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Home  /  Specials  /  Super Seven  / Fair price messiah | JUL 06 , 2013

Soumik Kar

Super Seven

Fair price messiah
He has tirelessly fought against a monopoly in life-saving drugs. Fighting alone has failed to dissuade him

Rajesh Padmashali

In 1991, Jaideep Gogtay was working on a Thalassemia project, which involved developing an oral iron chelator. Thalassemia patients, mostly children, need repeated blood transfusion: the only way to survive is by taking a bottle of blood every two weeks. Over a period of time, iron builds up in the body due to the extra blood that is being taken and eventually, there is an iron imbalance that can kill the patient by getting into the heart and liver. The way to neutralise this iron overload is to take iron chelators. From 1970 to 1990, there was only one way to take iron chelators: a 12-hour injection that ran all night and in 1991, cost ₹10,000 a month. Since the late 1980s, Cipla had been working with a British scientist on an oral drug that would achieve the same result, and in 1991, it was going through clinical trials in India. The drug was the first of its kind in the world and obviously, came with all sorts of challenges. Gogtay, despite his passion and commitment, would wonder at times if it was worth all the trouble.But the determination of his boss would not let him give up. “If we have decided that we will do it, we will do it,” the boss would insist. And Cipla did it. In 1995, after four backbreaking years of hard work, the company launched Kelfer at a patient cost of ₹2,000 a month, a fifth of what the injectibles were selling at.

It made a difference to the lives of thousands of young patients — they could now live a more normal, less painful life. This was also a rare instance where a drug discovered and developed in the UK was approved and launched in India before anywhere else in the world. “The drug was approved in Europe only three years after it was launched in India,” says Gogtay, medical director, Cipla. He joined the company in December 1990 by sheer accident but has stayed on only because of one man who has steadfastly made it possible to save the lives of millions of people across the world. “It is his passion that ignites all of us at Cipla. The reason so many of us have worked with him for so many years is simply this.”

Yusuf Khwaja Hamied is no ordinary businessman in the business of making drugs to further his position in the billionaires’ list. “Cipla having a great quarter would not give him as much satisfaction — or for that matter, motivate him — as the latest anti-cancer drug being available at an affordable price,” says S Radhakrishnan, executive director, who has spent 30 years with Cipla. Such a thought would be blasphemous at most private sector companies, but Hamied’s single-point mission in life has been to ensure that medicines, especially life-saving medicines, are available to a larger section of society at an affordable price. If it meant relentlessly knocking on the government’s doors, he did it. If that meant taking on mighty multinationals, he did it. If it meant absorbing losses to get going, he did even that. “In healthcare, our end goal is to make patients better. Dr Hamied has proven that human interest and business can go hand in hand and I don’t read this about other companies or industries very often,” says Gogtay. To truly appreciate the scale of Hamied’s achievement, one needs to go back to his family history, the point from where it all began.  

Stepping stone

Hamied’s family can trace its origins to a Sufi saint, Khwaja Ahrar of Iran, and his great-great-grandfather was given the title Naqibul-aulia (member of a saintly order) by Mughal emperor Bahadur Shah Zafar II. His grandfather’s uncle was the founder of the Aligarh Muslim University while his grandfather was a district level judge in present-day Uttar Pradesh. Hamied’s father, Khwaja Abdul Hamied, was a staunch Gandhian who left Allahabad University (after finishing his master’s degree in science) when Gandhi asked students to boycott British educational institutions. Six months later, the senior Hamied got together with Zakir Hussain (who would go on to become the President of India) to establish the Jamia Millia University at Aligarh. 

Changing times

The absolute reversal in market share was an

outcome of the Patent Act passed in 1972

In Hamied’s office in Mumbai, there is a large photo of his father with Gandhi, Sardar Patel and Sushila Nayar, who was India’s health minister twice and who changed the patent law in 1972. It’s a photo taken when Gandhi visited the Cipla factory in Bombay in 1939. A year before Hamied was born, his father founded Chemical, Industrial and Pharmaceutical Laboratories (Cipla) in 1935. Cipla was far from a roaring success in its initial days but its fortunes changed after Gandhi’s visit. Apparently, Gandhi told his father that the British had promised India independence if the country helped them in their war efforts — World War II had just started. One way was to supply the British Army medicines. “Cipla flowered in the war years by supplying medicines to the Indo-British army. It provided medicines for malaria, dysentery and trauma as supplies had stopped coming in from overseas,” says Hamied.  Yet, it took Cipla 35 long years before it reached a turnover of ₹1 crore.

