How Cipla's Umang Vohra is trying to invigorate the 84 year old company

In August 2016, drug maker Cipla elevated Umang Vohra's position to its CEO and MD, replacing Subhanu Saxena, the first ever executive outside Cipla’s promoter family to head the drug maker.

Vohra, 48,  joined Cipla from Dr Reddy’s Laboratories  just a year before as company’s Chief Financial Officer.

Vohra who holds a BE in computer engineering and has an MBA with a specialization in Finance from TA Pai Institute of Management (TAPMI), had all the credentials. At Dr Reddy’s, his previous employer, he ran its finance and global operations, and even led its critical US business.

A firm believer in the power of agile business models, disruptive technologies, data-driven analytics and a future-ready workforce, Vohra went on with his job quietly. His first two years at Cipla were spent on cutting the flab, restructuring the business, rationalising the workforce and improve its productivity.

Under Vohra's leadership, the drug maker exited non-core low profit ventures like its animal health business, it scaled back investments on biologics and went about rationalizing its markets and product portfolios.

When Vohra took over, Cipla carried out front-end distribution in about 135 countries. As per the latest FY18 annual report, it has now limited its operations to 80 countries and much of the sale in those countries happens through partnerships.

While cost optimisation is a relentless pursuit, Vohra's team has managed to complete much of the work concerning the restructuring of the business.

The results soon followed. Cipla, which was once considered as laggard compared to its peers on earnings before interest, tax, depreciation and ammortisation (EBITDA) margins, improved by 5 percentage points.

The company posted 19.4 percent EBITDA in FY19, which was largely in line with its peer companies.

The income from operations stood at Rs 16,362 crore and its net profit at Rs 1,528  crore.

To be sure, transforming a company like Cipla is never going to be easy, as there will always be friction between the new and the old guard.

Vohra had received the firm backing of Cipla's promoter family.

"The third generation of the promoters are not so much into the business, while first two generations are very strong with its fundamentals. They (promoters) have a view that this company should be run by professionals. I think that is what is different here," said Umang Vohra in an exclusive interview to Moneycontrol recently.

"There is also the question of maintaining trust, and the transparency one brings. Samina very often says that I make her feel she is part of my management council, she makes me feel that I am the owner of the company," Vohra said.

Samina Vaziralli, Executive Vice Chairman of Cipla, represents the third generation of promoter family. She is the niece of Cipla's Chairman YK Hamied and daughter of Vice Chairman MK Hamied.

Dr YK Hamied has no offspring. MK Hamied has three children. Kamil Hamied, the brother of Samina Vaziralli, was groomed to take over the mantle, but he left the company.

After the first leg of work comes the most challenging phase: achieving sustainable growth in three home markets — India, US and South Africa —with an EBITDA of 20 percent and above.

One anomaly spotted by Vohra’s predecessor, Saxena, was Cipla’s lack of a major presence in the US market, which is also one of the big reason for the low EBITDA margins.

Saxena tried to correct the anomaly by putting Cipla on an accelerated growth path with buyouts of InvaGen and Exelan in US spending $550 million – the largest ever acquisition by the company.

However Saxena left before the acquisition has started playing out. It fell on Vohra to get the integration going and unlock synergies.

By the time Cipla entered the US generics business, it underwent a sea of change. Competition among generic players became intense, the distribution channel consolidated that led to a steep price erosion of generic drugs. Three distributors McKesson, AmerisourceBergen and Cardinal Health now control 85 percent of the US market.

Despite the difficult circumstances, the acquisition has turned out to be a decent one for Cipla.

The North American market, which is dominated by the US, contributed 21 percent to the company’s revenues and registered a growth of 18 percent. Cipla is now focusing on direct to market products that gives it decent margins.

“India and South Africa are our home markets. They will get all our attention. In the US, it is about limited competition opportunities. This is how we want to transition into an innovation led company,” Vohra said.

Vohra is now trying to steer the US business by concentrating on limited competition drugs like inhalation, complex injectables and specialty drugs to beat the pricing pressure in US.

Vohra said he is besieged about building a new narrative for the company to energise his troops, and be relevant in an industry that’s going through a transition phase.

“The last story for Cipla was that of a dollar a day. The next story has to be linked to innovation. Affordability was big issue in the period between 2001 and 2010, whether it was in HIV or the whole generic business. That’s over. That new story may not come in our regular generic business. It may be specialty or somewhere else,” Vohra said.

Vohra said Cipla is now exploring on how can the company serves a patient beyond a pill and it is also wants to see itself as a specialty company focused on lung-related diseases.

Cipla is making those moves. The company, in February this year, picked up a 11.71 percent stake in Mumbai-based startup Wellthy Therapeutics and followed it up with the acquisition of 30 percent stake in South Africa-based Brandmed in April.

Both the companies provide digital disease management platforms. These aid the real-time monitoring of the patient that help him be compliant with the treatment of non-communicable diseases such as cardiovascular, diabetes and respiratory diseases, and focus on promoting wellness instead of managing illness.

Cipla, which is number one in the respiratory segment in India, is trying to transform itself into a specialty player for treating all conditions related to the lungs.

"Because we understand the lung, our core objective now, can we behave like innovators in lung space in emerging markets," Vohra said.

Vohra added that they are also looking at re-purposing antibiotics to make them more effective. For instance, developing inhalers to deliver antibiotics to lungs as compared to popping pills.

"The big threat for the world will be antimicrobial resistance. The big challenge is how to make antibiotics more effective, because new antibiotics are not coming," Vohra said.

Cipla has acquired an anti-infective product Elores from Venus Remedies .

"We trying three-four things, and will see what is going to work in next three years," said Vohra.