Super-specialisation in pharma and healthcare to be a key theme for the future.
Watch Monal Sanghvi in conversation with #QuadriaCapital MD Amit Varma.
For the latest news and updates, visit: http://ndtvprofit.com
Watch Monal Sanghvi in conversation with #QuadriaCapital MD Amit Varma.
For the latest news and updates, visit: http://ndtvprofit.com
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TVTranscript
00:00 Hello and welcome to NDTV Profit. We are on the sidelines of the IDMA event, organized
00:05 event RIDHI 2024 and we've had a chance to catch up with Dr. Amit Verma of Podria Capital.
00:12 Thank you so much for taking our time to speak to us and it's a pharma and healthcare summit
00:17 so who better to have on board than you of course for this discussion.
00:21 Thank you for the kind words and thank you for having me.
00:24 So what currently in the pharma and healthcare space really excites you?
00:28 See one of the things that's going on right now is that we are on the cusp of this great
00:32 momentum in healthcare where everything is on the upswing and this is a post-covid phenomena
00:38 where two three fundamental shifts took place. One pretty much everybody from the street
00:43 all the way up to public policy understood that we have never invested enough in healthcare.
00:49 Number two we only spend two to three percent of our GDP in healthcare which is never going
00:53 to be enough. So the third biggest sentiment that is taking place is public private partnerships
00:59 and smarter private capital in all aspects of healthcare are playing a predominant role.
01:05 Now one of the fundamentals of life in healthcare especially in emerging Asia is you take a
01:10 normal healthcare company leave it alone it will grow 15 percent year on year. Now if
01:16 you can bring smarter capital on top of it you can grow them almost 20 to 25 percent.
01:21 So quite clearly as I look at themes in both services, medtech, life sciences and even
01:28 consumer health anything which is direct to the patient everything is growing.
01:32 So let's break this up. So you're saying that every segment is growing so you have investments
01:38 across all sectors so and it's pretty diverse. So now if you had to pick one sector out of
01:46 these in the mid for the medium and the long term what do you think will stay and see just
01:52 as much growth that you're envisaging? I'm going to answer it slightly differently
01:57 because sitting at the sidelines of a pharma conference I want to make sure I do justice
02:02 but I want to leave you with an underlying theme of whether I do services I do life sciences
02:08 consumer health or medtech. Our core philosophy is betting on specialization and deepening
02:15 of the verticals. So if I'm going to look at hospitals I like single specialty hospitals.
02:20 When I look at pharma I like single specialty or specialized APIs. I do like CDMOs but at
02:26 the end of the day I still like to bet on people having domain expertise and going deeper.
02:34 I don't like to build service industries which are pan Asian those look very good on power
02:38 points. Finally healthcare delivery is an individual localized business but when I look
02:44 at life sciences on the other hand I want to manufacture in Asia at Asian manufacturing
02:50 costs but manufacture for the world. So my theme changes based on what sub-sector segment
02:59 I'm looking at and as we go forward as we talk a bit more I can throw a bit more light
03:04 as we go sub-vertical on the other. I'm going to start off with CDMO. Recently
03:11 the whole China plus one theme that was being sold is not quite playing out as much and
03:15 the sector is not showing as much growth even the listed companies that I've been looking
03:19 at haven't quite been performing as much. So do you believe there's a turnaround in
03:24 store for these companies? So I'm a bit biased because we are investors in Akums which as
03:29 you may know is probably one of the larger CDMO players out here. The past couple of
03:34 years have been challenging in this space just because of the cost of raw materials
03:39 inflation surrounding it and the human capital cost continues to grow year on year and you
03:44 quite honestly cannot take the cost of manufacturing and pass it along to the customer. There's
03:50 just too many variables there. But what we are seeing grow now is the scale size of the
03:56 CDMO industry. I think you are getting rewarded for the quality of the products that you are
04:02 generating and for us we are getting into sub-themes or sub-sectors of manufacturing
04:07 which we never did before. So overall there is a manufacturing. CDMO unfortunately will
04:14 never be as attractive or as sexy as the other aspects of life but at the end of the day
04:20 this is bread and butter for what you need for a country. So as long as we are clear
04:24 that we are going to be the largest in what we do, as diverse in what we can do but more
04:30 importantly start to create sub-verticalization again the specialization themes that I was
04:35 discussing with you. I think the CDMO sector will see a turnaround.