Hamied grew up in Bombay and then went to Christ College, Cambridge, where he went on to study for a PhD in chemistry. Upon his return to India, the young Hamied realised what a byzantine web bureaucracy and stifling regulation could weave. To begin with, he could not be employed by Cipla from day one, because no relative of a director in a public company could be employed unless the Company Law Board approved it. For the first year, therefore, Hamied worked as a research and development officer but received no pay. Still, he went at his job full throttle — he taught himself to make tablets, injections and all other products Cipla was involved with at the time. And he “devoured” all the books on pharmaceuticals in his father’s extensive library.

It didn’t take too long for Hamied to figure out just what was holding back the Indian pharma industry. No, it wasn’t the Licence Raj — the stumbling block was the existing patent regime. While multinational companies ruled the roost with an 80% marketshare, the growth of Indian companies was stifled as they could not manufacture drugs under patent. Within a year of joining Cipla, Hamied, along with a few like-minded manufacturers, formed the Indian Drugs Manufacturers Association (IDMA) with the primary objective of getting patent laws changed from product patents to process patents. His strenuous efforts paid off — in September 1972, a new patent bill was finally passed and companies could now re-engineer drugs and launch the same products using alternative processes. 

Soon after, in December 1972, Cipla hosted an industry tea party where the then-chairman of Glaxo came up to Hamied and said, “Oh, Dr Hamied. So what if you have changed the laws? You mean to tell me you Indians can do anything?” Hamied smiled and politely retorted, “Look, we will show you.” That marked the beginning of a golden era for indigenous pharmaceutical companies, not to mention the social impact of having drugs widely available at low prices. If today Indian companies have a lion’s share of the domestic market or enjoy a dominant position in the global generics space, it’s because of that one move. Currently, the pharmaceutical industry with total exports of $15 billion is among the few sectors that have a positive exchange balance, that is, where the exports exceed imports. 

Learning curve 

Even before the patent laws were amended, Hamied had started his crusade to provide low-cost drugs, even if he had to take a financial hit. The ampicillin incident is a telling example. In 1967, when Hamied went to the office of the drug controller general of India, he saw four Englishmen leave the room. When his meeting with the officer started, he learnt that they were directors of pharma company Beecham, which had invented ampicillin, and wanted a licence to import the drug. Trouble was, Beecham wanted to sell it at ₹8 a tablet in India, whereas the price in the UK was ₹2 a tablet. 

The visibly perturbed officer made Hamied a counter-offer instead — if he would import and sell the drug at ₹2 a tablet, Cipla would get the licence. Hamied agreed, after discovering that he could import the drug in generic form from Italy, which didn’t have patent laws. Cipla didn’t make any money on the deal — it had to pay 100% duty on the imported raw material — and given patent restrictions, it had no brandname for the drug. As was to be expected, pretty soon, Hamied received a legal notice from Beecham accusing Cipla of violating its patent. 

Hamied took the notice to the regulator, who was unconcerned. “Ask them to come see me. I will withdraw their other licences in India if they pursue the case,” he declared. In the summer of 1968, Hamied met Beecham’s directors in London and passed on the message. And then he offered them an alternative: if Beecham would supply Cipla ampicillin at the same price as the Italian firm, Hamied would never try and stop the British firm from selling the drug in India when and if it ever chose to. Hamied left Beecham’s office with a commitment for 200 kg of ampicillin; legal action was never mentioned again. It was his first brush with the multinationals. There would be many more as the years went by.

Such a long journey

From being ranked 56 in the 1970s, Cipla is today the

country's second-biggest domestic player

The development that catapulted Cipla onto the world stage was one such incident, although it happened several decades later. In 1991, the Indian Institute of Chemical Technology, Hyderabad, succeeded in making zidovudine (AZT), the only monotherapy drug for HIV, in its lab, and the Indian Council of Medical Research (ICMR) then asked Cipla to manufacture AZT. It took two years for Cipla to begin selling the drug. At the time, Burroughs Wellcome sold AZT at $12 a day. Cipla’s offering was priced at $2 a day but for six months, it had no sales at all. Hamied went back to the ICMR and asked for government help in distributing the drug. His request was refused: the government had resources for detection and prevention, not treatment, he was told. Frustrated, Hamied scrapped the project immediately, throwing away some 200,000 capsules. 

