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Cipla

Presented To Prof. Akbar


Submitted ByGroup 8
ARIHANT JAIN wmp09008
AMIT SHARMA wmp09004
Deepak Jain wmp09009
MANISH KUMAR Gupta wmp09024
VIKASH KUMAR wmp09057
Vineet 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

1970s 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 didnt 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their reverse engineered products withdrawn from market.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--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 Indias 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 Ciplas 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 Role

Govts. In developed
Countries
US/UK/
Europe

Funding initial R&D i.e.


understood the need

Protecting pharma
companies mostly because of
corporate lobbing
Could do more preventing the
blatant profiteering by Pharma

Developing
Countries
(IN/SA)

Raising voice at forums


about the greed shown by
pharma companies

Many counties like India in


denial or begging mode
(African) for support

Pharma
Galxo
Boenhringer
Bristol Myers
Merck

Cost allocation to R&D


shows they are sincere in their
efforts

Geed of Profit max for


shareholders
Lobbing and bulling with
govt.
Taking advantage of pandemic. Let it grow.

CIPLA

overcome greed maximization


by Parma companies
Helped to discover real cost
of drug and exposed big
Parma nexus

Have own self interest


because Cipla sold only
Generics

Actor

Positive Role

Negative Role

Non
Government
and Charities.

(+) Convincing pharma


companies to reduce price
(+) Spearheading the campain
against the disease
(+) Mediating between
government and Pharma
companies
(+) Purchasing drugs in bulk to
reduce cost and help mitigate
crisis
(+) Subsidizing the cost or
carrying out charities to curtail
the disease and prevent life
loss

(-) Had limited implementation


power and were mainly
controlled by developed
countries government who
were supported by pharma
lobbing, making change sticky

Global Agencies
UNAIDS, WHO,
UNICEF, WB
and UNDP

Q2:How does Ciplas business model differ from those of the traditional
pharmaceutical companies? What are the key drivers and challenges to Ciplas
success?

Cipla

Other Pharma Co.

Low Cost Medication development though Reverse Medication development through molecule R&D,
Engineering / Process Research. 0.2% Cost in R&D patenting, clinical tials and drug manufacturing( 1215% R&D cost)
Small product development lifecycle
Small product development cycle i.e. Revenue period
long
Based on India patent laws focus on process
patenting
Focus on generic drugs

Long product development lifecycle ( 10 13 years).


Revenue period small but monopoly status
More focus on product patenting and molecule
discovery
Focus on branded/patented drugs

Focus on developing countries / countries with similar Focus on developed countries with strong patent laws
patenting laws as India
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 Change in Regulation making business model
manufacturing cost, coz this is where Cipla can
Government accepting Trade Related Aspects of
use its distinctive advantage
Intellectual Property Rights ( TRIPS) implementation
Legal cover : India law of the land didnt
by 2005, wherein India accepted to enforce international
recognize product patents which helped Cipla to patents.
reverse engineer drugs and produce them at low Foreign Governments : in order to protect local pharma
cost
company interests, foreign govts have resorted to non-tariff
Government Support : Dr. Hamied can influence trade barriers which will make life difficult for generic drug
government decision while considering regulations manufacturers in India
for generics manufactures.
Future 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 Ciplas practices constitute unfair competition?


Fair(+)

Unfair(-)

Humanitarian
Piracy Aspect
Heath care is a basic need vis--vis hence needs to Getting the Free Ride (0.2% investment in R&D vis--vis
be affordable & of quality
average investment of 15%)
Monopoly gives rise to greed and arbitrary pricing. Pre Tax profit of 22% (Questions intention) / 30% YOY
For a non-basic good that may be ok but for
growth while other pharma co. were 1% growth
necessity service its dangerous
Violation of Intellectual property rights.
Ensure reward is not infinite / greed.
t discourages reward of doing research
Build pressure on big phama co. to reduce the price
of drug manufacturing

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 inorganic 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) nongovernmental 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 lifetime
Other than that they did nothing to combat AIDS rises but did everything to enhance
that
High Costing of Drug at $10,000 per year price
Sued South African government when they were trying to gut cure drugs from generics
manufacturer
Lobbied with governments to create policies in their benefit
Arbitrary price driven by greed
Didnt acknowledge call from governments, global bodies and NGOs

Contd..
Rich country governments
Liberal Policies/ Laws for Pharma companies
Incentives 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 Organizations
Convinced 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 didnt 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

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