Introduction Cipla was affected by this new

Introduction

Having first been established in 1935, Cipla aimed to make India both self-reliant and self-sufficient in healthcare (Nüssle et al, 2015). Now, Cipla is an Indian multinational pharmaceutical company that had a revenue of $1.58 billion in 2014. They have a presence in 170 countries worldwide and are now considered one of the largest manufacturers of off-patent drugs in the world. With a workforce of over 20,000 located within 40 plants across India, Cipla is able to produce more than 21 billion tablets/capsules per year whilst exporting 55% of these goods (Harris, 2014). In this report, PESTEL environmental analysis will be used to see how different macro-environmental factors have affected Cipla as a pharmaceutical company, as well as what they have done or could do to solve any issues that may arise.

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Political

In 2012, the Indian government introduced ‘The National Pharmaceutical Pricing Policy’ which capped the prices of 348 essential medicine formulations. With one fourth of India’s population living below the poverty line, the policy aimed to make all essential medicines affordable for everyone. Cipla was affected by this new policy and saw an 8% drop in total sales due to many of these essential drugs being seen within its portfolio (Dey, 2012). Under the Indian Patent Act of 1970 however, it states that if a drug isn’t produced anywhere else and is developed through R&D, then it is able to be exempt from the pricing policy for 5 years. This means that Cipla could create new formulations without their prices being capped until 5 years after its market approval. In the fiscal year beginning 1st October 2017, Cipla aimed to file 25 new generic drug applications ready for market approval (Thoppil, 2017) – this would counteract the effects of the policy and could lead to an increase in sales again (JETRO, 2012).

Economic

Countries in Europe as well as America and Japan have been looking to rein in their healthcare expenditures, and therefore the generic drug market is expected to grow at an annual rate of 10.53% (Blank, 2016). As Cipla is located within India, they are able to produce these generics at a low-cost because clinical trials cost less in India, they have a large available workforce and they can locally source raw materials. Despite the profits per unit of generic drug being low, the volume of sales is high, allowing a large turnover for the company. Since they started producing generics in 2005, Cipla has grown from a $532 million to $1.58 billion company (Pai, 2015).

            Over the past few years, Cipla’s margins haven’t been as great as expected. In the December quarter of 2015, the margins came in at just 14.6% having been affected by higher distribution costs in India, currency depreciation in South Africa as well as the expected rise of R&D costs from 6.6% to 8%. Out of all of their pharma peers, Cipla also has the highest proportion of their revenue going towards raw materials and employee costs at 38.5% and 17.4% respectively. These high costs add further pressure on the margins and lead to lower earnings. (Sahu, 2016). Despite FY16-17 being a better year with the EBITDA margins rising to 16.9% (Cipla, 2017), the projected earnings for both FY17 and FY18 are expected to be down by 6-9% (Sahu, 2016). In order to improve the profit margin of the company, Cipla could cut R&D down to 5% which could result in the margins going up to 23% within the next two years. The company could also stop distributing to geographies where little profit is seen and could instead push sales in the US. The margin profile in the US is superior to many others so once sales rise here, Cipla’s margins should dramatically increase. (ET Now, 2017).

Social

As a company, Cipla must make sure they cater for all demographics. According to the World Health Organization, the number of people aged over 65 is expected to rise from 524 million in 2010 to 1.5 billion in 2050, with most of this increase being seen in the developing countries. The main challenges the healthcare system will face because of an elderly population include cancer, dementia and diabetes (Garza, 2016). Because of this, Cipla have had to obtain licenses to produce generic forms of medicines and medical products marketed at geriatrics, including Donepezil and Metformin. Treating the elderly however has risks due to adverse drug effects and increased risk of intoxication. Therapeutic drugs such as diuretics and anti-inflammatories should be avoided as they can alter quality of life in the elderly if not managed correctly. Cipla therefore must ensure that they identify any drugs that are unsafe for use within an elderly population as well as help provide an alternative method of treatment. (Baldoni et al, 2010).

