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Mumbai: Having made its first foreign acquisition earlier this year, Cipla Ltd, India’s second largest drug maker by market share, is planning to go global on the back of its reputation as a maker and supplier of affordable generic drugs to some of the world’s poorest people.
Cipla transformed the global HIV-AIDS treatment landscape by offering its copycat anti-retroviral combination drug at one-fortieth the price charged by multinational drug makers, making the life-saving drug accessible to millions of poor patients in Africa and other markets.
Looking to establish a direct presence in all its key overseas markets, it has now put in place a top management team with strong expertise in the international drugs market to lead the change.
“There is an increasing trend towards countries becoming more self-reliant in pharmaceuticals and thus promoting local manufacturing. Cipla, alongside its existing partnership model, is evaluating direct presence opportunities to make available its wide range of affordable medicines to patients in priority markets globally, but in particular in developing countries,” said managing director (MD) and global chief executive officer (CEO) Subhanu Saxena.
Although it has exported pharmaceutical ingredients and finished products all over the world for decades, Cipla hasn’t had its own manufacturing and sales presence outside of India—until early this year, when it made its first foreign acquisition in South Africa.
The company’s strategy is to turn many of its existing overseas partnerships in manufacturing, sales and marketing, and technology into its own entities or subsidiaries through equity deals or joint ventures, Cipla’s new chief financial officer (global) Rajesh Garg said in an interview.
Yusuf K. Hamied, Cipla’s promoter-chairman, stepped down as MD in February after turning the company into one of India’s top-rung drug makers with an annual turnover of about ₹ 8,000 crore (fiscal year 2012-13) over a period of four decades.
Cipla, which saw its market valuation rising about 56% in the last six years, posted a 126% growth in sales over the period to ₹ 8,524 crore in March 2013 and has set a target of $5 billion sales by 2023.
Cipla’s new growth focus, crafted by the new top management team, is expected to help transform it from a promoter-driven to a professional-driven company.
Apart from Saxena and Garg, the team comprises head of international business Christos Kartalis. The newly posted heads of the US and European businesses, Frank Pieters and Tim Crew; global legal head Murali Neelakantan; global biologicals head Steven Lehrer; and the CEO of the newly acquired overseas subsidiary Cipla Medpro South Africa Ltd—Paul Miller—have also been drafted in.
The new team brings in varied corporate experience. While Saxena headed global product strategy and commercialization at multinational drug maker Novartis AG, Garg comes in with 20 years’ experience in financial administration at multinational companies including Cadbury, Procter and Gamble Co. and General Electric Co. across Europe, North and South America, and Asia. The other top executives are from global generic drug makers such as Teva Pharmaceutical Industries Ltd and Mylan Inc.
On Thursday, Cipla said it bought an additional 14.5% stake in Quality Chemical Industries Ltd (QCIL) of Uganda for $15 million, taking its total stake in the pharmaceutical company to about 51.05%. Cipla’s subsidiary in Uganda, Meditab Holdings Ltd, already owned a 36.55% stake in QCIL.
In the domestic market, Cipla is open to partnering global companies looking for expanding into India through product licensing agreements and joint ventures.
Cipla, with about 5.24% market share, is currently the second largest drug maker in India after US drug maker Abbott Laboratories.
“We see an increased momentum in favour of generic drugs in the world now, and it’s time to leverage our reputation as a trusted generic drug maker to tap that opportunity globally,” said Garg.
Generic drugs or low-cost copycat versions of formerly patented drugs are the preferred option not only in poor countries. Some generics have found an opportunistic market in developed countries such as Germany and the UK, where governments are looking at ways to cut their healthcare budgets.
Cipla’s push comes at a time when most major multinational drug companies, including Pfizer Inc., Novartis, Sanofi SA and GlaxoSmithKline Plc, which largely depended on blockbuster drugs from their discovery pipelines, are exploring growth opportunities in emerging markets by partnering generic drug makers.
Recent years have seen a decline in the number of new blockbuster drugs, which typically have a minimum sales turnover of $1 billion a year, because expensive discovery line-ups of many of the top researchers have narrowed.
Some observers said Cipla’s new strategy could have come earlier.
“Many of its peers in India have already established strong footprints in the global markets through organic growth as well as acquisitions. Setting up a strong business infrastructure overseas takes time,” said an industry executive from a rival drug maker. He declined to be named.
Indian drug makers, including Ranbaxy Laboratories Ltd, Sun Pharmaceuticals Ltd and Dr Reddy’s Laboratories Ltd, as well as many mid-size companies, began their global journey years ago.
Cipla, which exports to around 170 countries, has identified key regions, including the US, South America, Europe, Japan, Australia and developing markets in Asia, and India, in its new growth strategy.
About 60% of its revenue currently comes from export markets. “We have placed our people in most of these markets with individual chief executives leading the teams in all these regions,” said Garg.
As far as the business and therapeutic expansion is concerned, the company plans to focus on the respiratory segment, one of its key earners, and over-the-counter (OTC) business, which is a missing link in its current portfolio.
However, its research and development activities will remain focused on generic drugs. It will also streamline its research pipeline in generics by rationalizing some low priority segments.
Cipla New Ventures, the company’s newly formed technology investment unit, will look at acquiring technology start-ups, mainly in the biological space.
“The company will be again debt-free, after the funding of Cipla-Medpro acquisition (in South Africa), in the next fiscal year with a healthy cash flow on the cards. We will be at a comfortable level for these small deals and other investments that it requires to expand the markets,” said Garg.
“It’s never too late for Cipla to leverage its brand reputation in the world generic drug market,” said Dilip G. Shah, a former director at Pfizer, and secretary general of the Indian Pharmaceutical Alliance, an industry lobby. “The company has always believed in making its drugs accessible to as many patients in the world as possible, and the new growth focus should take the legacy forward.”
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