01 Dec 2004
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Finding a Balance

Drug Companies, Pricing, and the Fight against AIDS
by Julia Hanna

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Do the rules of business change when a company’s product holds the power of life or death over its customers? That’s a question students must consider when discussing “Cipla,” a case about a $325 million Indian pharmaceutical company that manufactures and sells low-cost AIDS drugs for patients who would otherwise be unable to afford treatment.

Authored in 2003 by HBS professor Rohit Deshpandé, the case began as a straight pricing study. “The pharmaceutical industry is unlike any other,” Deshpandé explains. “Although the prices vary from country to country, we know that the molecular structure of the product is identical by law. That was an interesting puzzle to me.” After focusing his study on antiretrovirals, Deshpandé saw other issues emerge. At the same time, he was asked to join the teaching team for Leadership and Corporate Accountability (LCA), the new, required MBA course that deals with ethics, governance, and legal issues.

“At that point the case changed to focus on tensions between pricing as a reward for investment in R&D versus making a product available to poor people who will die without it,” says Deshpandé. “It raises a number of interesting legal, business, and political issues for students, so it fits well with the LCA curriculum.”

Cipla’s CEO, Dr. Yusef Hamied, figures prominently in the case. A Cambridge University–educated chemist, Hamied is revered by some for his humanitarian projects (including several health centers funded by Cipla) but reviled as a pirate by global pharmas that consider Cipla’s products a direct rip-off of patented drugs.

From 1999 through 2002, Cipla enjoyed an average annual growth rate of 30.3 percent from the sale of more than 400 drugs, including generic versions of Viagra, Prozac, Diflucan, and Prilosec. (During the same period, multinational pharmas reported a growth rate of only 1 percent.) The case outlines Hamied’s impact — for one, pressuring global pharmas to cut the price of AIDS drugs by exporting a low-cost alternative to South Africa — and also presents his dilemma: As a member of the WTO, India must comply with international patent law by 2005, precluding production of some of Cipla’s biggest moneymakers. With time running out, what should Hamied do?

Lobbying the Indian government to exclude food and pharmaceuticals from patent laws is one option, and has been successful in the past. But the government has been unresponsive to date. With Western companies such as Microsoft, GE, and IBM making significant investment in IT outsourcing in India, the pressure is on for the government to toe the legal line. “None of these companies wants to work with a government that encourages piracy,” says Deshpandé, who is now writing a “B” appendix to the case that examines Cipla’s current collaboration with the Clinton Foundation, an NGO that has brokered a low price for antiretrovirals in order to make them available in the Caribbean and sub-Saharan Africa.

Deshpandé, who has taught the case once, says that classroom discussion split down the middle as to whether Hamied is a humanitarian or a pirate. “It was surprising to see how many comments the case engendered after the class was over,” he adds. “The students set up a discussion board on the Intranet, and some of the posts were made way past midnight.

“A few students posted newspaper articles or shared experiences of family and friends who were affected by AIDS,” Deshpandé continues. “This was an issue that took the discussion beyond the realm of typical products and services and the normal laws of supply and demand. It’s not a career-oriented case that lends itself to helping students set up for interviews. And yet it touched the hearts and minds of students, which is very gratifying.”

— JULIA HANNA

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