As well as this, Cipla have to look at prevalent diseases which are present in the world and see if there is a way to combat them. In 2001, Cipla became the first pharmaceutical company to supply countries with high levels of HIV with the anti-retrovirals they needed. AIDS was first identified in 1982 and since then more than 70 million people have been affected and about 35 million people have died from HIV (WHO, 2016). As a company, Cipla brought the cost of HIV treatment down from $12,000 to $300 per patient per year, meaning the drug was available for less than $1 a day. (Pai, 2015). By recognizing that their primary duty is to produce affordable medication, Cipla have helped to treat millions of people worldwide as well as become a main competitor within the pharmaceutical industry. 1 in 3 people who live with HIV take Cipla’s drug for treatment (Goldapple, 2016).

Every year in India, over a million new cases of cancer are diagnosed with 80% of these being at an advanced stage. Due to many within the country living below the poverty line and less than 1% having access to palliative care, Cipla recognised the need for free holistic healthcare and support. In 1997, they set up a palliative care and training center in Pune, India where terminally ill cancer patients were able to stay and be cared for towards the end of their lives. Since being set up, it has not only touched the lives of 11,000 patients but has also provided support to their loved ones. (Cipla). With their credo of ‘Caring for Life’, Cipla continue to take their mission further than the medicines and were named by the Fortune magazine in their 2016 ‘Change the World’ list (Cipla, 2017).

Technology

With manufacturing costs being nearly 40% cheaper in India, the country is a hub for counterfeit drug production (Kannan, 2011). The distribution of these drugs used to be almost impossible to track but with recent technological advancements we are able to intercept their supply as well as make the production of the counterfeit drugs much harder. Cipla are able to use track-and-trace technologies to monitor drugs throughout their supply chain, ensuring that only their genuine drugs reach pharmacies. 2D barcodes are also able to be placed on outer packaging, allowing the legitimacy of products to be checked against online databases. (Jewell, 2016; Behner et al, 2017).

The popularisation of social media has also provided the company with a new way to interact with its target market, helping with research and development, as well as acting as an interaction platform for customers (Tambe et al, 2014). Using social media, Cipla were able to launch a mass media campaign in November 2017 that educated sufferers of Obstructive Airway Diseases on how they could effectively manage and control their disease (Adgully Bureau). The campaign aimed to eliminate stigma surrounding diseases such as asthma, and encouraged sufferers to live a life without limits (Cipla, 2017). The link between technology and a company’s reputation is massive and although it mostly leads to a positive effect, when something goes wrong the image of the company could be badly affected. Cipla must therefore ensure their presence on social media to continue to build a reputable image for the company.  

               Each year in India alone, there are 1.45 million new cases of cancer and with just 12.5% of these being detected in the early stages, over 680,000 people die from the illness per year. Using technology, researchers have been able to conclude that about 66% of these cases occur due to random mistakes during cell division – these findings have prompted the need for early detection and treatment. Advancements in technology have allowed better imaging of the disease at diagnostics, and the precision and accuracy of radiation technology is allowing more tumours to be hit with less damage to surrounding healthy cells. Along with this, pharmaceutical companies such as Cipla are able to use breakthrough discoveries to create ‘precision medicine’. This hints at the idea that the cure to cancer is within the patient and the medication is therefore personalised to them and their genetic make-up only. From this, SPAG9, a therapeutic anti-cancer vaccine, has been created. Although its currently in clinical trials, it aims to prime a patient’s immune system to fight the cancer itself rather than just attacking the cells directly. If it passes trials and gets released onto the market, there will be a large increase in sales for the company, therefore generating high profits. (Datta, 2017).

Environment

In 2011, India ranked as the fourth largest energy consumer in the world, with the majority of this energy coming from non-renewable sources (Dunn, 2014). Unable to keep up with the demand, they have been importing fuels from different countries, causing the prices of fossil fuels to go up, which in turn pushes up the price of company’s goods (Shrestha, 2017). To combat this, Cipla is trying to use renewable energy and methods such as the installation of a solar power plant and wind turbines (Cipla, 2016). Despite there being high initial costs, this approach will benefit the company in the long term. All of these measures have also been carried out locally to further reduce Cipla’s environmental impact (Cipla, 2017).

