What prompted Y.K. Hamied to go for a management change at Cipla
Y.K. Hamied steps down as managing director of Cipla in February. His decision to function as non-executive chairman from April 1 and other management changes are significant. The move is part of a major transformation aimed at propelling the company into a new orbit.
Tucked away neatly in a corner in the Mumbai office of Yusuf Khwaja Hamied is a desk stacked with journals and reference papers. Hamied, 76, subscribes to about 400 journals and spends close to five hours reading those every day. He makes some markings on those journals in red ink and sends them to the senior management of his pharmaceutical company Cipla.
Why? "Because I am seeing things in totality," he says with a gentle smile. Seeing things in totality, perhaps, is what prompted Hamied to redefine his role at India's third-largest drug maker by market value. On February 6, the septuagenarian announced he would step down as managing director after nearly four decades at the helm of the company his father, K.A. Hamied, founded in 1935 as Chemical, Industrial and Pharmaceutical Laboratories.
February 6 holds a special place in Yusuf Hamied's heart for another reason. It was on this day in 2001 when he jolted the global pharmaceutical industry with his offer to sell anti-AIDS drugs at a fraction of the price charged by multinational drug makers in Africa. At the time, global drug makers were charging as much as $12,000 for a year's dose of AIDS drugs in the West. Cipla priced its Triomune - a combination of three generic medicines - at $300 a year, or less than one dollar a day.
"The whole course of Cipla's destiny and history changed on that day when we took the lead in AIDS drugs," Hamied told BT shortly after the February announcement. "At that time hardly 2,000 people in the whole of Africa could afford treatment for AIDS. Today, there are over eight million being treated. That gives a lot of satisfaction."
Hamied, arguably the most combative CEO in Indian pharmaceutical industry, has always maintained that he believed in making affordable medicines. Cipla has been among the few to voice concerns over alleged attempts by big multinational pharmaceutical companies to extend patent rights over products by making minor modifications, a practice called "evergreening" in industry jargon. The company was among those who welcomed the Supreme Court of India's April 1 decision to reject a plea by Swiss drug maker Novartis seeking a patent for its cancer drug Glivec.
Management Changes
While the launch of the AIDS drug in Africa was a defining moment for Cipla, Hamied's decision to function as non-executive chairman from April 1 and other management changes are equally significant. The move is part of a major transformation aimed at propelling the company into a new orbit. Over the past few months, Cipla has appointed a chief executive for the first time and hired several other professionals to lead its businesses in overseas markets. The company is also tweaking its business model and gearing up to benefit from the opportunities of the future. In short, it is seeking to reinvent itself.
"You can manage to grow a company individually only up to a point," Hamied told BT in an interview in his office in late April. "I can't manage a Rs 8,000 crore company individually.
I need professional management if I need to grow from Rs 8,000 crore to $5 billion (Rs 27,000 crore) in the next 10 years." This explains his decision to hire Subhanu Saxena as CEO, and Timothy Crew and Frank Pieters to lead the US and European businesses.
While Saxena joined from Swiss drug giant Novartis, Crew and Pieters previously worked with Israel's Teva Pharmaceutical. All three come with rich experience. Saxena has worked with Citigroup, the Boston Consulting Group, and PepsiCo. In his last assignment, he led the global product strategy and commercialisation functions at Novartis. Crew was earlier the head of generics division for North America at Teva. Pieters played a significant role in accelerating growth of Teva's respiratory business globally.
The Hamied family's role has been reoriented as well. M.K. Hamied, Yusuf's younger brother, has been elevated to Managing Director from Joint Managing Director earlier, though he is also likely to retire soon. While Yusuf Hamied has no children, both of M.K. Hamied's children have taken up leadership roles. M.K. Hamied's son, Kamil, who has been with the company for the past few years, has been named Chief Strategy Officer and will report to Saxena. He will be responsible for strategic alliances and evaluation of licensing deals as well as mergers and acquisitions.
Kamil's sister, Samina Vaziralli, will work with Cipla New Ventures, the company's venture capital unit set up in April this year. Vaziralli has previously worked with the investment management division of Goldman Sachs. The idea behind setting up the unit is "to build new business streams of the future without the distraction of the current business," Saxena said in an email interview.