A few years later, he read a report that a cocktail of specific drugs could retard HIV. In 2000, Hamied was invited to address the European Union on HIV and AIDS. He made an open offer there: Cipla would make the drug cocktail for $800 if private sector distributors bought it, $600 for governments and would give the technology free to any government that wanted to produce its own anti-retroviral drug. The offer was a steal as the regular, MNC price of the cocktail in Africa was $12,000-15,000. But there were no takers for Hamied’s offer. Then, a US-based activist made a suggestion — sell the cocktail for $1 a day. Hamied went back to the drawing board and the following year, sent an e-mail to international medical aid organisation Medecin Sans Frontières, offering the cocktail at $1 a day. The next day, the story was on page 1 of The New York Times and, as Hamied says, “Life has not been the same since”. 

New horizon

If Hamied had the audacity to challenge MNCs and take them head-on, it was because he had invested wisely and built competencies strategically. One of his early learnings from his father was self-reliance — something that was etched into the Cipla founder after seeing the British army face a shortage of medicines during war time. Having understood that the backbone of the drugs industry was active pharmaceutical ingredients (APIs), that is, raw material for drugs, Hamied devoted substantial energy into making Cipla self-reliant in APIs, which has helped the company attain leadership in several categories, including respiratory medicine, anti-malaria and AIDS. Not just that; no other company can boast of the range, dosage forms and the advancements that Cipla has achieved with respect to new drugs. Still, during the early days, “Made in India” did not have a positive connotation. So Hamied decided to challenge it by exporting to the United States — the world’s most competitive market. 

In 1983, Hamied landed in the US and started cold-calling all the big API distributors, whose first — and last — question was whether Cipla was US FDA approved. He finally visited an FDA-approved plant in the US, tied up with a then-small company called Byron Chemicals as its representative in the US and brought in a former FDA inspection head to upgrade its factories. “The recommended gentleman Dick McDermott was an expensive proposition. He not only charged $1,000 a day but also insisted on flying first class. But we were determined to do our best to sell in the US,” recalls Hamied. 

In 1985, Cipla was the first Indian pharmaceutical company to get US FDA approval for exports of drugs to the US. Radhakrishnan recalls those early days, “I was at our Vikhroli factory when it became the first manufacturing facility to get FDA approval. I remember the urgency and the preparatory work before the inspection. Since then, every factory of ours has been world class and these very state-of-the-art factories were used irrespective of whether the product was for a regulated or unregulated market.”  

Mission affordable

Indeed, Hamied has been truly his father’s son. If Khwaja Abdul Hamied transferred all his patents to the company free of cost, Hamied has borrowed liberally from his father’s copybook and over time created a corporate culture that is not materially driven — unlike most big companies, the loyalty Cipla inspires is not because of employee stock options (the company hasn’t issued any so far). “No new medicine launch at Cipla has ever been driven by the amount of profit the company can make. When we launched zidovudine in 1993, we did not take it up as a business case, as India was nowhere on the HIV map. With Dr Hamied, the discussion does not start with business; he looks at the impact an affordable drug can make to an individual’s life,” says Gogtay. 

Yet, sales have grown at a compounded rate of 22% for the past 20 years, powered by the company’s drugs pipeline. Hamied’s understanding of which drugs will do well has ensured that Cipla never had a dearth of new products. That is how the company has reached a topline of nearly $2 billion and its products are now sold in about 170 countries. Incidentally, those sales and profit numbers would be far higher if you were to consider the volume of drugs sold by Cipla at the price its multinational competitors charge for the same products.

Behind achieving such a remarkable balance between human and commercial aspects is a solid corporate culture whose hallmarks are ease of access, mutual cordiality and putting people ahead of profits. When Radhakrishnan joined Cipla, it had sales of under ₹50 crore and less than 1,000 people each, in the factories and on the field. Hamied has always ensured that he was approachable to everyone at Cipla. More importantly, people in Cipla say Hamied is a voracious reader who shares his learning with his team. “That sort of information sharing is critical in our kind of work. Hamied’s reading appetite ranges from business magazines, scientific journals, technical and medical journals. His ability to assimilate and connect things is remarkable,” says Gogtay. Even today Hamied spends five to six hours every day reading and marking the material to the concerned person in Cipla who can make use of it.