With developed nations becoming stricter on ensuring that the local environmental compliance standards are met, companies like Cipla have to ensure that they adhere to these standards. With their company becoming global in a relatively short space of time, they have to ensure that they safeguard the environment from hazards associated with their growth. In 2015, it was estimated by Indian government’s that in the past 5 years alone, the number of contaminated waterways has doubled with the main cause being industrial pollution. (Planning Commission). As the pharmaceutical industry grows in India due to it being a low-cost manufacturing destination, pharmaceutical waste leaks into water supplies causing problems such as the extinction of species and even the spread of antimicrobial resistance among the population. For companies such as Cipla, this highlights the need for the implementation of environmental standards at every stage of the supply chain. (Bruni, 2016). After all, a company that cares for the environment will receive more business, meaning that more people will receive better healthcare medicines.

Legal

In the past, only a company which held the patent for a specific drug was allowed to manufacture and market it. However, in 2005, the Indian Patent act of 1970 was amended and under the change, companies were no longer able to patent the end product but instead only the methods used to synthesise it.  Because of this, many companies including Cipla were now able to manufacture the drugs using alternative processes and started selling them at a lower price point than the patented drugs. As generics started to become popular, the price of many patented drugs fell by over 90%. (Singh, 2013). Starting to fear for their patents, global pharmaceutical companies began trying to partner with local generic companies. Under the “compulsory licenses”, these local companies were able to produce the patented drugs and the global businesses could receive payments for their use. The license however allows the authority to control the patentee’s monopoly. (Ilancheran, 2017). With a market for these ‘copy-cat’ versions of formerly patented drugs in even the most developed countries of the world, Cipla have been able to grow into a global company. With a market share of 5.24% they have become India’s second largest drug maker and now aim to reach $5 billion sales by the year 2023. By also being a global company, Cipla are looking to establish a presence in all of its key overseas markets. (Unnikrishnan, 2013).

From January 2005 to September 2016, a total of 24,117 deaths and serious adverse events occurred as a result of clinical trials within India (Ravi, 2017). Reports showed that the Drug Controller General of India was found to have been approving at least one drug per month as safe for use when in fact no mandatory trials had been conducted on it. Because of this, the drug’s efficacy and its impact on users was not tested which in turn led to serious consequences. (ET Bureau, 2012). Having been approached in 2013 by Indian governments, the Supreme Court halted 162 trials of global pharmaceutical companies and in order to ensure patient safety, it amended various regulatory frameworks (Ilancheran, 2017). Following this, India saw a major setback in the number of trials conducted and therefore new products reaching the market. The changes in regulations mean that the clearance time for new drug trials is lengthy and in order for testing to be allowed, clinical trial applications have to be submitted. The applications are then reviewed by various committees and are looked at on a risk vs benefits basis as well as whether the drug is actually needed in India. (Ravi, 2017). Having already been accused of not conducting the required trials for several of their products (ET Bureau, 2012), Cipla was then rejected yet again for its application to register a HIV drug pellet formulation in April 2017. They were informed by the Central Drugs Standards Control Organisation that trials for the pellet would not be conducted and therefore the drug would not be dispensed within India. Until testing of the drug is allowed in India, Cipla can continue its trials in both Uganda and Kenya, and furthermore they can continue treating HIV positive children in Africa. (Rao, 2017). As for India, if they want to become the preferred destination for clinical trials again, they must continue to monitor and amend regulations to ensure that both the patients interest and safety is put first.

Conclusion

To conclude, the macro-environment is constantly changing and companies have to adapt their businesses to deal with these changes. For Cipla, the factor that has had the biggest impact is the economy. Through economic changes, such as reduced production and R&D costs, they have been able to grow the company globally, and increase its worth by almost 300%. This has allowed them to become one of the biggest pharmaceutical companies within India. Ways in which they could further their growth in FY18 as well as the years to come include keeping up with advancements in all sectors, particularly within technology, as well as keeping an eye on current healthcare trends. They should continue their plan to gain leadership position within countries such as India and South Africa, but should also look to expand into European countries and emerging markets. To remain a key competitor within the industry however, they must continue with their excellence in quality, safety and compliance at all manufacturing locations.