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.
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.
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.
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.
We continually invest in our commercial structure and processes and reshape our portfolio basket where opportunities are better.
In course of its business, Lupin is exposed to fluctuations in foreign currency exchange rates, interest rates, equity prices, liquidity, and credit risks.
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.
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.
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 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.
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.
While COVID-19 presented significant threats and challenges, it also created opportunities to advance the security of the company.
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.
At Lupin, managing these impacts and educating our stakeholders about our approach to environmental stewardship is important.
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.
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.
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.
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.