Cipla: New Prescription Needed?

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India's Cipla: New Prescription Needed?

The drugmaker has enjoyed big success with low-cost alternatives to

AIDS and other high-priced drugs. But NGOs are taking away sales

SEPTEMBER 17, 2007

THE ASIA BW50/Online Extra

By Bruce Einhorn

Over the years, India's pharmaceutical companies have specialized in

making low-cost versions of Western drugs. One of the most successful

has been Cipla Ltd . During the 2001 anthrax scare in the U.S., for

instance, the Mumbai-based company won attention by offering to

provide an inexpensive generic version of Bayer 's Cipro, the most

powerful anti-anthrax medicine.

Activists, angered by the high prices that Big Pharma companies

charge for AIDS drugs, have also looked to Indian drugmakers like

Cipla for relief. The company has been providing anti-retroviral

(ARV) drugs to African countries that struggle with soaring numbers

of HIV-infected people, and Cipla's sales to the continent grew 72%

from 2002 to last year as a result. How big a price discount do Cipla

customers enjoy? " What I sell for one rupee is available in the U.S.

for one dollar, " boasts Cipla Chairman and Managing Director Yakub

Hameid. (One rupee is worth slightly more than 2¢.)

So far that formula has translated into impressive results for Cipla.

The company's sales of $877 million in the fiscal year ended March,

2007, were up 19% year-on-year and profits rose 10% to $164 million.

That has helped push Cipla into the No. 10 slot in this year's Asia

BusinessWeek 50 rankings.

Undercut by NGOs Remaining the top Asian drugmaker will be

challenging, though. The earnings picture for the current fiscal year

is not promising. Credit Suisse (CS ) analysts Neelkanth Mishra and

Anubhav Aggarwal, in a research report from last month, predict that

Cipla's sales will continue growing nicely, but profits will actually

fall 2%. That's one reason that Cipla has been one of the worst-

performing stocks this year on the Indian bourse. While the benchmark

stock index is up 13% for the year, Cipla's shares have fallen 26%.

Ironically, one reason for Cipla's slowdown is the increasing clout

of nongovernment organizations (NGOs) providing low-cost AIDS drugs

to the developing world. The value of Cipla's sales in Africa, for

instance, actually fell 3% in the year ended March, 2007. ARVs amount

to a quarter of Cipla's sales, and the price that the Clinton

Foundation (the NGO led by former U.S. President Bill Clinton that is

among the leaders in helping African countries fight the AIDS

epidemic) pays for ARVs fell by more than 35% between August last

year and May this year, according to Credit Suisse. In May, the

company and the foundation agreed to a plan to cut the cost of more

than a dozen AIDS drugs in 66 countries.

Hameid says he doesn't lose any sleep over the company's stock market

performance. " The Indian stock market, " he says, " is overpriced and

overrated. " Instead, the Cipla chairman is focusing on boosting the

company's long-term competitiveness.

One goal is to boost exports even further. Ten years ago, Hameid

points out, Cipla's exports amounted to only 10% of total sales;

today, they're half, and he wants that number to increase to 60%. In

order to achieve that goal, Hameid is expanding Cipla's capital

expenditure budget. It was $100 million in fiscal 2007, up 14% from

the previous year, and will grow another 25% in the new fiscal year.

Einhorn covers the Asian pharmaceutical industry from BusinessWeek's

Hong Kong bureau

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