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BW Businessworld

Cipla In A State Of Flux

The pharma major has been moulting since 2012, but will the recent management rejig jolt the transformation?

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In 2012 Cipla chairman Y.K. Hamied made a telephone call to a senior executive at the Basel headquarters of Swiss multinational Novartis with which he had once fought and won India’s most controversial patent battle. Hamied offered Subhanu Saxena, who was head of Novartis Pharma’s global product strategy and commercialisation functions, a plum post in India to help Cipla become a true world player.

Saxena responded to Hamied’s call and joined Cipla in February 2013, as its first global chief executive officer. He went on to drive the company’s new global vision. The Indian pharmaceutical major set up a corporate governing council led by professionals to simplify decision making and expedite the company’s global transformation.

It then went on to establish a direct presence in all key markets. Its first foreign acquisition was in South Africa in March 2013, followed by another two in the US in 2015. The company made strategic investments in many other foreign markets, including Europe.

Saxena and team also created a more diversified path to growth, with an enhanced research and development (R&D) portfolio to expand into more therapies and technologies. While it made bold decisions to exit non-profitable geographies, it also made history by investing in South Africa’s first bio-similar plant.

In a short span of time, Cipla could almost reverse the company’s 70:30 India-global revenue ratio. Apart from the US, Europe and Africa, it expanded into new markets through well-defined strategies that included both organic and inorganic options and strategic partnerships.

This was a significant transformation and a key shift in management style for the promoter-driven company, which was struggling against odds like a slack overseas growth, uncertainty about a succession plan and over dependence on the low-margin Indian market. But, is it dropping the agenda midway with a totally unexpected management rejig now?

Management Rejig
With Saxena’s sudden exit and a restructuring in management, many in the pharma industry feel that the company reverting to the promoter driven mode.

For Y. K. Hamied, the family doyen who turned 80 this year, a smooth generational transition among the promoters was a key priority, too. On 12 August, Cipla announced a management rejig with Hamied’s niece, Samina Vaziralli, taking on a larger role as executive vice-chairperson and the present CFO, and strategy officer Umang Vohra being elevated to the post of managing director and global CEO.

“Umang Vohra, who came from local rival Dr Reddy’s Lab a year ago, certainly retains the professional legacy at the deck and will help sustain Cipla’s US business,” says an industry analyst. Vohra was instrumental in growing Dr Reddy’s US business to a record high during his four-year stint at the Hyderabad-based drugmaker, before moving to Cipla in October 2015 as chief operating officer.

Samina Vaziralli, who is currently executive director and global head - Strategy, M&A and Cipla New Ventures, will assume her new role from 1 September. She will move on from her current responsibilities to focus on board and governance issues, in addition to growing Cipla’s strategic priorities through key global partnerships, corporate brand building and public advocacy.

“Umang and Samina — take on higher responsibilities within Cipla as they have earned their new positions by the dint of the leadership and impact they have already made. Samina’s elevation also reinforces the long-term commitment of the promoter family to Cipla,” says the company chairman Y. K. Hamied. But, industry analysts still believe that the management change leaves the transformation incomplete for Cipla.

Changing Priorities
In the June quarter of the 2016-17 financial year, Cipla posted a 6 per cent drop in revenue, with a 21 per cent fall in the US business and a 42 per cent drop in its operational profit (EBIDTA).

Saxena says the company has had a satisfactory quarter, reflecting the best product mix and other cost control measures. His serious focus, however, had been on building a broader growth momentum, while continuing to invest in market development, R&D and streamlining overall operations.

While Saxena’s transformational changes had been driven by a long- term perspective, Cipla’s biggest concern was whether it could sustain through that long a wait, according to industry experts. Hence, the new leadership may set its sight on a quick financial revival.

Saxena — the highest paid professional CEO in the Indian pharma industry — had been a big cost component for Cipla. With an annual package of close to Rs 22 crore, Saxena drew a salary that was higher than that of his boss, Y. K. Hamied.

“Having been aware of his personal circumstances, we respect Subhanu’s decision to leave Cipla…We are delighted to see two young leaders — I am confident that this planned transition will enable Cipla to move into its next orbit of growth,” said Hamied in a statement.

“While Cipla’s Business Model
continues to undergo significant changes, including a top management rejig, exit from non-profitable geographies, R&D build-up, we believe the benefits would be back-ended. Given Vohra’s experience in the generics industry, we are positive about the replacement. That said, we will closely monitor the progress as Cipla’s portfolio is still evolving for the US market and should yield back-ended benefits,” states a research report by brokerage Religare Securities.

Quick Revival
Cipla’s new global CEO Umang Vohra’s priority would be to push the company’s revenue stream from India as well as the global base that Saxena has built up. “I am confident that the company will recover in the coming quarters,” Vohra said in an analyst call to announce the company’s June quarter results.

“In the coming quarter, we will focus on India, we expect to grow faster here,” Vohra said, adding, “In the US market, we have an interesting pipeline of filings and we will look at the speciality segment, this could be through acquisition or with existing filings.” For Cipla, the strategy is simple. It wanted to make a deeper base in key global markets at the earliest to make up for lost time. It also wanted to have a succession in place by smoothly facilitating a generational transition. Since it has already achieved these key objectives, a bigger transformation can wait.

‘DEPARTURE DUE TO FAMILY REASONS'

Subhanu Saxena, Cipla’s first global CEO resigned recently, talks to BW Businessworld about the company’s transformation as well as the reasons for his departure.

Excerpts:

Why such sudden exit?
Family reasons brought me to India, and now family reasons have forced me to move to the US. But, we have managed to get a smooth transition. When I took charge, I had three personal objectives set for the company — to take Cipla on the world stage, put a succession in place, and facilitate the generational transition among promoters. I think, I have achieved those.

What did Cipla achieve in the transformation led by you?

It could successfully take the message out to the world that it can effectively increase the
access to life-saving drugs to the world population. It was the same philosophy that attracted me to Cipla when Hamied asked me what use did high-end research and better medicines have if it could not be accessible to the needy.

Why is a global manufacturing footprint necessary for an Indian drugmaker?

Going forward, it will become difficult for companies to continue export from cheaper locations. Governments in the export markets have already started insisting on local manufacturing and it will be more so going forward.

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