Cipla Explained: The $1 Pill That Saved 20 Lakh Lives

In 2001, the yearly cost for HIV treatment was $15,000 (around ₹7 lakh) per patient. South Africa alone reported over 70% of HIV cases where citizens’ average annual wage was around $3,536 (₹1.6 lakh). Affording treatment that’s over four times the annual minimum wage was impossible for developing countries.
 
Then, Cipla entered the frame and offered a 96% reduction for the annual treatment. It's per-patient cost? $350 (around ₹16,800). This reduction brought the per-dose price as low as just $1 (around ₹48).

Wondering how Cipla did it? Read on!

Cipla's Global Entrance as a Generic Drug Manufacturer

Cipla gave access to affordable HIV treatment during the time when the count of infected people crossed 4 crore worldwide. Its decision to sell the drug at prices lower than multinational competitors made headlines.

Just have a look at this “New York Times” article clipping from February 2001. 👇

Before this initiative, HIV treatment per dosage amounted to $35-$40 (₹1,680). There are two major reasons for such high prices:

• Patents
• Combination therapy

Patents grant pharmaceutical companies exclusive rights to manufacture and sell new drugs or formulations for a set period, usually 20 years. Since Antiretroviral therapy (ARTs) was under patent protection, it allowed those companies to set high prices.   

Combination therapy, aka ART, is a ‘cocktail’ of different drugs (usually three) that helps prevent mutation & resistance of HIV & increase the treatment efficacy.

What’s interesting is that different pharmaceutical companies such as Pfizer, GlaxoSmithKline (GSK) and Boehringer Ingelheim were developing separate drugs in the ART cocktail.

Then, how did an average Indian company sell one dose at $1?

Cipla's Market Disruption Vs Global Patents

Cipla produced the generic ART in 2000 and agreed to share drug formulations with developing countries wishing to create their own versions. That’s not all! It even decided to give the drug that stops the transmission of HIV from mother to child totally free.

But the obstacle then was the US patent law, which made distributing patent-protected drugs illegal. While India had reformed its patent law in 1972, Cipla advised applying the same scenario in this case. After multiple challenges from both pharma companies and health organisations, Cipla’s proposal for a $1 dose was accepted.

Now, if you think the company had to incur losses by keeping prices way below the industry average, you are in for a surprise.

The ‘humanitarian duty’, as named by Cipla’s Chairman Yusuf Hamied, resulted in product sales crossing the 1,000 crore mark at 1,047.5 crore in FY 2000-01. The company's Profit After Tax (PAT) reported a 34.56% spike from ₹13,305.9 lakh in 2000 to ₹17,907 lakh in 2001.   

The event also gave Cipla an opening to enter new markets such as Europe, the USA, South America, Africa, Australia and the Middle East.

As of 2024, over 50% of Cipla's revenue comes from international grounds. The following table shows how much:

Cipla's penetration pricing strategy during the AIDS/HIV pandemic contributed to reducing the profitability of Pfizer. The US pharma company reported an 18% decline in sales to $436 million (~₹2,092.8 crore) for 2000-01.  

At present, Cipla is slowly becoming one of the fastest-growing names in generic pharmaceuticals, with 150+ brands and 11+ different dosage forms. As per its Q1FY25 investor presentation, Cipla holds the first position as India's largest trade generic business.

In case you aren't aware, trade generics are drugs marketed and sold under a specific brand name. They are still generic in terms of their chemical composition but are differentiated from other generics through branding and marketing strategies. Drugs like Foracort (#1 Rank), Urimax (#2nd Rank), and Dytor (#7th Rank) top the list.

Along with generics, the company is also focusing on expanding its branded prescription segment, as represented by a reported growth of 10% YoY in FY24. These drugs are often developed in-house or through partnerships with other pharmaceutical companies. The company's branded drugs cover a range of therapeutic areas, including cardiology, neurology, oncology, respiratory, and dermatology.

Apart from this, have a look at the other areas where it holds a strong presence:

Cipla's Product Line

It has a diversified portfolio of over 1,500 products in 65 therapeutic categories. The company sells in over 78 countries and has 46 manufacturing facilities worldwide.

