CIPLA CASE

EXECUTIVE SUMMARY:
Cipla is the third-largest pharmaceutical company in India. It was founded in 1935 and has made its stand in the
market by selling drugs manufactured by the reverse engineering process. The backdrop of this company is that
it lacks in research and development. TRIPS (Trade-Related aspects of Intellectual Property Rights) agreement
would be enforced in Indian patent laws in 2005.
Cipla has four alternatives now, i.e. Cipla can convince the government to bypass the patent laws on
humanitarian grounds; it can focus on investing in the R&D for future prospective; it can focus on lobbying
against the TRIPS agreement in India or it can focus on the export of generic drugs considering the
humanitarian and legal implications of both as well as future growth prospects.
Prima facie it seems that Dr. Hameid has to choose among the above four possibilities. Upon contemplating
over the situation there is one alternative that satisfies all of our criteria which is negotiating with Patent-
holding companies by paying them reasonable Royalties and urging the Government of India to allow Cipla to
manufacture generic drugs only on Humanitarian grounds which includes perennial health crises, war-affected
countries, and third world countries like Africa.

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, organizations like the Indian Drug Manufacturers Association and Access
to Essential Medicines should be brought in for support and campaigning against TRIPS
agreement.

2. MAIN REPORT-

SITUATION ANALYSIS

INTRODUCTION

Dr. Yusuf Hamied is the CEO of Cipla Ltd. one of the top pharmaceutical companies in India. The company
focused on reverse engineering patented drugs and then selling their generic version to the Indian population
and other third world countries (due to 1972 patent laws adopted by the Government of India). Dr. Hamied also
founded the Indian Drugs Manufacturing Association for the benefit of the Indian pharmaceutical
sector. However, Cipla did not focus on the research and development for manufacturing the drugs and was
completely dependent on the reverse-engineering of the patented drugs.

Cipla faced a threat from the TRIPS agreement which was signed by India in 1995. The Government of India
was planning to enforce international patents by 2005. This posed a threat to the generic drugs produced by
Cipla as they were manufactured through a reverse engineering process.

However, there was a loophole in the form of a provision “Failure to work the patent” which gave an
opportunity for non-enforcement of the patent rights in case the companies owning the patents were not able to
make the drug affordable.

The company manufactured a drug for AIDS and made an unsuccessful attempt to sell the same Indian users at
affordable rates as the Indian Government and doctors were more focused on prevention than cure. However,
Cipla had shown success in the same industry in South Africa. Therefore, Cipla saw an opportunity to expand
its market in other developing countries if the drug was able to control the epidemic. It also envisioned an
opportunity in exporting off-patent pharmaceuticals. By 2007, many drugs were going to lose their patents and
the pharmaceutical industry was going to expand by approximately 70% to the value of ~18 billion dollars.

STATEMENT OF OBJECTIVE
• To take prompt actions that can secure the future of Cipla and help the company to sustain after the
enforcement of TRIPS.
 • To continue providing medicines at an affordable price like before.

DECISION PROBLEM STATEMENT

Should Cipla focus on the production and export of off-patent drugs and invest more in R&D or try to negotiate
with the government to stop the enforcement of patent laws on food and medicine?

CRITERIA FOR DECISION MAKING

● To maintain the profitability and market share of Cipla
● Preserve the ethical and humanitarian values of the company
● Long term viability of the decision taken

DECISION PROCESS

GENERATING ALTERNATIVES

• Alternative-1 (A1) Dr. Hamied should stand against enforcing the TRIPS agreement
• Alternative-2 (A2) Cipla should invest in R&D keeping in mind future sustainability
• Alternative-3 (A3) Cipla should provide a reasonable royalty fee to patent-holding companies and also
focus on producing off-patent drugs
• Alternative-4 (A4) Cipla should collaborate with National and International organizations to bypass the
patent laws for extreme conditions.

2.2.2. EVALUATION OF ALTERNATIVES-

A1→Dr. Hamied should stand against enforcing the TRIPS agreement:

Cipla supplies generic medicines in India and other developing countries constituting 80% of the world's
population. It provides generic medicines at affordable prices and serves the humanitarian benefits to society.
The patented drug companies focus on profit-making and usually adopt the “evergreening” of patents which
increases the length of the patents.

