Page One Feature

Altruism, Politics and Bottom Line
Intersect at Indian Generics Firm

By DANIEL PEARL and ALIX FREEDMAN
Staff Reporters of THE WALL STREET JOURNAL

BOMBAY, India -- Yusuf K. Hamied is a man with impressive humanitarian credentials. His pharmaceuticals company, Cipla Ltd., runs a free cancer-care hospital in India. His apartment near London's Hyde Park boasts a series of paintings of Mother Teresa that bear her signature. When a devastating earthquake recently struck India's Gujarat state, Dr. Hamied ordered his company's warehouses opened, on a holiday, to supply free medicine.

And yet, even Dr. Hamied's friends say it wasn't simply compassion that drove the generic-drug pioneer to make his attention-grabbing offer last month to sell AIDS drugs at deep discounts, a move that has set off an extraordinary price war for supplying the life-saving medicines to Africa and developing nations elsewhere. The developing world is home to the vast majority of the globe's 35 million people infected with HIV, the virus that causes AIDS.

One friend, Bombay patent lawyer Narendra Zaveri, says Dr. Hamied's offer was "very much a business deal" designed to build Cipla's brand name outside India. Others say Dr. Hamied wanted to impress Indian government officials with his ability to cut prices, as part of an effort to preserve the legal rights of India's generic-drug companies to make and market copies of newly developed drugs.

Regardless, Cipla's offer to sell a triple-combination of "antiretroviral" AIDS drugs to the international aid group Doctors Without Borders at less than $1 a day per patient is transforming the debate over how to provide critical medicines to poor nations.

For the first time, companies like Cipla that copy drugs still under patent in other countries are being taken seriously by the United Nations. That is making them important players in a new plan U.N. officials are drafting for supplying much-needed medicines to Africa.

Multinational pharmaceuticals companies dismiss Cipla and its peers as patent "pirates." But the big multinationals are nonetheless responding with discounts for developing nations that the drug giants themselves would have labeled impossible just a few months ago. And other Indian generic-drug makers are fueling the pricing battle as they try to outdo Cipla.

Health-care advocates in the U.S. are paying attention, too. Cipla's price, $350 a year per patient for one three-drug cocktail known to extend the lives of AIDS patients, is 1/30 of the treatment's cost in the U.S. Paul Davis of AIDS activist organization Act Up/Philadephia says his group has decided to lobby against big drug companies' patent extensions in the U.S., in order to pressure them to sell drugs cheaply in Africa.

An Unwitting 'Crusade'

"Whatever you may say, what we have started has been a crusade," says the mercurial 64-year-old Dr. Hamied. "It has unwittingly developed into this."

Cipla, whose name was largely unknown in the West until recently, is keeping up the pressure, too. Later this month, Dr. Hamied is scheduled to meet with officials of the U.N.'s World Health Organization to talk about ways to administer international sales of generic AIDS drugs. Just last week, the company filed a request in South Africa for a license to sell cheap versions of patented AIDS drugs there. That request may bolster the South African government's defense of a controversial law that allows it to authorize imports of low-cost generics, even as 39 major drug makers attack the law in a South African court.

How much the crusade will help AIDS patients is still unclear. Cipla's offer to Paris-based Doctors Without Borders so far seems largely symbolic, since the group lacks the resources, infrastructure or desire to be a global drug distributor. Doctors Without Borders is unsure whether it will be able to get the funding to buy Cipla's drugs. If it does, the group says it plans to set up only small pilot projects to dispense them.

Campaigns to get cheap drugs into African nations also face legal and logistical hurdles as well as questions about who will verify that the knockoffs work like the originals. Dr. Hamied hasn't extended the $350-a-year offer to governments, which might buy large volumes of drugs, but he says he is willing to sell them the three-drug regimen for $600 a patient per year. That price appears to be comfortably profitable for the Indian drug maker, whose overall AIDS-drug sales have been paltry thus far.

