The Y K Hamied Interview : Part One

On January 29, Yusuf Khwaja Hamied, 75, chairman of India’s third-largest drug maker Cipla, and the Grand Old Man of the Indian pharmaceuticals industry, sat down with Gauri Kamath at Cipla’s Mumbai headquarters for a wide-rangeing interview. The energetic Hamied was in his element, answering questions patiently and holding forth on a variety of issues untiringly for over an hour.  

Apothecurry presents the Y K Hamied interview in three parts. Below is part one. In this extract Hamied, whose company broke new ground in giving developing countries access to HIV medicines, speaks of his dissatisfaction with the global tendering process for HIV/AIDS meds and other drugs.

In the early 2000s, Cipla famously offered generic versions of  HIV drugs to millions of Africans at less than a dollar a day per patient, a fraction of innovator prices. This offer paved the way for cut-price generic treatment to be delivered to aid organizations and governments so they could treat millions of patients in developing countries who could not otherwise have afforded treatment. The move captured global attention, lately inspiring a documentary called “Fire in the Blood” that has won much critical acclaim.

Yet Cipla is, in a sense, a victim of its own success.Tens of generic producers, mostly from India joined the fray; some have matched and bettered its prices in global tenders.

Cipla’s chairman while proud of his company’s achievement, talks of  why, in the current competitive environment, the process of global tendering is “very dangerous” for companies and in need of reform.

On the lack of regulatory harmony in tendering

There are various criteria for tendering. A South Africa tender has to be according to South African rules and regulations. If you are not registered in South Africa then you cannot (bid). Some of my products are registered in USA, with the World Health Organisation, but not so far registered in South Africa. I can’t quote for those items. But how many products to register? In AIDS (treatment), there are tenders for 30 items. I don’t have 30 registrations in South Africa! Now if it’s American money they say “No, the product has to be US FDA-approved”. Or under some other tender, WHO-approved.

On tender pricing and the benefits of part-tendering and negotiation

Let’s take the South African tender as an example. In a two-year tender, your prices have to be valid for two years. What about currency change? What about inflation? I have to hold the same price for two years. Then suppose there is a tender for X amount of tablets and I don’t have the capacity to produce all that. I think you should be able to quote for part tender (where you state) that you can only bid for and supply (if you win the tender) 30 per cent or 50 per cent. This should be allowed but some tenders allow this, some don’t.

The other thing that, in all tenders, the lowest bidder should not get the total business, but 70 per cent. Then the one who has quoted second, should be called and asked to match the lowest bid for 20 per cent of the tender. Then offer 10 per cent to the third bidder on the same terms. That way all your eggs are not in one basket and the country has a fallback system. Even if know I am losing a tender, maybe, I will get 20 per cent.

When the Clinton Foundation were buying ARVs they did not tender. They would actually come here and negotiate. It was a very good system. In the mid-70s when we were exporting medicines to Russia, a team from the Russian (importing) organization, MedImpex, would come to India with a shopping list. They’ve been in this room many times. They would say, “alright Dr Hamied we need to buy 50 million tablets of senna (a laxative) from you.” They would negotiate a price and haggle and barter and we would come to a final price. We would shake hands over a glass of cognac, or wine.

That price stood for one year, that quantity Russia bought for one year and it was all fine. In one shot, without wasting time, in one or two hours of negotiations, we finalised deals.

On competition in the tender business

In AIDS (treatment) now you’ve got Cipla, Hetero, Mylan, Ranbaxy, Strides Arcolabs, Emcure, Aurobindo. Then (South African companies) Adcock Ingram, Aspen, others too are quoting, so it is not easy. I will give you an example. The main drug (three-drug cocktail) that brought the price down to $300 (per patient per year) way back in 2003 when we came at a dollar a day, that drug today is $60 dollars in tender per patient per year.

On the business uncertainty related to tendering

In anticipation of a business of say, $100mn, how much stock should I maintain? If I am exporting $100mn (worth of drugs) to South Africa, my material cost is well over $80mn so how much should I stock up, how much should I make? It happened two years ago in malaria. We were sitting on $47mn worth of raw material and suddenly the Global Fund (for TB,AIDS, Malaria) said “we have no money and for six months we are not buying”. Out of the blue. What do you do? I am sitting on millions of dollars worth of stock for South Africa. So there is no fallback clause. This situation is very difficult. Now when something costs you Rs 10 and you are selling for Rs 100, like in the private market, it doesn’t matter. But when it comes to tenders you are on gas all the time. It may look very good but it is a very dangerous situation.

One of the ingredients in an anti-malarial drug is a natural product called artemisinin. Now that, say, costs about $400 to 500 a kilo. At the beginning of the year, I have to place my contracts with the suppliers, with the farmers and the cultivators. So I normally place contracts for 30 tons. A 30 ton contract means $15mn. And suppose I don’t win the tender, this I have to buy in anticipation. What do you do? And you’ve got Micro Labs, Ajanta, Ipca, McLeod’s, Strides, all undercutting you. Or we are undercutting them. It’s a game.

Eight years ago, 2005, we had an outbreak of bird flu. Cipla started development of oseltamivir, our drug for bird flu. Roche (the innovator company) had said it is very difficult, it has a 20-step synthesis, and the cycle to produce takes two years. With our Chinese partner we solved the problem in two months.

When I was ready to market the product what did the Indian government do? They banned me from supplying our product which is called Antiflu to the chemist shops for sale and said that only government would buy it. So I said “why don’t you buy it?” They said, “Sorry why should we buy it? There is no bird flu.”

That ban on chemists stays although the drug is used for influenza, for seasonal flu, not just bird flu. That ban still exists. I cannot sell my Antiflu to chemist shops. I am sitting on $15mn worth of raw material. Now that is unfair. There were two drugs that we had for seasonal flu. The other was Virenza (zanamavir) (which is also) ideal for dengue treatment. Who do I break my head with that these should now be allowed through chemist shops?

On the implications for Cipla’s participation

The margins on tenders, if you add your overheads and all sorts of things, are virtually zero. We will still tender and try and win tenders. We have taken a firm decision. I have always said that anybody dealing with healthcare has to have a humanitarian approach in the business. Cipla was a pioneer in management of ARV in the world. We are not giving it up, sorry. But you are on gas, you cannot predict.

Pic courtesy Cipla Ltd.