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CIPLA Case Analysis

CIPLA Limited (History)

The chemical ,Industrial and Pharmaceutical Laboratories popularly known as CIPLA.

Founded by Khwaja Abdul Hamied, a German Educated chemist and Entrepreneur in 1935.

 Mahatama Gandhi visited CIPLA factory in Year 1939 and suggested Khwaja to produce
products to support British in world war efforts.

 This efforts and contribution may give India a leverage to ask for independence

In Year 1944 ,CIPLA manufactured the basic chemicals required for pharmaceuticals which
were in shortage during war.

 Post Independence in 1947, CIPLA established a reputation for producing high quality,
affordable medications.

In 1972,control passed to Yusuf Hamied , he focused on developing life saving medicines

with treatment to chronic disease through reverse engineering..

 From 1999 to 2002 it achieved annual growth rate of 30.3 % when MNC
player growth Was flat at 1%

> By 2003: Cipla Boasted line of 400 Drugs

> Stock prices were almost double from 261 (Sep2,2000 ) to 557 (Jan2.2004)
 Question 1

What is your assessment of how well the

various parties are handling the global AIDS
problems?
What is your assessment of how well the various parties are handling the global AIDS
problems?

Government in Developed Countries

Action

• Funded Heavily in R&D .

• Funding 57% of AIDS pharmaceutical research and one-third of clinical trials.
• Medicines would eventually be patented by American Companies
• Policy Design to cut the time-to-approval in half.
• From industry average of 87.4 months to 44.6 months
• Policy design to give orphan drug tax credits.

Analysis

• Identified need and facilitated resources for accelerated R&D.

• No proposed control over Pricing of the drug.
• Supporting Companies through enforcement of Patents.
What is your assessment of how well the various parties are handling the global AIDS
problems?

Government in Developing Countries (India & Africa)

Action

• Developed policies to support manufacturing of affordable drugs.

• Strategic alliances to capture the value added through NGO as channel.
• Policy Design –Parallel Importing to allow a country to import drugs from any source
regardless of whether the patent holders approve.
• Policy Design – Compulsory licensing to promote local drug manufacturers.

Analysis

• Inclined towards the social need and betterment of the citizens .

• Policies designed to promote local manufactures to produce affordable drugs.
• Lack of funds pushed officials to focus on detection and prevention only instead of treatment.
What is your assessment of how well the various parties are handling the global AIDS
problems?

CIPLA

• Reverse engineered AZT in 1992 and launched Generic Verison for Indian Market at One sixth
of the price from $12/day to $2/day ( $2 was even not affordable)
• CIPLA Tried to persuade the Indian Government to buy and market the drugs

WTO response

Public appeal to the pharma companies to find the way to ensure availability at affordable prices
Profit motive on pandemic have made Pharma manufactures to Pariah status in UN forums
Claim that industry could not achieve profits at lower cost was questioned

Annual cost/Person for Triple

Theraphy in africa
20000
10000
0
USD/Year
1993 1995 1997 1999 2001
What is your assessment of how well the various parties R&D cost as a % of revenue
are handling the global AIDS problems?
20
Multinational pharmaceuticals 10

Action 0
R&D
• Invested heavily in R&D.
• Formed alliances with Government to get aids in terms GlaxoSmithkline Boehringer
Bristol-Myers Merck
of taxes and funds for clinical trails Cipla
• High profit orientation .
Analysis
Profit as a % of revenue
• No motive for social cause.( Burroughs made a profit of
50
~ $592 mio on a sale of $1.4 billion in six years.
• Profit orientation and exploit patent laws.
• No inclination to make the drugs affordable .
• Ever greening : Practice to increase the length of the 0
ProfitPretax Profit
patent
GlaxoSmithkline Boehringer
Bristol-Myers Merck
Cipla
 Question 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?
 Business Model, Key Drivers, Challenges

Key
Low Cost Challenges
Drivers

• Reverse engineering • Tap organic growth • India joined WTO in

built on reverse 1995 & Signs TRIPS.
• Cheap labour and high engineering
skilled manpower in capabilities. • International patents
India for product as well as
• Expanded market to process now hold
• Process redesign to Developing Countries
bypass the patent • Much of Cipla’s
protection laws • Lobbying for support product line will
from local Government become unsellable.
for favourable laws to
promote local • Competition from
manufacturers. Multinationals entering
domestic market
 Question 3

In your view, do Cipla’s practices constitute

unfair competition?
In your view, do Cipla’s practices constitute unfair competition?

