Case Submission

CIPLA
 Case Facts :
 Cipla :
 Founded in 1935 by Khwaja Abdul Hamid
 $325m Indian pharmaceutical co.
 3rd largest in India
 Core competency : Reverse Engineering patented drugs
 Products : Generics – reverse engineered low-cost drugs
 Pharmaceuticals in India :
 Indian patent laws : process & not product patents
 2005 : TRIPS agreement › 20yr. product patents
 World Leader in Generic Drugs

 Founder : Dr. Yusuf Hameid - MD

Case Facts
2003 : 400 drugs including
1970s : steroids,
1944: Basic chemicals 1947 : high quality anti-asthmatic, anti-
hormones, anti-materials
manufacturer affordable medications cancer, anti-inflammatory
etc.
& anti-AIDS

 Focus : developing life-saving medications & pharmaceuticals designed to treat chronic conditions
 40% shares belong to Hamid’s family and friend
 Cost Leadership & Operational Efficiency
 Strong earnings Product Line Revenue break-up
 Steady US exports
 Diversified product line Tablets & Capsules
5% 2%
6%
 Self manufacturing of Raw material 10%
Bulk Drugs (APIs)
 (active ingredients for medication)
53%
 Low Production cost in India 24% Aerosols & inhalation
devices
Injections & sterile
solutions
Liquids
 Case facts :
 Primary Market : India but generic products sold worldwide
 Generic Vs Multinationals : Reverse Engineered drug Vs R&D Revenue Share
70.00
 AIDS Outbroken :CIPLA Role 60.00
50.00
 Acquired Immune Deficiency Syndrome identified in 1982. 40.00
30.00
 AZT was introduced to slow the virus in 1987 at $10000 a year or 20.00

$12 a day. Pharma MNCs enjoying huge and obscene profit. 10.00
0.00
India Asia Africa Middle East Europe America Australia
 Cipla reengineered AZT in 1992 and set the price at $2 a day. Series1 Series2

 1995 :United Nations Joint Program on AIDS (UNAIDS) was found to fight against disease
 1996 : AIDS cocktail was introduced.
 1997 : South Africa passed a law for Parallel Importing and Compulsory licensing as it Multinationals challenged it.
 2000 : Cipla Reengineered triple therapy cocktail in single capsule.
 2001 : Cipla offered three tier pricing
1. What is your assessment of how well the various parties are handling the global
AIDS problems?

Government –
• Assistance in Financial funding

• Time to get Approval was reduced by half 44.6M from 87.4 Months

• Protection of pharma companies mostly because of corporate lobbying.

Developing Countries –

• Local companies to manufacture Generics

• Raising voice at forums about the greed shown by pharma companies

Pharma companies –

• 5 majors formed alliance to explore ways to make AIDS medications more affordable in developing countries.

• Patented Drugs by products as per IPR and companies were encouraged in R&D in US and EURO countries.
Cont…
Cipla –

• Alternative to overcome the greed maximisation of Pharma companies and helped to develop low cost medicines by
reverse engineering.

Non govt and charity –

• Raised awareness campaigns and convinced pharma companies to reduce prices.

• Spearheading the campaign against the life threatening disease like AIDS.

• Helped to reduce the cost by purchasing the bulk drugs and to mitigate the crisis like in Africa.

• Subsidizing the cost and encouraged the MNC’s to lower the prices to prevent the disease like AIDS and reduce deaths.
 2. How does Cipla’s business model differ from those of the traditional
pharmaceutical companies? What are the key drivers and challenges to Cipla’s
success?
Cipla Business model
• Reverse Engineering Patent products
• Export patent expired drugs and API
• Medical conducts research for developing innovative drug delivery systems for both new and existing drugs with
major focus on new medical devices in the area of respiratory medicine including an inhaler device for insulin

Cipla Other Pharma Co.

