 "Cipla is back to old strategy with a twist")
In the past six months, Cipla has exited 24 countries and brought down its presence abroad to 110 nations from about 135 earlier. Much of this has been achieved by Umang Vora, who took charge as managing director and chief executive officer (CEO) from September 1. He was elevated from the earlier role of chief operating officer. Vora aims to exit six more countries in the near future and there could be more on the cards.
These moves are aimed at enabling the company to maintain focused and profitable growth. However, the phase of accelerated expansion into global markets did not start too long ago. Subhanu Saxena joined the company as CEO in February 2013, following the resignation of then joint managing director Amar Lulla in December 2010. Saxena, to strengthen presence in the “rest of the world” markets, entered into a series of acquisitions of distributions companies. It was a move to adopt the costly front-end model of business beyond the domestic market. It was opposite to what Lulla had practised under the partnership model for the company in foreign markets.
“In the past four years, the company invested in building front-end in various global markets, acquiring key assets such as Medpro in South Africa and building strong leadership positions in various emerging markets,” said a company spokesperson in response to Business Standard’s query. Cipla acquired Medpro in 2013 for Rs 2,707 crore and followed up with the Rs 3,575-crore acquisitions of the US generic drug makers, InvaGen and Exelan. “Our focus will be to consolidate our position globally and focus on our key markets,” the spokesperson said.
As part of the new strategy, Cipla intends to have front-end presence in “key markets” including India, the US and South Africa. In other markets, it intends to return to the old model of partnership.
Leveraging the front-end in the US market, the company plans to launch 10-15 products. It has a target of filing 20-25 ANDAs (Abbreviated New Drug Applications) in the current financial year for drugs going off-patent.
“We expect the execution of the InvaGen pipeline and continued approvals in Cipla DTM (direct-to-market) to ramp up the US revenue to about $500 million by FY18, which should help improve base business margin over FY18-19,” said Neha Manpuria, analyst with JP Morgan Securities.
In the next five to seven years, the US is going to see drugs in broad categories of respiratory, HIV, immuno medications and oncology, go off-patent. The company has huge proven capabilities in respiratory and HIV drugs where it sees opportunity with drugs going off-patent in the US. Oncology is the third area where the company claims to be well-versed with to capitalise on the coming opportunity in the world’s largest market for pharmaceutical products.
Cipla reported 18 per cent of its Rs 3,594-crore revenue in the quarter ended June from North America. Domestic rivals Lupin earns over 40-45 per cent of revenue from the US market. While there is potential for Cipla to ramp up the revenue share of the US market in the short to medium term, analysts don’t sound confident.
“While management expects US business to see strong growth led by four-five limited competition (drugs) over the next 12 months, the challenges for the business have risen significantly and we remain cautious,” said Piyush Nahar, analyst at Jefferies India. “Cipla is, in our view, significantly late to the market, which will limit the overall potential of the business,” he said in his note to investors in August.
“Cipla’s past has been a roller-coaster ride, given management churn – twice,” says Paresh Dave, analyst with Ambit Capital. “With new management, the strategy has reverted to that during Amar Lulla’s tenure, with a minor twist,” he says.
Only time will tell.
