DSIJ Interview With Kedar Upadhye CFO, Cipla LTD.

" The goal eventually will be to deliver sustainable shareholder value "

What are your top three focus areas as a CFO of Cipla now?

Kedar Upadhye 
Chief Financial Officer Cipla Ltd. 

I would highlight [a] intelligent capital allocation to support growth across our businesses, [b] operating strong corporate governance practices and [c] analytics-driven sharp business insights as my three main strategic priorities. There will be several aspects of technology, investment in talent and creating strong centres of excellence as well which will take my time and bandwidth. However, eventually the goal will be to deliver sustainable shareholder value.

At the enterprise level, we are deeply focused on optimisation of fixed capital through a structured approach leading to improvements in cash flow generation and an effective management of inventory-driving strong working capital efficiencies. We have launched several high-impact projects in this area. Parallely, we have taken strategic bets through several alliances and partnerships such as the worldwide co-development and commercialisation agreement of Pulmazole, with Pulmatrix, the acquisition agreement with Avenue Therapeutics for IV version of Tramadol, which is essentially the roadmap to specialty hospital business in the US, Mirren in South Africa and other such transactions. In terms of R&D, we will continue to invest significant resources in building a strong pipeline to drive sustainable growth with over 12 targeted-filings in the next year. This year will also see higher investments towards clinical trials for key respiratory assets and we will continue to focus on building a pipeline of specialty assets.

We have also prioritised developing systems to enable optimal utilisation of data analytics to process information available to us in order to derive strong insights for business decisions across geographies. If the data could be analysed to our advantage, the time invested for assessing and arriving at a decision about capital allocation and business planning across markets becomes much less, thereby increasing people’s efficiency and disposable time for other gainful pursuits in the company.

Corporate governance has been another key focus area. For the second year in a row, Cipla will be publishing its annual report under the integrated reporting framework by the International Integrated Reporting Council. Last year, Cipla ranked second in voluntary disclosures as per the India Disclosure Index issued by FTI Consulting (an independent global advisory firm). In addition, we received the prestigious 18th ICSI National Award for Excellence in Corporate Governance from the Institute of Company Secretaries of India. We were also honoured with the Golden Peacock Award for Excellence in Corporate Governance 2018 from the Institute of Directors, India.

Cipla has been seeing positive trend in its financials. Please share your growth outlook for Cipla in the coming years? How do you plan to sustain market leadership? What are your growth levers?Please help us understand your expansion plans for the coming fiscal?

Our home markets are our growth anchors – i.e., India, South Africa and USA. Sustainable growth in each of them has been our topmost priority. Our performance in key markets was complemented by consistent focus on improving cost and efficiencies.

In India, strong execution supported by superior prescription generation led to growth across key therapies and ramp-up in in-licensed products. We became number two in chronic therapies and will aim to continue the growth streak. In South Africa, we are the third largest in the private market business. We are poised for continued strong growth in the prescription and the OTC business with the integration of Mirren. In turn, this is expected to absorb the softness in the tender businesses there. Our global tender business went through re-basing over the course of the last year. We will continue to evaluate our portfolio choices in this business and play selectively for value. Our partnership model in biosimilars will continue in the emerging markets and this will remain a growth driver for us. China remains our identified growth market for the future. In the US, our base business has seen good growth. We intend to maintain one limited competition launch in the US every quarter and are targeting one sizeable respiratory inhalation launch in the US every year.

New launches and a keen eye for valuable assets that serve unmet needs and expansion of the portfolio in the areas of respiratory, CNS and the channel of institutional business will remain a priority. We are currently co-developing the Tizanidine Patch besides CTP 354 for treatment of spasticity and movement disorders further to our exclusive worldwide licensing agreements with MEDRx and Concert Pharmaceuticals, respectively. The acquisition of a stake in Avenue Therapeutics for IV Tramadol marked Cipla’s first large specialty transaction and a major milestone in the US hospital specialty strategy. The structure of the deal too is a unique one. As mentioned before, we have recently entered a worldwide co-development and commercialisation agreement for Pulmazole as well. .

Can you throw some light on your collaboration with Pulmatrix and what kind of benefit do you see with this partnership?

In April, though our subsidiary Cipla Technologies LLC, we announced our entry into a definitive agreement with Pulmatrix Inc. for the co-development and commercialisation of Pulmazole (inhaled itraconazole) for the treatment of ABPA (allergic bronchopulmonary aspergillosis) in patients with asthma. The costs related to future development and commercialisation of Pulmazole will be shared, as will be the cash flow from future sales of Pulmazole. While Pulmatrix is primarily responsibility for the execution of the clinical development of Pulmazole, Cipla Technologies will be responsible for the commercialisation of the product.

This partnership marks Cipla’s entry into the branded respiratory space and will serve as a promising solution for a genuinely unmet patient need. ABPA is a condition that possibly affects more than 2 million patients globally, but unfortunately it has no labelled drug. Pulmatrix has a strong development team and a solid IP estate through the iSPERSE™ delivery platform. This, teamed with Cipla’s established in-house capabilities for development of inhalation therapy solutions, creates very promising synergies.

In India, strong execution supported by superior prescription generation led to growth across key therapies and ramp-up in in-licensed products. We became number two in chronic therapies and will aim to continue the growth streak. In South Africa, we are the third largest in the private market business. We are poised for continued strong growth in the prescription and the OTC business with the integration of Mirren. 

What are the key challenges to growth without affecting the profit margins?

Price erosion, competition and pricing challenges for generic players in the US is an acknowledged area of concern for pharma as a whole. We have factored it into our guidance.

Having done quite a bit of course correction to our tender businesses, we will continue to be watchful here and play selectively.

Regulation is one area which is very dynamic. In India, while pricing and controls by the government remain contentious points, Cipla has always championed improving access to medicines. Timelines for drug approvals in various markets is another area where we are watchful.

Political developments is another area – tensions in the Middle East, where we have had a strong presence, and Brexit in Europe and its impact on business. We are also monitoring trade wars on tariffs.

How do you see US-China trade war impacting your sector in particular and Indian economy in general?

Significant dependence for APIs/KSM sourced from China – not just with India players, but across the spectrum of pharma players

What are the biggest risks facing Indian economy in your view?

1. Fiscal deficit

2. There has been a lot of discussion around the slowing down of private consumption. It would be interesting to see how the new government addresses this

3. There have been intense discussions around the recent NBFC crisis. The sector took a beating due to risks taken, which eventually backfired. While the massive liquidity crunch of the IL&FS disclosed last September has not played out as adversely as was expected at first, we realise the dangers and consequent need for closer regulatory supervision and higher involvement of the RBI and NHB.