CIPLA – A CASE STUDY

Subject: Managerial Analysis and Communication

Participant Name:
Sahil Ratra - P39159
Neeraj Lodhi - P39146
Nimisha Mohan - P39147
Mukul Verma - P39144
Prakash Pachar - P39153
Varsha Katela - P39174

Team Name: Avengers

Class Section: C

Date of Submission: 20-08-2018

Executive Summary:

Cipla is the third largest pharmaceutical company of India. Its major strengths include
producing cheaper generics and its CEO’s strong lobbying skills while it lacks in research &
development. It is facing an imminent threat in the form of TRIPS agreement which enforce
patent laws in India. It also sees two opportunities. Firstly, it saw an opportunity in anti
retroviral drugs industry which is an infant industry with very large potential. Company’s
combination drugs could effectively overhaul the same industry. Secondly, many drugs were
going to lose their patent rights in near future and it provided an opportunity for exporting
generics for the same.

Currently, its CEO Dr. Hameid is confused whether to focus on the anti retroviral industry and
lobby against TRIPS agreement in India or to focus on the export of generic drugs.

After looking at the future growth prospects, possible loss of market share, humanitarian
benefits, ethicality and legality of the two alternatives. It is suggested that the company should
focus on lobbying in India against the TRIPS agreement. If the TRIPS agreement is not enforced,
Cipla can not only sell pharmaceuticals from its current production line but can also seize the
opportunity of growing in the anti retro-viral industry in India. It will make the treatment more
affordable and doesn’t face any legal issues.

In order to lobby effectively, it must showcase the success in African market and control of
epidemic should be used to impress the government. It will bring the company’s focus on the
cure of the disease. Then, organisations like Indian Drug Manufacturers Association and Access
to Essential Medicines should be brought in for support and campaigning against TRIPS
agreement.
Situation Analysis:

Dr. Yusuf Hamied is the CEO of Cipla Ltd. which is India’s third largest pharmaceutical
company. The company’s business model was focused on selling generic pharmaceuticals with
insignificant focus on research & development. Historically, its success came from sale of drugs
that are re-engineered from patented drugs. This was possible because of nationalistic patent
laws adopted by Indian Government in 1972. Hameid had lobbied for such a law and was
highly involved in related politics. He had also founded the Indian Drugs Manufacturing
Association which lobbied in support of Indian pharmaceutical sector. Thus, making generic
drugs at cheaper cost and lobbying were company’s major strengths while research was a
weakness.

In April, 2003, Company faced an imminent threat because of TRIPS(Trade related aspects of
Intellectual Property Rights) agreement that India signed in 1995. By 2005, Indian Govt. had to
enforce international patents. This would make many products of Cipla to be unsalable in
Indian market. Though, there was a loophole in form of a provision called “Failed to work the
patent” which gave an opportunity of not enforcing the patents in case patent companies
couldn’t make the drug affordable.

Cipla had made an unsuccessful attempt in Anti retroviral drugs industry in India. Cipla was
trying to sell a combination of AIDS drug to Indian users at affordable rates but there was not
much success because Govt. and Doctors focused more on prevention than cure.

Cipla had shown success in the same industry in South Africa. After a new law allowed generic
drug manufacturers, Cipla struck a deal with a French NGO to supply the anti retroviral at a
breakeven price. If the drug was able to control the epidemic, there was an opportunity for
Cipla to expand its market in other developing countries as well as lobby effectively for focus
on cure of AIDS as well as the continuance of the existing law allowing generics.

It also saw another opportunity in exporting off-patent pharmaceuticals. In the next 4 years
many drugs were going to lose their patents and the industry was going to expand by almost
70% to 18 billion dollars.

Statement of Objective:

Dr. Hameid must secure the long term future of Cipla Ltd. by adopting a humanitarian, ethical
and swift strategy which mitigates the imminent risk of enforcing of TRIPS agreement.

Problem Statement:

Currently, Dr. Hameid is confused whether to focus on lobbying for a law against TRIPS
agreement or to focus on the growing market of export of off-patented drugs.