Last May, five large drug companies pledged to provide their AIDS drugs to people in sub-Sahara Africa at about 80% off the prices they charge in the U.S. and Europe. But because prices were still far above most Africans' reach that effort received a limited response. Last week, in an effort to encourage African nations and international donors to begin buying or subsidizing the drugs, but also partly in response to Cipla and its Indian rivals, Merck & Co. slashed its prices by an additional 50%. New price cuts from other big companies are expected to follow.

But, as with the large drug companies' offers, many wonder if Cipla's proposals will have impact beyond their publicity value. "That's the question we all have," says Denis Broun, a former U.N. pharmaceuticals specialist who has advised Dr. Hamied over the past year. Saving lives with the AIDS drugs requires specially trained doctors and nurses and careful tracking of patient dosages, says Dr. Broun, who now works for Management Sciences for Health, a nonprofit consulting group based in Boston. Dr. Hamied, he believes, is mostly concerned with influencing patent laws in India.

"He is pretty cleverly using the AIDS issue to push his views, and show their validity," says Dr. Broun. "He is pursuing, internationally, an Indian objective."

Dr. Hamied says that his sole motive for offering to supply cheap AIDS drugs is simply "my social obligation to society."

In India, Cipla's agenda hasn't always been to push down drug prices. It and other big generic companies recently asked the government to slap 35% import duties on lamivudine, an AIDS drug known as 3TC, that Dr. Hamied's company also makes. And Cipla is engaged in a bitter dispute with the Indian government over India's price-control regulations. When the government ordered Cipla to reduce prices of certain drugs, the company went to court instead. It could have to cough up $20 million should the government win.

Yogin Majmudar, an Indian generic-drug executive close to Dr. Hamied, says the case may have influenced Cipla to make an international splash on AIDS-drug pricing. "Hamied is trying to get his due recognition from the government," he says.

Every day, on his way to work, Dr. Hamied drives his Lexus past Dr. K.A. Hamied Square, named after his father, an Indian nationalist who started Cipla in 1935. Guards salute Dr. Hamied as he rolls down the driveway of Cipla's midtown Bombay headquarters. In his office, Dr. Hamied shows visitors photos of himself with his Bombay childhood playmate, the conductor Zubin Mehta.

Cosmopolitan Life

Cipla's chairman is a true cosmopolitan. His father was a Muslim and his mother a Lithuanian Jew. Dr. Hamied's accent is more European than Indian. He spends much of the year in London and the Indian Ocean island of Mauritius, and claims "non-resident Indian" status. In Bombay, he stays in shape by walking around the pool at the European-controlled Breach Candy Swimming Trust, which once barred Indians and now limits their memberships. Still, Dr. Hamied's eyes sharpen as he recounts how foreign companies overcharged India for medicines in the 1960s, when he went to work for Cipla after returning from Cambridge University with a doctorate in chemistry.

It was, in part, a foreign patent holder's attempts to stop Cipla from making Propranolol, a heart-disease drug, that spurred the company to political action 30 years ago. Cipla went to then Prime Minister Indira Gandhi, according to later testimony by Dr. Hamied, and asked: "Should millions of Indians be denied the use of a life-saving drug just because the originator doesn't like the color of our skin?"

With the prime minister's support, India enacted a new patent law in 1972 that protected only the process for making a drug, leaving the product itself fair game for copying.

Within India's growing community of drug duplicators, Dr. Hamied remained a hard-liner. He pulled Cipla out of a trade group he had helped create, because the group was starting to issue some joint statements with foreign drug companies. Dr. Hamied showed a special brilliance for decoding the foreign companies' newly invented drugs. Colleagues in the industry recall seeing him scribble from memory all the steps needed to synthesize a particular molecule. "I'm a scientist, not a businessman," he likes to say. Still, Cipla is now the No. 3 Indian generic-drug company in terms of sales, and it earns some of the highest operating profits in the business: 26% in the quarter ended Dec. 31.

Cipla is "a company with a sustainable competitive advantage," its promotional video proclaims. But by 2005, that competitive advantage could end. International trade rules require India to put a strong pharmaceuticals patent law in place by then. To get ready, some Indian companies have moved aggressively into research. Meanwhile, Cipla has been duplicating foreign drugs at a furious pace. (The new patent law probably won't cover drugs patented before 1995, as long as generic versions are already on the market.)

