CiplaPresented To Prof. Akbar

Submitted By-Group 8ARIHANT JAIN wmp09008AMIT SHARMA wmp09004Deepak Jain wmp09009MANISH KUMAR Gupta wmp09024VIKASH KUMAR wmp09057Vineet Kumar wmp09058

Case Facts

• Cipla was formed in 1935 by Khwaja Abdul Hamied ( German educated chemist and entrepreneur)

• Helped British with drugs during World War II to create goodwill so that after war we India can request for freedom

• 1970’s Cipla established itself as a respectable small pharma company

• 1972 Cipla reign passed to Dr. Yusuf Hamied

• By 2002 Cipla was growing at rate of 30.3% YOY basis and 22% profit margin.

• Still market was not very positive of their future

• This is because they have not build/researched any knowledge based assets i.e. drug molecules

• Cipla didn’t follow R&D path for development but used reverse engineering for drug discovery

• They were in generics segment

Case Facts Contd...

• India acceptance of TRIPS (Trade Related Aspects of Intellectual Property Rights ) will make many of their reverse engineered products withdrawn from market.

• Cipla was known in World form because it reversed engineered the AIDS drug and told that cost of producing it will be appx $ 200 and they were ready to supply affected nation the drug at that price

• Considering AIDS was a pandemic declared by WHO support to provide drug at $200 vis-à-vis market availability of same drug at $10,000 created ripples in society

• This caused the drug prices to go down

• The case talks of about the role of such generics producing organizations in the world

• Currently issue faced with Cipla is “What I should do as a strategy to combat with multinational players and India’s acceptance of TRIPS by 2005”?

• Post 2005 (Case is set in 2003) many of the drugs by Cipla will come under TRIPS scanner and removed from market

• Previously Cipla’s used low cost strategy to succeed in market, but post TRIPS they will have to decide on the strategy and intangibles in terms of knowledge base

Question1: What is your assessment of how well the various parties are handling the global AIDS problems?

Actor Positive Role Negative RoleGovts. In developed CountriesUS/UK/Europe

Funding initial R&D i.e.understood the need

Protecting pharmacompanies mostly because ofcorporate lobbing

Could do more preventing theblatant profiteering by Pharma

DevelopingCountries(IN/SA)

Raising voice at forumsabout the greed shown bypharma companies

Many counties like India indenial or begging mode(African) for support

PharmaGalxoBoenhringerBristol MyersMerck

Cost allocation to R&Dshows they are sincere in theirefforts

Geed of Profit max forshareholdersLobbing and bulling withgovt.Taking advantage of pandemic. Let it grow.

CIPLA overcome greed maximizationby Parma companiesHelped to discover real costof drug and exposed bigParma nexus

Have own self interestbecause Cipla sold onlyGenerics

Actor Positive Role Negative Role

NonGovernmentand Charities.

Global AgenciesUNAIDS, WHO,UNICEF, WBand UNDP

(+) Convincing pharmacompanies to reduce price(+) Spearheading the campainagainst the disease(+) Mediating betweengovernment and Pharmacompanies(+) Purchasing drugs in bulk toreduce cost and help mitigatecrisis(+) Subsidizing the cost orcarrying out charities to curtailthe disease and prevent lifeloss

(-) Had limited implementationpower and were mainlycontrolled by developedcountries government whowere supported by pharmalobbing, making change sticky

Q2: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 Other Pharma Co.Low Cost  Medication development though ‘Reverse Engineering  / Process Research’. 0.2% Cost in R&D

Small product development lifecycle

Medication development through molecule R&D, patenting, clinical tials and drug manufacturing( 12-15% R&D cost)

Small product development cycle i.e. Revenue period long

Long product development lifecycle ( 10 – 13 years). Revenue period small but monopoly status

Based on India patent laws focus on process patenting

More focus on product patenting and molecule discovery

Focus on generic drugs Focus on branded/patented drugs

Focus on developing countries / countries with similar patenting laws as India

Focus on developed countries with strong patent laws

Generics:  avoid clinical trails Clinical trails must

Significant cost on manufacturing and raw material i.e. technology and raw material restraints

Significant cost on selling and administration i.e. focus on brand building

Contd..Drivers Challenges

Cost difference : Of the patented drug and actual manufacturing cost, coz this is where Cipla can use its distinctive advantageLegal cover  : India law of the land didn’t recognize product patents which helped Cipla to reverse engineer drugs and produce them at low costGovernment Support : Dr. Hamied can influence government decision while considering regulations for generics manufactures.

