Over the past eight decades, Cipla has transformed itself from a mere bulk drug manufacturer to a global leader in healthcare. It is the third largest pharmaceutical (formulations) company in India. Apart from that it is also the third largest company in the pharma private market in South Africa, and its generic products are among the most dispensed in the US.

The company’s strength lies in the respiratory, anti-retroviral, urology, cardiology, anti-infective and central nervous system (CNS) therapeutic segments. It has 46 manufacturing sites around the world and produces more than 50 dosage forms, and more than 1,500 products catering to 80 markets worldwide. From being focussed only on the Indian market nearly 25 years ago with just 10% of its sales coming from exports, Cipla now garners 60% of its revenues from exports.

Quick Takes:

• Cipla is the second highest seller of inhalation products in the world, right behind GSK.

• Cipla’s ‘one India strategy’ converging with prescription (Rx), trade generics and consumer health business helped it report a fifth consecutive quarter of market beating growth of 17%

• The company recently got approval for generic Albuterol, where it has a 11% share of the overall generic market

• Cipla has filed for approval of generic Advair Diskus inhaler and is awaiting USFDA approval

• The pipeline also consists of a complex inhalation product filed in Q4 FY20 and another partnered inhalation product undergoing phase 3 clinical trials.

Jump in Operating Profits in the September Quarter

Cipla suffered a Rs 200 crore impact on revenues in the March 2020 quarter due to the pandemic. In the subsequent months, it delivered robust performance. Revenues in the quarter ended September 2020 rose 15% YoY to Rs 5,038 crores. This was driven by broad-based growth in all businesses and geographies. The India business rose 17% YoY, US reported 10% growth, Sub-Saharan Africa and Cipla Global Access (SAGA) and Europe expanded 25% and 30% respectively.

Operating profit grew 29% YoY to Rs 1,177 crores in the September quarter and margins expanded by 266 bps YoY to 23.3%. The expansion in margins were driven by sustained cost control and lower R&D expenses. Net profit after tax came in at Rs 665 crores compared to Rs. 471 crores in the corresponding quarter a year ago.

Speaking on the Q2 results, Umang Vohra, MD and Global CEO of Cipla said, “The performance reflects strong demand backed by resilient operations management. The quarter also saw sustained focus on cost optimization which helped deliver an EBITDA margin of over 23%”.

Cipla aims to save nearly Rs. 400-500 crores in costs in FY21.

Addressing Slow Global Outreach

The investment community has been critical of Cipla missing the US generics boom and not being bullish about global markets. The company has done some work to address this. Over the past five years, with a rejig of top management, the company exited non-core businesses, non-profitable geographies and moved to acquire businesses.

The new strategy has three facets—a sharper focus on the US market, higher returns through consolidation of domestic business, and global ‘lung leadership’. The company implemented the ‘one India strategy’--converging Cipla’s prescription (Rx), trade generics and consumer health businesses. This aims at achieving portfolio expansion, enhancing patient connect, driving affordability and optimization of resources. The effectiveness of this strategy is evident over the past few quarters as the company’s India business reported a fifth consecutive quarter of market beating growth in the September quarter (17% YoY). The India business earned the company revenues of Rs 2,090 crore in the September 2020 quarter.

The company has significantly expanded its portfolio in the US and its presence is mainly driven by InvaGen and Exelan Pharmaceuticals acquisitions. The US business achieved break-even last year is now trending very close to Cipla’s consolidated level profitability in the first half of FY21. The US generics business delivered Rs 1,049 crore revenues in Q2 FY21.

Efforts toward ‘Lung Leadership’

Cipla was the first to produce aerosol nebulisers for respiratory disease in the mid-1970s in India. The company has been continually investing in its respiratory capabilities. In Indian markets, Cipla has a 28% market in respiratory and 70% share in inhalation therapy. The company is also unlocking its respiratory franchise in the US through recently approved generic Albuterol, where it has garnered 11% of overall market share in generics.

Cipla has filed for approval of the generic Advair Diskus inhaler, which is awaiting USFDA approval. The pipeline also consists of a complex inhalation product filed in Q4 FY20 and another partnered inhalation product undergoing phase 3 clinical trials.

Apart from the US, Cipla has established respiratory products as a key growth driver in emerging markets. The company continues to be a respiratory leader in Sri Lanka, Nepal, and Morocco. It is focussing on deepening its presence in Australia, Brazil and China through its respiratory portfolio comprising both in-house pipeline of products and partnerships. Cipla has more than 200 products across key markets to capitalise on its position in these markets. It has also incorporated a joint-venture in China and started the construction of a dedicated respiratory factory. Compared to its pharma peers, Cipla may have been a late entrant, but it is working to make up for lost time.