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AIDS drugs cure boosts Cipla's profile

The Indian drug firm that sparked a global controversy by offering cheap AIDS drugs to poor victims in developing countries is located in an old part of Bombay better known for narrow congested lanes and shrieking vendors.

The unfashionable area that is home to 65-year-old Cipla Ltd speaks volumes about the attitude of the drug maker that irked majors like GlaxoSmithKline by offering the world's poor a triple cocktail of AIDS drugs at $350 per patient per year -- or one-30th the price in the United States.

Cipla's move prompted GlaxoSmithKline to offer discounted AIDS drugs to non-profit outfits. Bristol-Myers Squibb and Merck & Co also unveiled steps that could make drugs available for as little as a dollar for a day's treatment.

A group of 39 drug firms decided last week to drop a court bid to prevent South Africa from importing cheap generic copies of their AIDS drugs, a move which opens the field for companies like Cipla, analysts say.

As India prepares to tighten patent protection laws in line with pacts that paved its way into the World Trade Organisation, the country's drug makers are scrambling to reorganise operations.

Younger firms like Ranbaxy Laboratories and Dr Reddy's Laboratories have grabbed local headlines by making new drugs, but Cipla has been content to produce copies of drugs developed in the West.

Until recently chairman Yusuf Hamied was a bit of a recluse, preferring life in the laboratory to meeting investors.

Other leading Indian companies have prepared for tighter patent protection with original drug research, but Hamied wants patent laws to be left unchanged, reinforcing the inward-looking image.

"Cipla has traditionally been low profile and its management not very forthcoming," said ABN AMRO analyst Giridhar Iyengar.

WEAK PATENT COVER

India's patent laws currently protect only the processes by which drugs are made but not the products themselves, which means firms like Cipla can make drugs under patent in the West as long as they use a different process.

After the AIDS price cuts, GlaxoSmithKline's chief executive JP Garnier described Cipla -- a company 136 times smaller than his own -- as a pirate, saying its offer to humanitarian groups was a desperate bid to save its own business as patent laws change.

Suddenly Hamied found himself in the limelight, which he is now exploiting to push home his point about strong patent protection being bad for health.

"The AIDS matter has exposed the multinationals and shows what happens when you have monopolies," he said.

"What poor countries need is compulsory licensing of essential drugs. Cipla has written to Pfizer, Bristol-Myers Squibb, Boehringer Ingelheim and GlaxoSmithKline for licences to sell their products on payment of royalties, but there has been no definitive response," he said.

"We can take prices of AIDS drugs to below $300 per patient per year in two or three years or maybe even earlier."

Joint managing director Amar Lulla said Cipla would pass on to patients any cost cuts as a result of better technology.

"We have been selling AIDS drugs in India since 1993 and our prices now are a fourth of what they were when we launched," he said.

"The very fact that some multinationals have cut prices in Africa to 10 per cent of earlier prices shows that much of the balance was profit," he added.

SOLID PERFORMER

The company may have emerged centre stage from the shadows for a while, but one thing is unchanged: its reputation for solidity.

"Cipla invariably delivers the goods," Iyengar said. Research firm Cazenove & Co chose Cipla as its top drug sector pick in the previous quarter, and Cipla shares have out-performed the Bombay index by nine per cent since January.

The company recorded a net profit of Rs 535.4 million for the quarter to December, a rise of 54 per cent on the year-earlier quarter, while sales rose 48 per cent to Rs 2.76 billion.

Hamied said Cipla's size appeared small because Indian drug prices were among the lowest in the world.

"If we sold at US generic prices, we'd be a $2.5 billion company," he said.

SOCIAL COMMITMENT

Hamied and Lulla dismissed any talk of profit from the AIDS initiative, calling it part of the company's social commitment.

"At $350 (per patient per year) we are making no money," said Lulla. "We are selling at or even below cost."

But with the company in talks with several African governments for supply, ABN's Iyengar saw opportunities ahead.

"A large part of this offer is humanitarian, but Cipla does have an eye on part of the African market for AIDS drugs which could be as big as $4 billion," he said.

"If South Africa were to allow generic AIDS drugs, there would be a big upside for Cipla."

PROFIT

On April 26, Cipla reported that net profit for the January-March quarter rose 18.2 per cent to Rs 343.6 million ($7.33 million) from a year earlier, far below analysts' expectations. Sales increased 51.4 per cent to 2.61 billion.

A Reuters brokerage poll predicted net profit would rise 56.38 per cent to Rs 454.74 million, on sales of Rs 2.41 billion, up 39.99 per cent.

For the year ended in March, net profit rose 34.1 per cent to Rs 1.78 billion on sales of Rs 10.48 billion, up 37.9 per cent.

The Reuters poll forecast Cipla's annual net profit would rise 43.8 per cent to Rs 1.89 billion, on sales of Rs 10.28 billion, up 35.4 per cent.

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