Dickering Over Prices

With family and friends, Dr. Hamied controls 41% of Cipla's shares, valued at a total of $530 million. Some industry officials say he has entertained offers to sell the company. Dr. Hamied denies that he has done so.

Fielding calls at his office, Dr. Hamied seems very much a businessman. "I'd love to do business with Oxfam," the British charity, he tells Cipla's agent in Argentina, and then starts dickering over AIDS drugs. "The lowest price I can give you for Stavudine is $1,500 a kilo," or about $682 a pound, he says. He is referring to the active ingredients in Bristol-Myers Squibb Co.'s patented AIDS drug, Zerit.

Such bulk ingredients are created in thickly insulated glass vats, in a series of reactions that can take a month. By refining the process, generic-drug companies typically drive costs down over time. It is a competitive business, with regular requests for bids from buyers in Brazil and Argentina. But Cipla set itself apart in India by forming the ingredients into actual pills, as well, and putting them on pharmacy shelves under its own brand names, such as Stavir.

Its AIDS pills are too valuable to keep on the shelves at Riddhi Siddhi, a Cipla distributor in Bombay's industrial district. Co-owner Priti Mayani says she keeps Cipla AIDS medicines such as nevirapine, patented by Germany's Boehringer-Ingelheim GmbH, under her desk for safekeeping, because they're the most expensive of 500 Cipla products she sells.

Cipla is the market leader in AIDS drugs in India, which has an estimated HIV-positive population of 3.7 million. It sells the drugs at a cost of $1,090 a year for a typical combination treatment.

Yet, AIDS therapy isn't a thriving business for Cipla. Ever since it began synthesizing AIDS drugs a decade ago, selling them in India has been an uphill battle. Dr. Alla V. Ramarao, former director of a government lab who helped Cipla concoct the drugs, says he had to plead with Dr. Hamied to carry on after early batches of the AIDS drug AZT passed their expiration dates without being sold.

Even now, after years of rival seminars for doctors, sponsored by Cipla and by Glaxo PLC (now part of GlaxoSmithKline PLC), the entire Indian market for antiretrovirals barely amounts to $3 million, according to Bombay market-data provider Org-Marg Research Ltd. Glaxo estimates that no more than one in 300 HIV-positive Indians is on antiretroviral drugs.

The reasons are many. Indian doctors often suggest herbal remedies and diet improvements before turning to Western drugs. Some hospitals still won't admit AIDS patients, and many AIDS patients are reluctant to visit doctors. Prafulta Against AIDS, a church-funded organization that works with Bombay's well-organized prostitutes, held meetings with them for a year before trying to persuade them to take AIDS tests.

One 26-year-old streetwalker, who goes by the name Sumiti, says nobody trusts local doctors to keep a prostitute's condition secret from her clients or her profession secret from her relatives. Anyhow, Sumiti, who earns enough to buy her husband alcohol and send her daughter to private school, says she wouldn't spend even $1 a day to save her life if she tested positive for AIDS. Fifty cents, maybe.

Most Indians don't have the choice, since a year's supply of the cheapest antiretroviral combination available costs more than India's average per capita annual income. And the hidden costs are even higher. Shahrukh Irani, a wine salesman in the city of Pune, shows a February bill for his HIV-positive 12-year-old daughter: $110 for two-drug combination, $170 for a liver test, blood tests, urea test, and viral-load test to keep track of the drug's effects and side effects, another $130 for doctor's bills and incidental expenses. A Zoroastrian charity pays those bills.

Cipla has tried to persuade the Indian government to start funding AIDS treatment. But India is a country that hasn't eradicated leprosy, and thousands of people die there each year for lack of such basic necessities as clean water. Its health officials, who have only $45 million a year to spend on fighting AIDS, aren't convinced it is worth shifting funds from prevention to care.

