Rejuvenating Cipla: After global expansion, acquisitions on cards

Having consolidated its presence across geographies, the pharma major is looking at acquisitions

It has been seven years since scientist-businessman YK Hamied’s niece, Samina Hamied, joined the Cipla Board. In this period, it has been a remarkable journey for the company, and she credits much of the turnaround story to her colleague Umang Vohra, who is managing director and Global CEO.

Efforts made over the past several years have helped Cipla deliver the performance we see today, which has earned it the Company of the Year award. The company’s Ebitda margin, for instance, has grown steadily, from around 14 per cent to 22.8 per cent in the last seven years.

In FY21, Cipla’s revenue grew by nearly 12 per cent to Rs 19,160 crore, while net profit, at Rs 2,405 crore, was up 55.5 per cent over the previous year. As a result, the return on net worth and capital employed improved by 400 and 520 basis points in FY21, to 14.1 per cent and 17.4 per cent, respectively.

On the business front, the company has cemented its position not only as the leader in the respiratory segment in the Indian market, but is now looking to do the same in the US market.

The FY21 performance, to an extent, was also aided by the pandemic. Cipla led the Indian pharmaceutical industry’s response to the health crisis from the forefront — covering almost the entire Covid-19 treatment basket (remdesivir, tocilizumab, as well as common drugs like amphotericin B, dexamethasone, enoxaparin and more).

When Hamied took charge, Cipla had spread itself across several emerging markets, had no front-end in the US, had made no acquisition, and was posting Ebitda margins of 13-14 per cent.

“Cipla had not hired a single MBA before I joined,” says the soft-spoken Hamied.

Now the executive vice-chairperson of Cipla, she was working as an investment banker in the US. She relocated to India for personal reasons, and soon her brother Kamil Hamied decided to give up his day-to-day operational role at the firm. Samina, then 38, daughter of MK Hamied — YK Hamied’s brother — was groomed by the two industry veterans to take charge.

Prior to this, Samina had no experience in pharmaceuticals, unlike her brother Kamil, who had worked at Cipla for 10 years after finishing college. Sitting in her Lower Parel office on a hot summer Monday morning in April, Samina says that perhaps her lack of experience in pharma helped her bring in a fresh perspective.

“I had two great mentors in Dr YK Hamied and Mr Hamied (MK Hamied), and they still continue to guide us in their eighties. When I had to learn pharma there were enough people in the system who could coach me, but learning the non-pharma bits of this business, too, was equally important,” she says, adding that hiring Vohra was the most critical decision she took seven years ago. Coming from a pharmaceutical background, he complemented Samina’s non-pharma, investment banking background.

Apart from consolidating their presence across geographies, Vohra and Samina decided to focus on the US market. “We started building a US business. We decided that if we want to build this market, some of the smaller businesses should go, and that is the discipline we brought in,” says Vohra.

In 2016, when Cipla completed the $500-million acquisition of InvaGen and Exelan, it was earning around 8 per cent of its revenues from the US market, compared to 40-50 for peers like Sun Pharmaceutical and Lupin. The deal that was announced in September 2015 gave this 85-year-old company a bigger presence in the lucrative US market. It drew 21 per cent of its revenues from the US in FY21.

Samina says they are now open to making acquisitions in India as well, their largest and most important market, where they rank third. If not entire companies, Cipla is open to acquiring a portfolio of brands that are a strategic fit.

Another area that the company is working on in India is point-of-care diagnostics for respiratory illnesses. “Having diagnostics at point-of-care instead of someone going to get a test done elsewhere is critical for respiratory illnesses, where many patients are undiagnosed,” Samina says.

“We started a direct-to-consumer campaign through doctors and normalising the stigma around respiratory illnesses. We came up with a hand-held spirometry device that helps the doctor to do a diagnostic for lung function. We launched it this year (CY2022),” she adds. This is a diagnostic at point-of-care.

In the respiratory segment, says Vohra, if patients go undiagnosed it is because of the stigma — people don’t feel comfortable using inhalers in front of others.

“The lung function test is the most ignored test in a general diagnostic check-up. Introducing the diagnostic at point-of-care means the spirometry device is at the doctor’s table, and the data gets fed directly into his computer,” he adds.

It’s this leadership position in respiratory health that Cipla is now trying to encash globally.

“Worldwide, we are trying to treat the lung as a pathway to other medications — for example, a lot of people have fungal infections of the lung. Most people rely on oral solids. If the same medicine is delivered through an inhaler, then the medicine goes directly to the lungs,” explains Vohra.

What is the next frontier for a firm which is the World No. 2 in respiratory medication?

Samina believes that brands will play a key role: “There is a crossover between illness and wellness, where every patient of Cipla is also a consumer. And every consumer can also be a Cipla patient. This association can start at a doctor’s clinic and can end on a TV screen with a brand. There is an incredible amount of brand loyalty which stands for quality.”

Vohra adds that India’s largest selling brand for pain (in terms of volumes) is one of their generic brands — Omnigel.

MK Hamied had entered into the trade generics space many decades ago, and it is now an important vertical for the company. (Trade generics is the term used for drugs being pushed directly to the trade, rather than being promoted through doctors.)

“Trade generics go where pharma representatives cannot go. Our trade generics sales are from tier-2 to tier-6 cities, and not from metros. Metros and tier-1 towns are covered by pharma representatives,” says Vohra.

He is bullish on the potential of the hinterland, believing that the boost in expenditure that will come from Ayushman Bharat and primary health centres (PHCs) will drive the consumption of drugs.

“Now Ayushman Bharat and PHCs will drive pharmaceutical consumption in Bharat. Digitised ways to reach these areas will add more fillip. A lot of distribution is done through the phone now,” Vohra adds.

Cipla never had hospitals beyond tier-2 and tier-3 cities, because there was no paying power. “With Ayushman Bharat, the paying power is there — a lot of 20-30 bed small hospitals are coming up. This will drive pharma sales volumes,” he believes.