation measures
  • Lupin has approximately 30% dependency on external manufacturers for its API requirements with the rest being met by our own API manufacturing sites.
  • Additionally, we ensure continuity of API supply for high-value products by engaging alternative API suppliers for critical products, stocking for buffer supplies and supply chain modelling to anticipate disruptions.
  • Strategic investments in business intelligence, reporting and forecasting systems have enabled us to build a resilient global supply chain and ensure high service level across markets.
Environmental Health and Safety

Pricing Risk

Being a global manufacturer and seller of pharmaceutical intermediates as well as finished products, Lupin is exposed to pricing risk both as a buyer and seller. Concentration of raw material procurement to a few suppliers may lead to unfavorable and unethical price setting by suppliers, thereby eroding financial margins and affecting competitiveness. The emergence of large buying groups combined with the influence of managed care organizations could lead to increased competition amongst companies and enhanced price risk.

The consolidation and integration of drug wholesalers, retail drug chains, private insurers and other entities have resulted in these groups gaining an advantage in terms of purchasing leverage which increases product pricing pressures for the industry. As a pharmaceutical company also selling Specialty products in the US and EMEA region, Lupin faces downward pricing risk as governments and legislations aim to lower the price of prescription drugs.

Our mitigation measures
  • Engage in long-term supply contracts with suppliers of APIs and critical raw materials to hedge from price fluctuations
  • Set strategic price setting of novel drugs in order to cover the effort and scale of the R&D effort
  • Put increased focus on manufacturing generics and complex generics for large markets like the US, thereby offering affordable therapy to patients

Ethical Conduct Risk

There is a plethora of ethical issues in the pharmaceutical industry. These can relate to product pricing, affordability of medicines, counterfeit drugs, transparent disclosure, marketing restrictions, advertising, clinical study design, drug safety, advertising, and so on. There are also issues pertaining to the ethical conduct of employees surrounding corruption, bribery, corporate behavior, and fair dealings with all stakeholders. Any damage to Lupin’s reputation will compromise our ability to execute our core business operations.

Our mitigation measures
  • Run engagement programs with medical practitioners and consumers on the appropriate use of our products
  • Train all members of the field force in ethical marketing practices and risk and compliance regulations
  • Maintain stringent compliance to pharmacovigilance to ensure that all aspects related to adverse impacts of products are monitored and reported
  • Strong internal audit mechanism to track and report any non-compliant practice in Lupin’s manufacturing locations
  • Highest standards of corporate governance to enforce ethical corporate behavior within Lupin and guidance for JV partners, vendors, suppliers and contractors through our Code of Business Conduct and Ethics, P.L.E.D.G.E., Whistleblower Policy, and Prevention of Workplace Sexual Harassment
  • Continuous internal and external monitoring of issues that may impact Lupin’s reputation and create potential risks

Stakeholder Management Risk

Failure to identify critical stakeholders, understand their needs, expectations and concerns, their bargaining power and strategic relation to Lupin may lead to risks in realizing project outcomes, loss of social license to operate, and legal action against Lupin in the geographies we operate. This may arise due to a lack of communication with stakeholders or the inability to identify and assess stakeholder concerns in a timely manner.

Our mitigation measures
  • Robust and customized stakeholder engagement for our diverse category of stakeholders such as regulatory authorities, industry associations, vendors, customers, local communities and civil society activist groups
  • Our decision making takes stakeholder demands, concerns and expectations into account
  • Undertake regular interactions with key stakeholders to identify unmet demand, the information derived from which often helps our teams to select products for our pipeline
  • Undertake diverse social responsibility initiatives including the establishment of community partnerships and development initiatives
Stakeholder Management Risk