Cipla to remain unfazed by Trump’s protectionist policy

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Although US is a very important market for Cipla

its Global CEO Umang Vohra said US President Donald Trump’s protectionist policies are unlikely to affect the company’s US business.
Vohra reasoned that almost 80 percent of the drugs sold by Cipla in the US market are manufactured in the US itself. He said it will not be a challenge to manufacture all its supplies in the US itself if asked to do so by authorities.

“We will increase manufacturing capabilities in the US if needed,” he told CNBC-TV18 in an interview.

The United States Food and Drug Administration (USFDA) is working hard to increase drug approvals in the US to ensure drugs come to the market much sooner, he said. He although admitted that a pricing pressure will continue in the US for sometime going ahead.

The Trump administration’s proposed border tax may impact the Indian pharma sector for a year at most, he said. He was confident that the US government will give ample time to companies before it is implemented.

He sees no impact of the border tax in the long-term as companies will adapt.

Below is the transcript of Umang Vohra’s interview to Ekta Batra on CNBC-TV18.

Q: What is your sense in terms of the overall policy situation in the US?

A: I actually saw the presidential address and to me, it appeared as if the themes were not very different than what this industry has been seeing in the past 3-4 years. There was a concern on drug pricing and this concern has been there for a while. There was a concern on the pace with which approvals are coming to market on the generic side and actually the industry and the US Food and Drug Administration (FDA) have been working for a very long time through the Generic Drug User Fee Amendment (GDUFA) and through the other acts that they have put in place to make sure that more drugs or more medicines come to the markets sooner. So, I did not really honestly think that there were too many stances which were different than they were before.

There is this talk of ‘Make in America’ and that we need to see how it unfolds because frankly, I have said this before, the US is a large market and if there was ever a call to action for people to set up facilities in the US, people will do it, in my opinion because it is a large market. We already have a large number of facilities in the US. In fact, we supply almost 80 percent of what we sell in the US which is made in the US, made from the US. And if there is a requirement that needs to go up, because of the size of the US, we will do it.

So, I actually do not think that the themes have changed much. The sentiment of manufacturing is more solid now in the US, but other than that, 2-3 concerns or the points that he raised are pretty much what this industry has been talking about for a while.

Q: The one big thing which could be expected is a medicare negotiation directly with companies. So, that means maybe a little more pressure on generic pricing. How would that impact branded as well as generic brands as well as your portfolio in the US?

A: The medicare actually impacts the branded guys more. And because the manner in which the generic business is done in the US on medicare, it is more a business where, it is almost like it is open bid. A lot of the business that we do with the government is already based on bidding. So, there is no way in which any one company can influence the outcome of what happens there. It is an open bid, everybody bids and it comes there.

Medicare treats its own patients, people who have enrolled in that programme. There is a very adequate pricing mechanism that governs that which is basically linked to free market. I do not think that the impact of medicare will have a far reaching impact on generics. I do think that it will probably have a larger impact on branded drugs.

Q: The other big thing, and I do not think it will impact you as much as the others, but a border tax. There are estimates of and earnings per share (EPS) reduction to the tune of even 40 percent for some companies. What is going to happen and will the gain significantly change for Indian companies if in case, there is a border tax?

A: Let us put it in two ways. Is there going to be a border tax? Maybe there is. Do I think it comes down? I personally do not think that it would be something which is announced and implemented tomorrow. Companies would be given time for this border tax to come in place, etc. What is the short-term impact of border tax? There will be a short-term impact because if there is a border tax, you have got to be paying out more so there will be a short-term impact of border tax.

But most companies are in a stage today that they will probably have to take this hit for about a year-a year and a half till the time that they are able to either migrate the production into the US or to US territory. Or for that matter, set up at their own facilities at that point in time. So, there will be an impact for about a year-a year and a half, but I do not think that the long-term fundamentals of the attractiveness and the size of the US market will change at all. So, people will adopt the supply chain to make sure that they obviate the border tax that has been set up. But I do not think this changes the fundamentals of doing business.

Q: What about Serum Institute? There was so much talk about it.

A: This keeps coming back time and again. We struggle hard to see how this comes back into the media. Serum Institute for us, is a very good partner. It is an amazing partner, the promoters know each other at a certain level, we are partnering with them with several product launches in India. We will continue to be very preferential partners for them and I am hoping that they will be the same for us. This is a partnership, I do not think there is any talk right now about whether Cipla buys Serum or Serum buys Cipla or the two merge together or not.

There is a lot of respect between the two promoters for each other and there is closeness in how we sell their vaccines in India and other parts of the world, but that is where it is as of now. It is a very strong partnership and we intend to keep doing it.

Q: What about Goa? You have a few observations outstanding since October. What is the status on that?

A: At Goa, we are waiting for the FDA’s directive and they issue this through an Establishment Inspection Report (EIR) or they ask you for further information, etc. we believe we have implemented all that we had to. The FDA is still looking at it. Our products are getting approved from Goa. So, it gives us confidence.

Q: So, you have received approvals post October.

A: We have, so it gives us confidence that – and we have mentioned it was procedural, we have rectified it, but the FDA is the final decider and we have to get the EIR before I tell you that we are clear in Goa. But we have reasonable belief that we are on the right path for Goa. We have got approvals for products, etc. so I think it will take its time, but we are hopeful.