Export markets pose other problems for Cipla. For the past two years, it has tried to sell the AIDS drugs to South Africa. It has a 40-person office there and took a small booth at last year's AIDS conference in South Africa. One analyst estimated Cipla could take in $100 million if it could get into South Africa. But few markets have patent laws as lax as India's.

In August, Cipla canceled a shipment of its Combivir AIDS drug to Ghana after getting a letter from GlaxoSmithKline warning that the product was under patent. Ghanian authorities disagreed, and even Glaxo officials now concede they were in error. Even so, Cipla decided not to stay and fight.

'An Iconoclast'

It was a loose alliance of Americans who handed Cipla the idea for a new export strategy. The group's leader was Jamie Love, 51, of Consumer Project on Technology, a Washington, D.C.-based activist group associated with Ralph Nader. In August, as part of his campaign to break the hold of the multinationals on AIDS drugs, Mr. Love's team began looking for ways to get lower-priced versions of the medicines into sub-Sahara Africa. He met with William F. Haddad, a pharmaceuticals entrepreneur who helped found the Peace Corps and is credited with helping foster legislation that has boosted the generic-drug industry in the U.S.

Mr. Haddad says he left the meeting with a piece of paper on which he had drawn four boxes, each containing a question mark. Each was a raw material. For advice on where to get them, he turned to Agnes Varis, a New Jersey drug maker, who told him simply: "Yusuf Hamied of Cipla."

"Who's that?" Mr. Haddad replied.

"An iconoclast," and somebody who wasn't afraid of big drug companies, Ms. Varis said.

Within days, Mr. Haddad and the Naderites flew to London to meet Dr. Hamied in his spacious flat. Dr. Hamied impressed the others with his offhand recitation of the costs of making AIDS drugs. Asked about AZT, he said "Talk to the Koreans, they're cheaper than the Indians."

Mr. Love says he asked Dr. Hamied what it would cost for Cipla's three-drug combination if the buyer picked up the drugs at the factory door. The answer: $350 per patient a year.

Eager to publicize the "true" cost of making AIDS drugs, generic-drug industry officials helped secure Dr. Hamied a slot at a Sept. 28 European Commission meeting on AIDS and other diseases. Dr. Hamied says he worked for days on his speech, which he delivered in Brussels to African health ministers, international organizations and big drug companies.

"Friends, I represent the Third World," he began. There should be "no monopolies for vital, life-saving and essential drugs," he said. Then he listed Cipla's wholesale prices for AIDS drugs and said the company would give governments a special rate of $1,000 per year per patient -- maybe even $800, for one particular three-drug combination. A buzz went through the room.

"I was hoping if the meeting went on two more days he could go to $200," recalls Jonathan Quick, a WHO official.

Actually, reducing prices for governments made good business sense. Other generic-drug companies in India say they avoid Indian excise tax, wholesale and retail markups and fancy packaging by selling to foreign governments. That allows the drug makers to reduce prices 40% and keep the same profit. Selling to governments also means fewer problems with defaults, and possibly even with patents.

The scheme of selling AIDS drugs to a nongovernmental health organization was more of a political statement. At the Brussels meeting, Dr. Hamied met Bernard Pecoul of Doctors Without Borders. The aid group needed a supply of medicine to launch some small programs for treating AIDS patients. But AIDS had also become an emotional issue within the organization. Physicians working on other diseases were distressed to see how many of the organization's nurses, doctors and drivers in Africa were succumbing to the AIDS virus. And Doctors Without Borders was frustrated by the slow response from big drug companies and the U.N.

"Our objective is to create the pressure," Dr. Pecoul now explains.

Mr. Love, the Nader activist, had the same goal. On Dec. 11, he came to India to discuss with a group of pharmaceuticals executives how trade rules allowed countries to write laws, like those in South Africa, that could force drug-patent owners to give licenses to generic companies. Drug-company executives in India were expecting government officials to present a new patent law to India's parliament within weeks. With Mr. Love's encouragement, Cipla soon sent letters to four companies holding patents on the AIDS drugs Cipla made, offering to pay a 5% royalty in exchange for a license to make the drugs.