04:39 Okay. So I am picking on from your super specialization theme and this is something that you brought
04:45 up about hospitals as well. Now say there is a retail investor who wishes to, you have
04:50 quite a few investments in the hospital space of course but a retail investor wanting to
04:55 invest in hospitals, what are the operational matrices that you should see because we have
04:59 very few super speciality hospitals that are listed of course more are coming in but what
05:03 would you look at while investing in a hospital? I think you need to get beyond the simple
05:10 version of looking at revenue, EBITDA and then cash generation. At the end of the day
05:16 as we start to look at hospitals we look at a couple of dominant things. These are obvious
05:22 right, at the end of the day you want to look at. You also want to look at their growth,
05:26 what their occupancies look like and more importantly what their average length of stay
05:31 is because that tells me what their capacity is. The world of hospitals has moved away
05:37 from just creating more and more beds. It costs an arm and a leg to create a tertiary
05:42 care bed right now. A lot of our focus at investment and post investment goes into effectively
05:50 utilizing those beds. So we borrow shamelessly, so we borrow from the telecom industry, they
05:55 use something called ARPU, Average Revenue Per User. We use ARPOP, Average Revenue Per
06:02 Occupied Bed. Now if the cost of creating the bed is going to be the same, whether I
06:07 treat malaria on it or I do a knee transplant, clearly my yield is going to be different.
06:14 So as we look at hospitals we try and see how we can make them more specialized. We
06:19 try and see what is the higher end specialties that we can do and we usually like a nice
06:26 surgical to medical mix, usually 60 to 40 and those would be the matrices that we look
06:31 at. And last but not least which has been underplayed in the Indian context quite a
06:36 lot is clinical quality. How are you measuring yourself against the best in the world? What
06:44 is your infection rate? What is your attrition of nurses? What is going to be the outcomes
06:50 for a patient when they come to you? What is the price? We are a price sensitive market,
06:55 50% of my patients are still paying out of pocket, so they look at what the cost is going
06:58 to be. But I think the introduction now of bringing in clinical quality is going to become
07:05 more and more important because it is going to be very hard to differentiate between brands.
07:10 Just adding on to one thing that you spoke about ARPOV, there is a lot of talk on the
07:15 general insurance side that they are all going to come together and have a common empanelment
07:20 rate for hospitals. So do you believe that is going to impact the hospital industry?
07:25 Because the kind of boom that we are seeing in the past one year, the amount of discussion
07:28 that is happening, the number of hospitals that are listing, it is phenomenal. So just
07:32 trying to get a sense of is this fervour expected to continue?
07:39 You hit on my pet theme. See at the end of the day whether you like it or not, healthcare
07:43 is about life and death and healthcare is about impact and there is only that much limited
07:49 price gouging that I can do. I am in an industry where it is about saving life. So clearly
07:57 whether it is led by the industry or insurance industry or it is led by us internally, there
08:02 is rationalisation of pricing that will come through. So I am not worried about the insurance
08:08 guys coming together. At the end of the day, it comes out of somebody's pocket in some
08:13 form or shape. That is going to be the patient and that is what I am sensitive about. But
08:17 I think the way we address this is that pretty much all our hospitals have one very fundamental
08:23 common theme. I will always have general wards, I will always have private wards and I will
08:28 always have suites and the pricing ability that I have in the hospital will finally boil
08:35 down to what we do without compromising on clinical quality regardless of which sector
08:39 or which ward you are coming from.
08:42 So now I am going to pick on the other theme which is APIs. You have an investment there
08:46 as well. So a lot of PLI schemes, there is still quite a lot of dependency on China.
08:53 So are you seeing more interest, more investment come into the API space? How is the Indian
08:58 scenario transforming and what sort of companies are maybe doing it right in the API KSM space?
09:05 See, China plus one is a very nice headline. To make that plus one work requires a lot
09:13 of intrinsic changes in behaviour even within the pharma industry and I know I am going
09:17 to get some flack for it but I am still going to go ahead and say it. I think we in the
09:22 industry in India also need to change to start to demand better quality of how we manufacture
09:27 and it should not be top led. I do not think it should be regularly led. It should be self-inflicted.
09:33 That is number one. Number two, the changes that we are beginning to see is that you cannot
09:36 wish China away. The cost of manufacturing will continue to be extremely, extremely competitive
09:43 for them because of the scale and size that they have already set up. I think the role
09:47 and the area that we can get into is specialised APIs because Concord Biotech, one of our success
09:54 stories, I mean the whole theme around that was being in the fermentation space. Now fermentation
09:59 is an art. It is not maths. So backing a promoter and backing a company which is doing a very
10:07 high end procedure like fermentation and creating transplant and oncology medication to us at
10:14 Quadria is the theme that we go after. So go after things that people cannot do well
10:20 because it requires a certain skill set. Scale it up to a size that it then becomes cost
10:26 prohibitive for others to come and compete against you and then sell to the world. In
10:31 one line, this was our entire investment theme into Concord.
10:35 Okay. So, I mean apart from Concord, are there other companies that are on your radar that
10:41 are doing it right in terms of API? Any formulation makers who are also backward integrating in
10:46 the right manner to maybe regulate their supply chain and do greater?