• Relatively Low Cost R&D, Medication development through Process • High cost Development through molecule R&D and patenting,
research and Reverse Engineering clinical trials and drug manufacturing( 12-15% R&D cost)

• Significant cost on manufacturing and raw material • Significant cost on R&D

• Focus on process patenting and generic drugs • Focus on product patenting, molecule discovery and patented drugs

• Short product development cycle • Long product development lifecycle ( 10 – 13 years)

• Sales based in India. Trying to expand in developing countries’ with

• Mainly based in developed countries with strong patent laws
process patenting laws similar as to India
 Drivers and challenges -
Drivers
• Indian Patent Law : Provided legal cover, which didn’t
recognize product patents helping Cipla to reverse engineer
drugs and produce them at low cost
• Small Product Development cycle : Small product
development cycle, as compared to other pharma
• Political advantage : Government support available due to
good relations with top management of CIPLA
• Cost advantage : Very low R&D cost as compared to other
pharma
Challenges
• Introduction of TRIPS - Change in regulation making
business model Government accepting Trade Related Aspects
of Intellectual Property Rights ( TRIPS) implementation
by 2005, wherein India accepted to enforce international
patents => will not be able to sell reverse engineered products
after 2005
• Limited Research capability - Do not produce and sell
research-based products. But with introduction of TRIPS,
CIPLA might have to explore drug development capability,
which is a long drawn process
3. In your view, do Cipla’s practices constitute unfair competition?

Yes Cipla’s Practices constituted fair competition

 They were in compliance with the Patent law of the Indian Govt., which allows for process patents rather than product
patents

 They were using their core competency of doing reverse engineering to develop generic version of expensive patented
drugs

 The practice makes lifesaving drugs affordable to countries like India or South Africa, where per capita income is low

 Markets of developed countries were still open for those multinationals who want to make huge profit on these drugs
and where affordability is not an issue

 International patent law has granted monopoly to multinationals for 20 years and more and Cipla is giving an
alternative to challenge such monopoly
 Low sales figure in US indicate cipla was not at all in competition in US market
 Cipla has offered to manufacture the patented drug of multinationals in return for 5% license fee but all 3 have not
responded
4. What should Dr. Hamied and his company do in response to challenges they
face?

 Strategic investment in Process engineering with conscious efforts in R&D

 Awareness programs in developing countries about availability of AIDS treatment along with prevention and detection

 Promotional programs with Hospitals like Y.R.G Centre which were solely dedicated to AIDS

 Partnerships with Medicines Sans Frontiers and other international aid organizations so as to impede the market share
especially in developed countries and exploit the loophole

 Getting involved in Drug development program and government with institutes like CDRI

 Lobbying the Governments of India, South Africa and other developing countries to delay the compliance with TRIPS

 Invite philanthropist and NGO’s in fight for AIDS through Joint Ventures ,Acquisitions, and knowledge sharing programs
5. What is anything the following parties do to combat the global AIDS crisis? (1)” Big Pharma”,
(2) “rich county governments”, (3) “non-governmental organizations (NDOs) and non-profits such as
the Clinton Foundation?

Big Pharmaceuticals :
 Initially invested large amount in R&D to produce anti-AIDS vaccine – AZT , in turn helped in reducing the effect

 Tried to maximize their share in business even at cost of enhancing.

 Priced Drug very high $10,000 per year

 Lobbied with government functionaries for their benefit

 Arbitrary priced medicine to maximize profit

Cont..
Rich Counties Government/s
 Initiated Liberal Policies/ Laws for this sector.
 Incentives to firms targeted on AIDS medication development.
 Ex United States of America Govt gave 1/3rd of the price of clinical trials for medication analysis.
 Reduced approval time to almost 0.5 of trade average i.e. 87.4 to 44.6 months
 Tried to pressurize company firms to scale back the worth of medicine.

Non Govt Organizations :

 Awareness generation to share responsibility of society and thus company firms ought to share responsibility of
constructing medication reasonable.
 Convinced massive company firms like Bristol-Myers, Glaxosmithkline, Merck etc cut back medication value.
 Partnership with Clinton Foundation to distribute antiretroviral medication in Africa to stop AIDS. successively helped to
find ways that to cut back value and increase scale of production.
THANKS