Keeping pace

Cipla’s exports have grown at a compounded rate

of 14% over the past five years

Hamied’s approach has endeared him to many in the healthcare business itself. In 2011, when he approached Ranjan Pai, managing director, Manipal Education and Medical Group, to become an independent director on the Cipla board, he got an instant “yes.” Pai, the youngest member on the Cipla board, first met Hamied in 2008 and is all admiration for the man and how he has shaped Cipla. “Dr Hamied and Cipla’s values and principles are highly appreciable. In an extremely complicated and regulated environment, Cipla has always stood for doing the right things,” he says. 

Now, Hamied endeavours to replicate Cipla’s HIV drug success in cancer treatment, but the going will be much tougher. “AIDS has always been regarded as a black man’s disease; cancer is a universal disease and there is much more awareness. A lot of MNC fortunes are linked to highly-priced cancer drugs,” he explains. While the market for anti-cancer drugs is much more lucrative, so is the manufacturing and regulatory complexity. Small molecule cancer drugs are not that difficult to manufacture and we have seen Indian generic offerings in that space. “The bigger challenge is some of the cancer drugs are much more expensive to manufacture, so the prices may not go down as much as we have seen in small molecules for AIDS and cancer,” says Gogtay. Since most of the newer drugs may be patented in India, it remains to be seen how the government ensures accessibility of such drugs to Indian patients? 

They are back

Hamied might be used to fighting the odds, but his war is far from over. MNCs are back to muscle flexing as India reintroduced product patents in 2005. Some international pharma companies have already used their cash to buy their way in. Abbott became the biggest player in the domestic market by buying out Piramal Healthcare’s formulation business. Hamied fears that post 2015, most new products will be covered under patents and India could witness tremendous increases in drug prices. He cites the example of Italy and Spain, both of which had a flourishing domestic pharmaceuticals industry before they joined the European Union. 

After joining the EU, they had to adopt the European patent system and from an export surplus, these countries are now net importers. Lack of a research base and patent monopoly meant that local manufacturers couldn’t introduce or market newer drugs. Hamied warns, “Monopoly is the biggest barrier to affordable medicine. Our self sufficiency in medicines can only be sustained in the absence of monopoly.” 

MNC pharma companies have always made the argument that new drug discovery is a prohibitively expensive process and they need to be compensated adequately. That, Hamied says, is nothing but a myth; the reality is that Big Pharma ends up spending maximum money on clinical trials and marketing expenses, not on concept research, which is largely carried out by government-sponsored universities, taxpayer-funded bodies such as the National Institutes of Health in the US or small start-ups. Moreover, in many cases, blockbuster drugs are marketed and manufactured by companies that did not invent them. For example, Lipitor, which was the world’s leading drug until last year, was not invented by Pfizer; it was developed at Parke Davis and came to Pfizer when it acquired the company. Similarly, Abilify was invented by Japan’s Otsuka but is marketed by BMS in the US. Then, Pliva is the originator of Zithromax but Pfizer markets it and so is the case with Crestor, which owes its origin to Shionogi but is marketed by AstraZeneca.

Hamied says the way to make drugs easily available and affordable in the country is by pushing for compulsory licensing, that is, a company can produce any patented drug by paying a reasonable royalty, usually 1-5%. Canada had embraced this through the S-91 bill; between 1966 and 1992, any Canadian company could produce a patented drug by paying a royalty of 4% to the patent holder. But after the country joined Nafta, it had to discontinue this policy because of a pre-condition put forth by the United States. 

Hamied also calls for stronger government resolve in dealing with life-saving drugs. After all, there can be no denying that high-cost medicines essentially defeat the very purpose for which medicines are made, that is, to prolong human lives. Sure, there is a need for new life-saving drugs and that involves a certain amount of ingenuity, but the challenge in a country such as India is that the vast majority cannot afford high-priced drugs. Hamied emphasises, “India simply cannot afford a monopoly in healthcare. Policy makers have to understand that what works for the Americans and the Europeans is different from what works for us.” The humane aspect aside, he says a compulsory licensing policy could also be a trigger for the next wave of growth for domestic pharma companies.

Expensive by a mile

Even after the launch of cheap generic

alternatives, cancer medicines cost a fortune

Another thing that gets Hamied’s goat is evergreening, a term that is more common to industrial lending in India. In the pharmaceuticals business, evergreening refers to scientifically tweaking and renaming an existing molecule that is about to go off-patent and then applying for an extension of patent. To counter such frivolous patenting, there is a safeguard in the form of section 3(D) of the Indian Patents Act. Section 3(D) only allows an innovation that gives a therapeutic benefit; minor improvements are not granted patents. This section was cited by the Supreme Court to overturn Novartis’ appeal in the Gleevec case and grant Natco and other Indian companies permission to come up with their own generic versions. As a result, the cost of treatment has come down drastically. “The government needs to strictly disallow evergreening,” says Hamied. 