Decision Criteria:

1. Long term growth prospects for Cipla.

 2. Possible loss of Market share.
3. Viability of use of company’s strengths of lobbying.
4. Humanitarian Benefits.
5. Ethicality of Strategy.
6. Possible legal risks like “evergreening”
7. Threat of Competitors.

Alternatives:

1. Dr. Hameid should focus on lobbying against enforcing of TRIPS agreement.

2. Mr. Hameid should direct the company’s focus towards export of off-patented drugs.

Evaluation of Alternatives:

Alternative 1: Focus on Lobbying

Long term growth prospects for Cipla:

Only 1 in 300 patients are currently consuming drugs in India. Along with India, other
developing countries can cater to 80% of world’s population. Thus, lobbying can lead to
massive growth in future.

Possible loss of Market share:

The existing market share in Indian market will remain intact as there is a huge possibility
that TRIPS agreement will not be enforced.

Viability of use of company’s strength of lobbying:

Company’s strength of lobbying will be effectively used while in the other scenario Cipla’s
marketing skills would be tested.

Humanitarian Benefits:
The drugs will be affordable for more people helping a larger population.

Ethicality of Strategy:
The patented drugs rates are not inflated due to the R&D costs rather it is due to the huge
profit being earned by some of those companies.

Name of Company Pre tax Profit R&D Costs Profit – R&D Costs
GlaxoSmithKline 30% 12% 18%
Merck and Co. Inc. 47% 12% 35%
Cipla 22% 0.2% 21.8%

Thus, companies with patents are indeed earning irrational profits and selling re-engineered
costs can actually bring the price of the drugs making it more affordable.

Possible legal risks like “evergreening”:

 We will not be focusing on US or other big markets with patent laws. Thus, even if such
countries pass new laws leading to increase in length of patent, it won’t affect Cipla.

Threat of Competitors.

In the low price Indian market, companies with patent rights would not be able to make
much difference without the implementation of TRIPS agreement.

Alternative 2: Focus on exporting off-patent drugs

Long term growth prospects for Cipla:

The market is expected to grow about 68% in the next 4 years to 18 billion dollars. Still, the
prospects are smaller than catering to 80% of world’s population in the other case.

Possible loss of Market share:

TRIPS agreement will be enforced and there will be lost. In US, even US companies are
focusing more on Marketing which is not a core-strength of Cipla. Thus, it won’t be able to
compensate the loss of market share in India by the new share in developed countries.

Viability of use of company’s strength of lobbying:

More focus will be on marketing of drugs than lobbying.

Humanitarian Benefits:
Some people may face issue of affordability of drugs in India as the patented drugs will be
costlier and the generic substitutes would not be allowed.

Ethicality of Strategy:
The strategy is ethical and fair.

Possible legal risks like “evergreening”:

There is a huge risk as the law is unpredictable in developing countries and Cipla can do little
to lobby against it.

Threat of Competitors.
There will be a huge competition from big MNCs in the developed markets while the
competitors will be insulated in Indian markets.

Chosen Decision:

Dr. Hameid should focus on lobbying against enforcing of TRIPS agreement and try to
capture the anti retroviral market.

Implementation Plan:
Firstly, the success in African market and control of epidemic should be used to impress the
government. Dr. Hameid’s political connections will also be beneficial to achieve this. Cipla’s
partnership with the French NGO that will distribute Cipla’s drugs free of cost is poised to
control the epidemic in South Africa. This can impress the Indian Government and can bring
government’s focus on the cure of the disease from current focus on prevention.
Government can then buy and market Cipla’s drugs for Indian patients. This would not be
possible if TRIPS agreement is enforced and government will have to go against it. Then,
organisations like Indian Drug Manufacturers Association can be used to lobby stating a
possible loss to Indian industry if TRIPS is enforced. This will create additional pressure on
the government. Finally, partner organisations like Access to Essential Medicines can be
brought in to support the anti TRIPS law for humanitarian cause and consequent benefits to
the patients. The combined effort will influence the government’s decision on TRIPS
agreement.