At the same time, Mr. Love was bent on showing how low AIDS-drug prices could go. While in Geneva on Jan. 19 for the World Health Assembly executive board meeting, he says he went to a dinner party thrown by Dr. Pecoul of Doctors Without Borders and announced to his incredulous host, "I guarantee I can get you $350."

'Call It a Donation'

Meanwhile, by e-mail, Mr. Love pushed Dr. Hamied to offer that price. "Cipla could call it a donation or whatever it needs to," Mr. Love said in one such message. "This will be a very closely watched price quote, and will go directly to the question of whether or not Africa should pursue a generics strategy, or negotiate endlessly with the big pharma players."

Dr. Hamied says it was the devastating Jan. 26 earthquake in Gujarat that finally persuaded him to act. He told one friend that he started thinking about the unavoidable deaths, and then about all the AIDS deaths that could be avoided in Africa. During a Feb. 6 conference call with Doctors Without Borders, to iron out technical issues involved in purchases of other drugs, Dr. Hamied turned the subject to the AIDS drugs and said, "I'm thinking of offering a $350 price to subsidize your distribution costs," Doctors Without Borders officials recall.

Cipla sent the organization a faxed confirmation letter the next day, offering the $350 price, so long as the drugs were distributed free of charge. Mr. Love made sure the news became public.

A week later, Dr. Hamied had a thick stack of press clippings on his desk, and a fax from Unaids asking him to speak at a U.N. Special Assembly session on AIDS in June. But the following week he found himself frustrated with the U.N's response to his $350 offer. Rather than rushing to embrace his overture, U.N. agencies were just asking for further details about the offer: like how long Cipla would supply drugs at that price. The U.N. was "only working with the multinationals, so good luck to them," Dr. Hamied concluded. As for the Indian government, health officials were waiting for Cipla to contact them; Dr. Hamied was waiting for them to contact him.

A Big Difference

Doctors Without Borders soon learned that negotiating with Cipla wasn't like negotiating with a multinational. Daniel Berman, an essential-medicines specialist with the group, recalls that when he showed up at Bristol-Myers last year for talks on an AIDS-drug distribution plan, the company's negotiating team included five public-relations staffers and two drug specialists. At Cipla's headquarters, however, Mr. Berman and an associate met with Dr. Hamied, the company's managing director and its marketing director, Dr. Hamied's younger brother. The company didn't even have a public-relations department, or a foundation set up to deal with nonprofit organizations.

That actually posed a problem. Dr. Hamied told Mr. Berman about a telephone call he had received the previous day from a Kenyan orphanage asking for $350-a-year AIDS drugs. He said he asked the orphanage to go through Doctors Without Borders, because he couldn't be expected to field such requests himself. But Doctors Without Borders didn't want the role of deciding what organizations got AIDS drugs. Neither Cipla nor Doctors Without Borders wanted to have to study the patent laws of each country. Nor did Doctors Without Borders want to start a big drug-distribution project in India, as Dr. Hamied suggested.

The two sides did make progress, however. Mr. Berman says he convinced Dr. Hamied that the queries from the U.N. were actually a good sign, and Cipla agreed to work with the World Health Organization. One issue Dr. Hamied wants the WHO to work on is quality assurance. Two other Indian companies, Hetero Drugs Ltd. and Aurobindo Pharma Ltd., are pushing to export AIDS drugs through governments and international organizations. Hetero says Cipla has a problem because its AIDS drugs haven't been fully tested on human beings to show they are equivalent to the patented originals. Cipla says the other companies have a problem because their drug factories don't have full international quality checks.

"Fly-by-night" companies should be kept out of international AIDS-drug supply, Dr. Hamied says one morning. By evening, though, he says, "I genuinely believe there's room for everyone" because Cipla can't possibly supply enough drugs by itself for the millions of AIDS patients in Africa.

Whether for charitable or business purposes, Cipla slashed its AIDS-drug prices in India by 35% on Feb. 27. That night, he predicted the government of India would surely have to respond. But in the nearly two weeks since then, the government still hasn't contacted him.

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