10:52 I think the whole industry is going through a change right now and people are betting
10:56 forward and backward now into making sure that they are creating their own lines of
11:01 support. So, when you look at the bets that people like Divi have taken for example, when
11:06 they have turned around and they bet on something which people did not see, they hunkered down
11:12 on the capex that they were spending at that point of time. Every time you had a conversation
11:16 with them, it was very hard to figure out where this was heading to and see what they
11:20 have done. So, I think there are going to be 10 Divi examples in the next 5 years that
11:25 you will see out of India where there is going to be both forward and backward integration.
11:30 Okay, that's very interesting. So, after COVID, you had also spoken that a lot of telemedicines,
11:36 teleconsultations had picked up. Do you still think that theme is just as relevant or are
11:41 you seeing a turn back if people are going back to hospitals, going back for physical
11:45 consultations and this might not be as big of a theme to bet on as it has been?
11:49 10 years ago, I bet on tele-ICUs where we created the largest network of critical care
11:55 beds in India, Nepal and Bangladesh and we had almost 500 ICU beds that we were managing,
12:03 I am talking 2015-2016. Now, we were before our time and clearly COVID came and accelerated
12:09 it. My personal view is that there is now going to be an integrated model of patient
12:14 care where patients will not travel to mega centres to get treated but mega centres will
12:20 have to go to where people live. Health care is local, nobody likes to travel 500 kilometres
12:26 to get treated. So, the theme that I am going to get to you is finally going to be about
12:31 telemedicine will be integrated within our practices. The hype around treating acute
12:37 patients will come down but chronic patients will see the benefit of getting treated and
12:43 the doctors are seeing it. The biggest culprits of any change in medicine is not the patient,
12:49 it is usually the doctor and I can get away by saying that and I think I have seen the
12:53 fundamental shift in doctors now beginning to understand that seeing patients on telemedicine
12:58 for chronic conditions, how is your blood pressure, what is the trend of your blood
13:01 sugar, okay do you need to tweak your medications, I can do that in 15 minutes on telemedicine
13:06 rather than wasting the patient's whole day of coming out to see me. So, for want
13:12 of better words, it is going to be an integrated model of outpatients and we will see certain
13:17 specialized areas of tele-ICUs, telepathology and tele-radiology.
13:22 Interesting and sir how does medtech come in the picture in between all of this?
13:29 So medtech is always going to now at least the trend that I am seeing now is again we
13:34 are getting into specialization of what we create and what we manufacture. So, whether
13:40 it is things like orthopedic implants, it is cardiac stents, it is now going to be pathology,
13:45 things that we do, you are going to again see and you must be bored of me by now but
13:50 you are going to again see specialization. So, there are going to be very few players
13:56 who right now everybody tries to do everything, if I use the word orthopedic implants, they
14:02 want to do everything in orthopedic implants. Now, I am going to begin to see guys who only
14:06 do screws, who only do nails, who will only do that and we are seeing that. In India because
14:12 we have so much of infrastructure, again this specialization is and the market is going
14:17 to reward that kind of specialization.
14:18 Sir, then among the bigger names right now in the pharma space, the listed space and
14:25 the big names, who do you think is investing correctly in the right direction towards the
14:31 future, you know the future that you are alluding to, what company will actually be the value
14:37 creator say 5 years down the line?
14:40 That's the kind of question which always will get me into trouble, especially here
14:44 with all the stalwarts surrounding me. Having said that I do believe overall as an industry,
14:50 I think now the desire and need and more importantly the realization that you will never succeed
14:58 if you don't invest in R&D and the future is sinking in and it is going beyond the top
15:04 10 or top 15 players. Now, when I come to conferences like this, the theme around why
15:09 you need to invest in CapEx and why do you need to invest in the future is already coming
15:13 into the mid-market level. I already alluded to the Divis of the world who I think have
15:17 done a spectacular job but there are many others who are sitting on the sidelines who
15:21 are again getting into things like vaccines, getting into specialized APIs where I think
15:26 you will see the players break out in the next 3 to 5 years. Just remember one thing,
15:32 we are in the short window. All this hype about China being down and out, this is going
15:38 to turn a cycle very quickly. Fortunately for us the macro, the geopolitics and what
15:45 we are seeing in the political stability and economic regulator stability is helping create
15:50 those big tailwinds in pushing what is happening and I think if we don't grasp that opportunity
15:57 we may end up at the short end of the stick a bit later.
16:00 Thank you so much sir, it was a pleasure speaking to you. Thank you so much for joining us today.
16:07 Entirely my pleasure and look forward to engaging on these topics again.
16:11 Absolutely.
16:11 Absolutely.
16:12 Thank you.
16:17 [music]