Businesses getting hit with lower margins is not a new phenomenon. Indian pharmaceutical company Cipla is facing a similar challenge. Cipla, the name which was synonymous for anti-HIV drugs across the globe, is in a dilemma as the margins for anti-retroviral drugs (ARV or anti-HIV drugs) have fallen sharply due to tough competition from MNCs and local players. The solution – to cut down exposure to anti-HIV space and focus on core business.
Cipla, which earns half of its revenue from exports to emerging markets, witnessed a fall in its sales of ARV drugs. The contribution of ARV drugs to total exports came down to 15 per cent in FY12 from 22 per cent in FY10.
S Radhakrishnan, whole time director, said, “These are mainly tender-based business. We should just ensure that we are not losing money in the business by reducing margins to face competition.”
According to him, the company was facing fierce competition from local players and MNCs who want to strengthen presence in African market. “What we have attempted to do in ARVs is to rationalise in a manner that while we ensure affordable prices, we are not losing money in this business,” he added.
Cipla had increasingly shifted its export portfolio away from tender ARV business, which has low margins to high-margin, complex products such as inhalers, said a recent report released by Jefferies group on Indian pharmaceutical space.
Cipla, which achieved a sales revenue of Rs 6,904 crore in FY12, had seen a contribution of 53.5 per cent (Rs 3,692 crore) from its exports to total revenue. For FY11, the contribution from exports was 54.4 per cent.
Anjan Sen, director at Deloitte India, said, “The dynamics of the ARV market has been changing over time with increased funding by governments and donor agencies, resulting in global tenders being floated for meeting these high volume requirements. This has resulted in tender conditions becoming more complex and prices getting eroded.”
Cipla, the largest player in Indian inhaler market, was in process of tapping European inhaler market with a product pipeline of 11 products. The respiratory market worldwide is estimated at $34 billion, according to 2010 sales. “Respiratory is another major focus area and given our range of products and devices, we are looking at all opportunities in EU and ROW to expand. In addition, while we already have leadership position in India, we believe that there is a major scope to expand the respiratory segment in India as well,” Radhakrishnan added.
“Moreover, given our huge range in other specialties, such as oncology, dermatology, sterile products and pediatric products, we would try and leverage our position across the globe,” he added.
The change in market dynamics along with increased activism had resulted in the ARV market moving from being one that is commercially attractive with social relevance to being one which is only having social relevance.
However, experts believe that this change may be a harmful one to the industry. “This trend is not healthy and is likely to have long-term implications with lesser number of companies focusing on this market and new drug research to manage a dreaded disease being compromised,” Sen added.
