Cipla plans big overseas push.

A generational transition is unfolding at home-grown pharma company Cipla. With its 76-year-old chairman and managing director, Yusuf Hamied, deciding to call it a day, the group’s headquarters in Mumbai is abuzz with activity as the new guard, which includes Hamied’s nephew Kaamil Hamied and niece Samera Vazirali, gears up to take charge.

However, along with the change in leadership, there are signs of a change in the 77-year-old company’s strategy too. Cipla is moving away from its steadfast focus on India and the unregulated markets, particularly Africa, and the Messianic imprint that Hamied brought to the company.

It is now taking steps to advance its footprint in the developed countries. In the 1990s, when other Indian companies, most notably Ranbaxy and Dr Reddy’s , were actively looking for opportunities in the developed world, Cipla was content being a domestic player and focusing on the poor countries.

Hamied, who will continue to be the chairman of the company, has been hailed as the messiah of the poor — fighting against the multinationals to bring down the cost of drugs. Under Hamied, Cipla was selling anti-AIDS drugs for less than $300 for a year’s dose as against $24,000 that multinationals were charging.

However, with its earnings growth reaching a plateau, there has been a rethink in the company, say analysts. Cipla has appointed regional heads across geographies to push global sales. The strategy, obviously, makes sense. The global pharmaceuticals market is worth $900 billion. Of this, the US market accounts for $450 billion and $60-70 billion of that is generated by selling generic drugs which have gone off patent. Obviously, it is too big a market to ignore. “We are targeting the US market in a big way. We have already opened an office there. At the same time, we are also setting up a facility in Turkey and in Australia. Besides, we have bought minority stakes in three companies in China,” says Hamied. Cipla is also looking at Japan, the second largest pharmaceutical market in the world. It is trying to forge a marketing alliance with a Japanese player to sell some of its drugs.

However, its plans to acquire its distributor in South Africa have met with little success. “Certain legal issues have cropped up”, says Hamied. The company is under investigations by the South African authorities as its share price shot up just before the takeover offer by Cipla. In the interim, more impediments have come in the way. The country’s currency, the rand, has moved unfavourably against the dollar, raising the cost of acquisition for Cipla; there has been a leadership exit in the company; and South Africa has changed the rules on tender business, which means less business for the South African company from the local government.

Cipla has not given up on it yet. “We want this company to be our beachhead in the entire African market and we are still pursuing the acquisition,” says Hamied.

The reasons for this dogged pursuit are many. The world with its growing elderly population, preference for cheaper medicines, significant patent expiries, and emergence of new markets presents an interesting opportunity for the Indian companies. Almost all Indian pharma companies are expecting sizable business from their overseas operations. Cipla itself is expecting its foreign business to contribute 70 per cent of its revenues from 55 per cent per cent now. By 2020, the company is targeting to become a $5-billion company.

However, analysts say in the absence of new growth areas, earnings growth for Cipla could revert to the early teens. The demand for its asthma drug, Dymista, has been slow to pick up in the US and accounts for only 3 per cent market share. There are other concerns too.

“Cipla’s ability to monetize generic Truvada (used to treat AIDS) in 2013 is doubtful. Domestic pricing policy and further strengthening of the rupee pose downside risk to analysts’ estimates,” says a Morgan Stanley analyst.

Cipla, therefore, is betting on the European market to pick up the slack. With its basket of 11 inhaler drugs for asthma, it is hoping to make inroads into the market share of Seretide which generates sales worth $2.5-billion annually. The global respiratory market is worth $34-billion and is dominated by the US and Europe.

“Given our technical strengths and expertise in this area, it is imperative for us to leverage these strengths not only in Europe but also in the rest of the world,” says S Radhakrishnan, chief financial office, Cipla. The company enjoys a leadership position in the inhalation therapy segment in India.

At the same time, Cipla is also working on several new medicines for the European market. So far it has received regulatory approval for four drugs and is awaiting clearance for another seven. To market its medicines, it has tied up with Sweden’s Meda AB and is exploring more options.

Innovation is becoming a focus area as well. It is investing close to 5 per cent of its net sales in researching new drugs. It has received patents on incremental innovations like Dymista and is working on a drug based on nano-particles to treat AIDS. Once the product comes into the market, it will lower the cost of anti-AIDS drugs substantially.

Source : Business Standard.

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