Cipla New Ventures will act like a holding company with a portfolio of four or five new businesses. These new businesses include developing medicinal products based on stem cells and biosimilars, or copies of branded biotech medicines.
Management consultant Nabankar Gupta endorses the leadership changes. The infusion of fresh blood is essential as founders can take a company only to a certain level, he says. "The rules of the game change with time. The strategic thinking has to be different, opportunities are different and the risk-taking is also different.
So, if you want to propel growth at a much faster rate, then you certainly need to have a completely new team."
New Business Model
Cipla has always been known for its product development skills and manufacturing prowess. It has seldom had any direct marketing or sales presence in overseas markets, preferring instead to tie up with local distributors.
That is set to change in some markets. "We want our own direct presence in Japan, Africa, America and Europe," says Hamied, who received the Padma Bhushan, India's third-highest civilian honour, in 2005. "We cannot work totally with a partnership model. It has to be a direct customer-facing presence."
Saxena explains that the company will build a marketing and sales network in a few countries only. In markets such as the UK and Germany it will be directly tendering for business instead of going through a partner. In some other countries it will form strategic alliances, he adds.
The company has also started filing applications for generic drug approvals on its own for markets like the US instead of going through local partners. Besides, it is evaluating the possibilities of making acquisitions in countries including Brazil, Turkey and Japan. "We are keenly looking at some of these markets... because some of them are becoming quite strategic in nature," Chief Financial Officer V.S. Mani told analysts on February 6 on a conference call to discuss quarterly results. He ruled out big-ticket acquisitions to establish a direct marketing presence overseas.
As part of efforts to build a direct marketing presence, the Indian drug maker has offered to acquire Cipla Medpro in South Africa for about half-a-billion dollars. Cipla Medpro was set up as a joint venture between the Indian company and South Africa's Medpro Pharmaceutica.
Cipla Medpro is now South Africa's third-largest pharmaceutical company with strong presence in cardiovascular, anti-retroviral, respiratory and neuropsychiatric categories. The deal, if it goes through, will be the biggest foreign acquisition by Cipla and will give it greater access to an important export market.
Cipla, which supplies medicines to nearly 170 countries, also wants to establish a direct marketing presence in the United States and other tightly regulated markets. Analysts say the company will have to iron out issues related to supply chain, contacts with traders, extending credit to customers, and setting up inventory to build a strong marketing presence overseas.
In the US, the world's largest pharmaceutical market, it will have to build relationships with insurers and Pharmacy Benefit Managers, who process and pay prescription-drug claims. In Africa, Cipla could face stiff competition in the private sector though an entry into the government segment is not as difficult.
Anubhav Aggarwal, Vice President at brokerage Credit Suisse, says Cipla is unlikely to face too many problems in the US as it has been there for close to 15 years through partners. Emerging economies will be the bigger challenge, he feels. In Europe, where Cipla sees a market for its respiratory portfolio, the challenge may only be getting product approvals in multiple countries, he adds.
"Building a commercial presence and hiring the right people cannot be done overnight but Cipla is surely making progress," says G.V. Prasad, Chairman and CEO of drug maker Dr Reddy's Laboratories. The transition will be time-consuming - some expect it could take five years for the company to start getting the full benefit.
In the interim, they expect the increased expenses on establishing sales and marketing presence to hurt profitability. "It may be too early to comment on the change of strategy and how they execute it," says Manoj Garg, Vice President for health-care at brokerage firm Edelweiss. "This may impact profitability in the near term but it is likely to be a win-win for the company in the long run."
Focus on R&D
Running parallel with Cipla's plans on growing its marketing presence overseas is its focus on making more medicines affordable. The company has in the past year slashed prices of drugs to treat lung and breast cancer, among others. "We will develop new molecules over the next few years as part of our strategy to strengthen key therapeutic areas," says Saxena. "We have over 100 projects in our development pipeline including novel combinations and generics. Our focus is to bring each and every one of these products to market."
Saxena says the company is changing the way it deals with its strategic partners while developing a product. Cipla will now "proactively decide" what it wants its portfolio to look like, instead of making whatever its partners want. "For example, respiratory is an area where Cipla has unique capabilities and where we will develop a rich pipeline over the next five years," he says.