Cipla is not Competing:

“…I couldn’t care if I don’t sell a dollar’s worth of

antiretrovirals as long as long as people who need
it can get it at an affordable price. But Cipla can’t
supply the world’s needs. Not even 100 Ciplas can
supply the world’s needs. So it has to be team
effort of the multinationals, generic companies,
government – everybody has to be involved.”

CIPLA Followed Legitimate process to make Medication Affordable

 Question 4

What should Dr. Hamied and his company do in

response to challenges they face?
 Defend, protect and consolidate existing position
• By lobbing with the India Government for exercising
exceptions and allowing the patent to be void
Defensive • TRIPS allowed for exceptions in case of War, epidemics,
Strategy antitrust violations
• And a provision called “failure to work the patent”. Means
allowed the patent to be void if patent holder failed to sell or
make the drug at affordable price to average citizen

Build new capabilities

• Expand geographically through internationalization penetrating
developed and developing nations
• Strategic Alliances with foreign players to split gain & loss in
Aggressive
R&D
Strategy
• Invest heavily in R&D
• Invest in lobbying to force government to design policies to
promote local drug manufacturers
• Dynamic pricing generics for poor , brand for rich
• More export
 Question 5

What id anything the following parties do to

combat the global AIDS crisis? (1)” Big Pharma”,
(2) “rich county governments”, (3) “non-
governmental organizations (NGOs)” and non-
profits such as the Clinton Foundation?
What id anything the following parties do to combat the global AIDS crisis? (1)” Big Pharma”, (2)
“rich county governments”, (3) “non-governmental organizations (NGOs)” and non-profits such as
the Clinton Foundation?

(1) ”Big Pharma”

 Post identification of Aids in 1982, invested heavily in R&D to produce anti-AIDS vaccine (AZT).
 Intent was to make extraordinary profits by selling the drugs at a premium price (Burrooughs
earned ~ $562 mio on a sale of ~$1.4 Billion (~40% return) in six years.
 Majority of R & D funds (57%) and a part of clinical trial cost (33%) were supported by
governments.
 Additional support of expedited FDA approvals & Tax Credits from USA Govt.
 Sued South African Govt. (~40 cases) when it tried to procure AIDS cure drugs from generic
manufacturers.
 Didn’t acknowledge calls from third world poor countries govt., global bodies & NGO’s.
2) “Rich county governments”,

 Liberal Policies/Laws support for Pharma Companies.

 Incentives to companies focused on Aids medication development. 57% of R&D & 1/3rd of clinical
trials cost for medical research funded by government in U.S.
 The time to approval was cut to nearly half from industry average. (87.4 months to 44.6 months).
 May 11, 2000, a deal was announced: The companies would deeply discount their
pharmaceuticals on the conditions of burden sharing by governments and reinforced protection
of the industry’s patents.

(3) “Non-governmental organizations (NDOs)”

 Tried to convince big pharma companies like bristol-Mayers, Glaxosmitkline,Merck etc to reduce
medicine prices.
 Created awareness that fighting a pandemic is a shared responsibility of society as a whole. Hence
pharma companies should share responsibility of making medication affordable.
 Had an unspoken goal of driving the prices of patented Aids drugs down to the level of generics
and of making the drugs available as widely as possible.
Knowledge and Competitive Advantage: Capturing value from Knowledge Assets
David J Teece
Economic Prosperity rest upon knowledge and its useful application

 Intellectual Property Regimes: Patents .Trademarks, Trade Secrets and Copyright

 ME Porter: Competitive Advantage of the Nations Inherent
Replicability
 Appropriable Regimes of Knowledge Assets Intellectual
Property Easy Hard
 S.Winter, Knoweldge and Competence as Strategic Assets Rights Loose Weak Moderate
Tight Moderate Strong
Some Sectoral Differences in the Market for Know-How

Challenge Chemical/Pharmaceuticals Electronics

Recognition Manageble Extremely complex often impossible
Disclosure Handeled by NDA ,patemts common More Difficult

Interface Issue Compatibility generally not an issue Compatibility generally issue

Royality Stacking , royality base Infrequent Frequent

dilemmas
Value context dependent Strongly so Very Strongly so
Patent Srength Generally High Sometimes limited
Development Cycle Often Long Generally Short
Know How Market Works Generally Well Often Poor
Questions