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.Foreign Governments : in order to protect local pharma company interests, foreign govts have resorted to non-tariff trade barriers which will make life difficult for generic drug manufacturers in IndiaFuture Value Impact: Do not have truly research products hence they will not be able to sell their reverse engineered products after 2005.Building Research Capability : Time taking process and required large initial capital how to fund the same.

Q3:In your view, do Cipla’s practices constitute unfair competition?

Fair(+) Unfair(-)

HumanitarianHeath care is a basic need vis-à-vis hence needs to be affordable & of qualityMonopoly gives rise to greed and arbitrary pricing. For a non-basic good that may be ok but for necessity service its dangerousEnsure reward is not infinite / greed.Build pressure on big phama co. to reduce the price of drug manufacturing

Piracy AspectGetting the Free Ride (0.2% investment in R&D vis-à-vis average investment of 15%) Pre Tax profit of 22% (Questions intention) / 30% YOY growth while other pharma co. were 1% growthViolation of Intellectual property rights.t discourages reward of doing research

Groups View: For pandemics and mass effecting diseases or for ones where no other alternative available having such kind of Robin Hood's is beneficial for the society. This can be seen when even developed countries invited Dr. Hamied to know actual cost of drug knowing that his drugs are reverse engineered. Otherwise this type of behavior should not be encouraged and constitute for unfair competition.

Q4: What should Dr.  Hamied and his company do in response to challenges they face?

• In long term focus of innovation and build intangibles assets though R&D and  process innovations

• Get involved with Drug development programs with governments though institutes like CDRI ( Central Drug research Institute )

• Work with other drug manufacturing organizations to form shared R&D team and reduce cost of product development

• Acquisition/JV/Licensing of firms who research molecules and go for in-organic growth to cover knowledge gap with the organization

• Become only a generic manufacturer• Lobby with government to continue with existing products in as is

behavior• Lobby with government to get non-tariff restrictions though

clinical trials etc. to get time to build in short term.• Export & build resource in developing countries like South Africa

which will cut cost & minimize legal hurdles of export of drugs.• Start to develop drugs whose patent is to expire.

Q5:What id anything the following parties do to combat the global AIDS crisis? (1)” Big Parma”, (2) “rich county governments”, (3) “non-governmental organizations (NDOs)” and non-profits such as the Clinton Foundation?

Big Pharma Post identification of AIDS in 1982, They invested large amount in R&D to produce anti-AIDS vaccine commonly known as AZT. This slowed the process of AIDS infection and enhanced patients lifetimeOther than that they did nothing to combat AIDS rises but did everything to enhance thatHigh Costing of Drug at $10,000 per year priceSued South African government when they were trying to gut cure drugs from generics manufacturerLobbied with government’s to create policies in their benefitArbitrary price driven by greedDidn’t acknowledge call from governments, global bodies and NGO’s

Contd..Rich country governments Liberal Policies/ Laws for – Pharma companiesIncentives to companies focused on AIDS medication development. 57% of development cost and 1/3rd of the cost of clinical trials for medication research funded by government in U.S.Cut time to approval to nearly half – Industry average 87.4 to 44.6 months ( increasing the without decreasing the patent duration) i.e. increase revenue period.In 2000, revoked the ban on re-importation of prescription drugs manufactured in US and exported to foreign countries. This was a two edged sword instead of helping America with cheaper imports it killed the incentive for pharma companies to go for exports to foreign countries at lower price. Later rich counties tried to put pressure on pharma companies to reduce the price of drugs to combat the disease

Contd..Non – Government OrganizationsConvinced big pharma companies like Bristol-Myers, Glaxosmithkline, Merck etc reduce medication cost. 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.May 11, 2000, a deal was announced; companies would deeply discount their pharma products on burden-sharing with govt and increased protection of industry patents. This was not successful because companies didn’t acknowledge the deal due to ulterior motives.Partnership with Clinton Foundation to distribute antiretroviral drugs in Africa to prevent AIDS. It helped to find ways to reduce cost and increase scale of production.

Thank you