Even if this alternative can serve as a solution in the short-run, there is a possibility that the patent-holding
companies can object to this again in the long term as it would be a threat to their profits. Also, allowing some
companies to manufacture through reverse engineering can serve as a demotivating factor for those companies
which invest huge amounts in R&D for developing new medicines. Therefore, this alternative is rejected as it’s
not sustainable in the long term.

A2→Cipla should invest in R&D keeping in mind future sustainability.

Cipla can invest in R&D of new drugs and can secure future sustainability even if the TRIPS Agreement is
enforced. But the R&D in the pharmaceutical industry requires huge investment and time. This will lead to an
increase in the price of medicines produced by Cipla. Thus the criteria for following the humanitarian and
ethical values of the company will not be followed. So, this alternative is also rejected.

A3→Cipla should provide a reasonable royalty fee to patent-holding companies and also focus on
producing off-patent drugs

Assumption:

• The western pharmaceutical companies accept the royalty fee and form a negotiated agreement with
Cipla

Cipla should offer a suitable royalty fee (as they offered before) to western patent-holding drug companies like
Bristol-Myers Squibb, GlaxoSmithKline, and Boehringer Ingelheim and they could sign a negotiated agreement
regarding this license fee. This would allow Cipla to keep producing the generic drugs at low prices even after
the TRIPS comes into practice, which will ensure the humanitarian values of the company. Along with this,
Cipla could also focus on producing generic versions of the drugs whose patents will expire. This will ensure
that Cipla maintains its profitability as well. This alternative follows all the criteria mentioned above. So, this
alternative is accepted.

A4→Cipla should collaborate with National and International organizations to bypass the patent laws
for unfavorable conditions.

Dr. Hamied can collaborate with National and International Organizations and convince the government that if
the TRIPS has to be passed, then it can be done by including a set of loopholes in it. The loopholes would be
present so that people could get the medicine in times of crisis like war, epidemic, perennial disease etc. The
loophole could also include the supply of generic medicines in the Least Developed Countries on humanitarian
grounds as these countries are always in a state of crisis and do not have the adequate manufacturing facilities
to produce medicines on their own. Dr. Hamied is capable of pursuing the government as he has strong political
connections and a sound reputation. But, this alternative does not follow the criteria of profitability and market
share of CIPLA. Therefore, it is rejected.

C1: To ensure the long term viability of CIPLA even after TRIPS
C2: To maintain the profitability and market share of CIPLA
C3: Preserve the ethical and Humanitarian values of the company

(Where C1 is our 1st priority and C3 is last)

A1 A2 A3 A4

C1 NO YES YES YES

C2 YES NO YES NO

C3 YES NO YES YES

CHOICE OF ALTERNATIVE-

The alternative of choice is A3 i.e. to keep the humanitarian values of Cipla by continuing the production of
generic versions of the patented drugs by forming a negotiated agreement with western drug-manufacturing
companies. This would also ensure the long term viability of Cipla even after TRIPS is passed. Cipla will also
focus on producing off-patent drugs and APIs to maintain its profitability.

IMPLEMENTATION PLAN-

The course of action of Mr. Yusuf Hamaid should find off-patent drugs which can gain significant market share
and craft a market strategy for those drugs and APIs, for effective market acquisition. Also, for the patented
drugs which are required urgently, Cipla can pay royalty fees to the patent holding companies for
manufacturing their drugs and make the drugs available at an affordable price.

CONTINGENCY PLAN-

The company should also focus on investing in R & D for developing new medicines. in case the patent-
holding companies do not agree to take royalty or licensing fees and focus for now on manufacturing off
patented drugs and APIs and gaining significant market share in these products.
Presented by: High Five

NAME ROLL NUMBER

Manushi Chowdhury P41027

Divya Jain P41015

Rashi Rathi P41036

Bikash kumar Raymohapatra P41012

Shubham Barik P41048