Cipla has a 45 per cent market share in anti-asthma drugs in India, according to data from health-care market research firm IMS Health. Saxena also says Cipla will assign one team each to work on a project from start to finish, and not have each function working separately on the project. "This approach will allow us to target the right therapies and have resources totally aligned across the company on the right projects," he says.
What is Hamied's take on research and development? He says Cipla spends at least $100 million a year on R&D. But, for the Indian industry, the future in R&D will largely be in "incremental innovation" and not fundamental research, says Hamied, a Ph.D in chemistry from Christ College, Cambridge. His comments reflect the struggles big global pharmaceutical companies are facing in developing new drugs. As the pipeline of blockbuster drugs is drying, many big global companies are building their presence in the generics market. "If you want prices to be cheap then don't ask us to do fundamental research.
The two don't go hand-in-hand," he says. In another conversation in mid-April, Hamied said over the phone from London that until India passed the 2005 patent law, which has allowed product patents, the company could make any product it wanted. But this is no longer the case. Cipla would have to position itself on the lines of global generic majors such as Teva or the US-based Mylan. That again may not be easy, as these generic companies have grown in size mainly through acquisitions while Cipla has rarely adopted this route.
What is engaging Hamied's attention at the moment? "My only purpose in life today is how to get the 2005 patent bill revoked so that it suits India," he says. "Its effects will start kicking in from 2015 and people like you, me and others will not be able to afford drugs."
Coming from someone who made life-saving medicines affordable for millions that surely is a dire warning that big drug makers better take seriously.
Cipla Chairman Y.K. Hamied
"The whole course of Cipla's destiny and history changed on that day when we took the lead in AIDS drugs," Hamied told BT shortly after the February announcement. "At that time hardly 2,000 people in the whole of Africa could afford treatment for AIDS. Today, there are over eight million being treated. That gives a lot of satisfaction."
Hamied, arguably the most combative CEO in Indian pharmaceutical industry, has always maintained that he believed in making affordable medicines. Cipla has been among the few to voice concerns over alleged attempts by big multinational pharmaceutical companies to extend patent rights over products by making minor modifications, a practice called "evergreening" in industry jargon. The company was among those who welcomed the Supreme Court of India's April 1 decision to reject a plea by Swiss drug maker Novartis seeking a patent for its cancer drug Glivec.
Management Changes
While the launch of the AIDS drug in Africa was a defining moment for Cipla, Hamied's decision to function as non-executive chairman from April 1 and other management changes are equally significant. The move is part of a major transformation aimed at propelling the company into a new orbit. Over the past few months, Cipla has appointed a chief executive for the first time and hired several other professionals to lead its businesses in overseas markets. The company is also tweaking its business model and gearing up to benefit from the opportunities of the future. In short, it is seeking to reinvent itself.
"You can manage to grow a company individually only up to a point," Hamied told BT in an interview in his office in late April. "I can't manage a Rs 8,000 crore company individually.
While Saxena joined from Swiss drug giant Novartis, Crew and Pieters previously worked with Israel's Teva Pharmaceutical. All three come with rich experience. Saxena has worked with Citigroup, the Boston Consulting Group, and PepsiCo. In his last assignment, he led the global product strategy and commercialisation functions at Novartis. Crew was earlier the head of generics division for North America at Teva. Pieters played a significant role in accelerating growth of Teva's respiratory business globally.
Building a commercial presence and hiring the right people cannot be done overnight but Cipla is surely making progress"
G.V. Prasad
Chairman and CEO
Dr Reddy's Laboratories
Kamil's sister, Samina Vaziralli, will work with Cipla New Ventures, the company's venture capital unit set up in April this year. Vaziralli has previously worked with the investment management division of Goldman Sachs. The idea behind setting up the unit is "to build new business streams of the future without the distraction of the current business," Saxena said in an email interview.
Management consultant Nabankar Gupta endorses the leadership changes. The infusion of fresh blood is essential as founders can take a company only to a certain level, he says. "The rules of the game change with time. The strategic thinking has to be different, opportunities are different and the risk-taking is also different.
So, if you want to propel growth at a much faster rate, then you certainly need to have a completely new team."
New Business Model
Cipla has always been known for its product development skills and manufacturing prowess. It has seldom had any direct marketing or sales presence in overseas markets, preferring instead to tie up with local distributors.