If you are to open your first aid box, you will likely find items like Cofsils, Omnigel and Cheston Cold in it. All of these handy pharma products come from Cipla. More examples of Cipla’s product line are depicted in the table below.

Cipla’s OTC products, such as Cheston Cold, Paracip, and Ibugesic Plus, and prescription medicines like Ciplox, made it the third largest pharma company in India.

Cipla's younger peer, Sun Pharma, with a market cap of ₹4.4 lakh crore, surpassed it to become India's largest pharma company, while Cipla's market cap stood at ₹1.3 lakh crore. The reason is strategic acquisitions (Ranbaxy Laboratories in 2014), global expansion, and strong R&D, as described by the following infographics.

In terms of field force aka Medical Representatives (MRs), Sun Pharma has a larger sales force (13,000 MRs) compared to Cipla (8,000 MRs). This could potentially enable Sun Pharma to cover a wider market area and engage with more healthcare professionals.

On the other hand, Cipla's MRs Per Capita Per Month (11.3) is slightly more compared to Sun Pharma's MRs (10). This means while Sun Pharma's larger field force allows it to cover more ground, Cipla's MRs are slightly more active in terms of monthly prescription calls.

The data presents that Cipla might be making up for its smaller team by maximising the productivity of its MRs, denoting more frequent touchpoints with doctors & healthcare professionals.

The company is also keeping a steady pace with an overall market share of 5.4% in IPM (Indian Pharmaceutical Market).

India’s pharma industry is the world's 13th largest by value and the third largest by volume. The nation is also the largest supplier of generic medicines holding a 20% share by volume where Cipla produces over 200 generic medicines.

Cipla's Business Verticals

Cipla's business model revolves around providing high-quality, affordable generic drugs to a wide range of customers. The following makes up the core business verticals of the company:

a. Generic Drugs

The company primarily makes money from its generic pharmaceutical products. It typically offers them at significantly lower prices than the branded versions.

This focus has been instrumental in its success as it allows Cipla to penetrate emerging markets where there is a growing demand for affordable healthcare.

b. OTC (Over The Counter)

These are products that can be purchased without a prescription from a doctor or pharmacist. As discussed earlier, Cipla's OTC vertical makes it a well-known brand in the market. Products like Omnigel, Cipladine and Maxirich have taken the company to rank 3rd in the OTC segment with an 8.6% share.

It also enables rapid market penetration across local and urban areas while educating consumers on proper medicine usage.

The above table gives a peak into Cipla’s strength as a go-to pharma brand and its usage of “Always On Media” strategy.

c. Specialty Business

This segment focuses on developing and commercialising drugs for complex and rare diseases. These high-value products are often expensive and lead to boosting revenue generation.

Cipla's in-licensing portfolio has contributed to 7% of total sales in India over the past five years. The proof, FY 23-24, Cipla reported ₹761 crore in sales from Specialty In-Licensing. This was a rise from ₹531 crore in FY 2022-23.

Cipla's Fundamentals & Competition

Cipla plans to increase its market presence, which currently stands at 5.4% in IPM. As for its financials, the company saw a steady rise in its net sales due to its strong focus on the generic drugs portfolio on both a national and international scale.

Its rapid increase in operating profit for FY24 results from being a leading name in the emerging markets, Europe, and the US for Gx inhalation products.

In comparison to its peers like Sun Pharma, Cipla is still trailing behind in sales (10%), Operating Profit Margin (21.6%) & ROE (14%) for the 5-year growth.

However, the company’s increasing growth rate of 11% in branded prescription could be crucial in giving fierce competition to other peers in the sector. The total sales from prescription drugs crossed the $1 billion mark (₹8,300 crore) in FY 2023-24.

The Bottom Line

Despite its high dependence on international markets, Cipla has less penetration in high-margin markets like the US, which is hindering its growth. In the home land, Cipla still faces strong competition from peers like Sun Pharma, and Zydus LifeSciences.

Will its plan to increase branded prescription growth work in its favour? Or should Cipla try out other strategies?

Share your views in the comments!

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Finology Insider and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.

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