The government seems more preoccupied with pricing controls for products where there is perfect competition than where there are monopolies. “There are 348 drugs under price control. Some of the drugs are 20 years old and made by 30-40 companies. Where there is free competition, why do you need price control?” asks an exasperated Hamied.

It’s ironical. While Hamied is hailed worldwide as a pioneer of affordable, life-saving drugs, back home he is battling the government in court, defending his company against charges of overpricing. The case has been running for a decade now and Cipla’s argument has been upheld in the Bombay high court and is awaiting judgement in the Supreme Court. Blame it on a profligate government that is determined to squeeze all and sundry to fund its bloated bureaucracy if you will: the National Pharmaceutical Pricing Authority’s (NPPA) last act of generosity was to send an interest notice of ₹424 crore to Cipla. The NPPA is the government body in charge of regulating scheduled bulk drugs and formulations prices in the country and is seeking a payout running into ₹2,000 crore from Cipla. But this wishful claim isn’t rattling Hamied. He is a battle-scarred veteran and in his 50 years plus in the business, has given sleepless nights to many an adversary.  

Handing over 

In Hamied’s vision of the future, there is greater coordination among government laboratories and a concerted effort on the part of the government to make affordable drugs. He believes government laboratories such as CDRI in Lucknow, NCL in Pune and IICT in Hyderabad, and public sector factories such as IDPL in Hyderabad and Gurgaon and Bengal Chemicals and Smith Stanistreet in Kolkata, should be efficiently used to conduct conceptual research and mass produce life-saving drugs respectively. That will aid in keeping costs down and make drug prices affordable. “If the government is open to working together, Cipla is willing to supply the technology free. But the government isn’t moving ahead,” he says.

As for Cipla itself, the company is reorganising itself to meet the challenges of the future. Hamied may have stepped aside as managing director but his guiding hand continues to steer the company. The last couple of years have been a time of intense transformation in terms of how the company has traditionally done business. Not only is it bringing in much outside talent, it is also actively pursuing inorganic growth. Cipla is spending about $500 million to fortify its African footprint. 

Hamied says, “Countries such as Algeria, Morocco, Egypt etc., even Brazil, are all saying we want local manufacturing and do not want to import. What this implies is that Indian pharmaceutical companies will manufacture more abroad and this could result in lower profits until the new manufacturing bases stabilise.” This development also means that overall pharmaceutical exports could fall and Africa could well emerge as a lower-cost manufacturing destination than India.

Cipla is also opening offices in countries where it used to operate through agents and distributors. The company is also filing many abbreviated new drug application (ANDAs), which was never the case earlier. An ANDA filing is done in the US market for a generic drug approval and product patent holders there are a litigious lot. Radhakrishnan explains, “If Cipla wants to hold its place in the generic space, we have to be willing to invest more and take more risks.” 

Now that Cipla is venturing into contentious ANDA territory, it is also beefing up its legal bench. For the domestic operations, it has always functioned with a very lean legal team. Patent litigation was handled by the corporate team with help from outsourced experts and most cases were fought more from a principle perspective than a commercial viewpoint. But now the battleground is changing and the stakes are high. Radhakrishnan says, “Locally, a Gleevec generic is not a great commercial proposition, but it is great from a consumer perspective. In the US market, it is a commercial decision. The upside has to be clearly defined.” 

Several of its internal systems and processes are also getting a relook. Earlier, because of the range and volumes, order fulfilment was attended to but not consciously monitored and reviewed; today on-time full-delivery is a priority. 

Though he has battled the odds successfully many a times, there has been the odd failure. Hamied talks about the contraceptive medicines that Cipla launched in the 1960s and 70s. Coupled with our own prejudices and the government’s reluctance to let it advertise its family planning products, Cipla couldn’t make the products a success. Hamied still considers it the biggest failure in his career and feels that the government should encourage all measures connected to family planning. 

Access to medicines at affordable prices has always been Cipla’s mission and Hamied sums it up appropriately, “Success does not make a company great, what really matters is its contribution towards making life better for everyone.” This human face of doing business has stood out and will stand out for a long time, for this quest is evident in every action that Hamied has taken over the years. Pai believes, “If only there were more people like Dr Hamied, the world would have been a better place.” Amen.

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