That is set to change in some markets. "We want our own direct presence in Japan, Africa, America and Europe," says Hamied, who received the Padma Bhushan, India's third-highest civilian honour, in 2005. "We cannot work totally with a partnership model. It has to be a direct customer-facing presence."
Saxena explains that the company will build a marketing and sales network in a few countries only. In markets such as the UK and Germany it will be directly tendering for business instead of going through a partner. In some other countries it will form strategic alliances, he adds.
The company has also started filing applications for generic drug approvals on its own for markets like the US instead of going through local partners. Besides, it is evaluating the possibilities of making acquisitions in countries including Brazil, Turkey and Japan. "We are keenly looking at some of these markets... because some of them are becoming quite strategic in nature," Chief Financial Officer V.S. Mani told analysts on February 6 on a conference call to discuss quarterly results. He ruled out big-ticket acquisitions to establish a direct marketing presence overseas.
As part of efforts to build a direct marketing presence, the Indian drug maker has offered to acquire Cipla Medpro in South Africa for about half-a-billion dollars. Cipla Medpro was set up as a joint venture between the Indian company and South Africa's Medpro Pharmaceutica.
We have over 100 projects in our development pipeline including novel combinations and generics: Subhanu Saxena
Cipla, which supplies medicines to nearly 170 countries, also wants to establish a direct marketing presence in the United States and other tightly regulated markets. Analysts say the company will have to iron out issues related to supply chain, contacts with traders, extending credit to customers, and setting up inventory to build a strong marketing presence overseas.
In the US, the world's largest pharmaceutical market, it will have to build relationships with insurers and Pharmacy Benefit Managers, who process and pay prescription-drug claims. In Africa, Cipla could face stiff competition in the private sector though an entry into the government segment is not as difficult.
Anubhav Aggarwal, Vice President at brokerage Credit Suisse, says Cipla is unlikely to face too many problems in the US as it has been there for close to 15 years through partners. Emerging economies will be the bigger challenge, he feels. In Europe, where Cipla sees a market for its respiratory portfolio, the challenge may only be getting product approvals in multiple countries, he adds.
"Building a commercial presence and hiring the right people cannot be done overnight but Cipla is surely making progress," says G.V. Prasad, Chairman and CEO of drug maker Dr Reddy's Laboratories. The transition will be time-consuming - some expect it could take five years for the company to start getting the full benefit.
In the interim, they expect the increased expenses on establishing sales and marketing presence to hurt profitability. "It may be too early to comment on the change of strategy and how they execute it," says Manoj Garg, Vice President for health-care at brokerage firm Edelweiss. "This may impact profitability in the near term but it is likely to be a win-win for the company in the long run."
Focus on R&D
Running parallel with Cipla's plans on growing its marketing presence overseas is its focus on making more medicines affordable. The company has in the past year slashed prices of drugs to treat lung and breast cancer, among others. "We will develop new molecules over the next few years as part of our strategy to strengthen key therapeutic areas," says Saxena. "We have over 100 projects in our development pipeline including novel combinations and generics. Our focus is to bring each and every one of these products to market."
Saxena says the company is changing the way it deals with its strategic partners while developing a product. Cipla will now "proactively decide" what it wants its portfolio to look like, instead of making whatever its partners want. "For example, respiratory is an area where Cipla has unique capabilities and where we will develop a rich pipeline over the next five years," he says.
Cipla has a 45 per cent market share in anti-asthma drugs in India, according to data from health-care market research firm IMS Health. Saxena also says Cipla will assign one team each to work on a project from start to finish, and not have each function working separately on the project. "This approach will allow us to target the right therapies and have resources totally aligned across the company on the right projects," he says.
The two don't go hand-in-hand," he says. In another conversation in mid-April, Hamied said over the phone from London that until India passed the 2005 patent law, which has allowed product patents, the company could make any product it wanted. But this is no longer the case. Cipla would have to position itself on the lines of global generic majors such as Teva or the US-based Mylan. That again may not be easy, as these generic companies have grown in size mainly through acquisitions while Cipla has rarely adopted this route.
What is engaging Hamied's attention at the moment? "My only purpose in life today is how to get the 2005 patent bill revoked so that it suits India," he says. "Its effects will start kicking in from 2015 and people like you, me and others will not be able to afford drugs."
Coming from someone who made life-saving medicines affordable for millions that surely is a dire warning that big drug makers better take seriously.
