Management iDevelopment iInstitute

Murshidabad

STRATEGY iMANAGEMENT
Group iAssignment
ELI iLILLY iAND iCOMPANY

Submitted iby: i
1. ABHINAV iDAS i(20PGPM139)
2. AGNI iBANERJEE i(20PGPM073)
3. AMANDEEP iSINGH i(20PGPM076)
4. SHASHANK iTRIPATHI i(20PGPM121)

Submitted
ito:
Dr. iNeeraj
iSinghal
Abstract
Joint iVentures ican ibe ia igreat iway ito icombine iskill-set ior iexpertise ithat itwo icompanies
irequire. iIn ia ijoint iventure, iboth icompanies ishare ithe icosts ias iwell ias iprofits iand ialso
ireduce iexposure ito iassociated irisks. iSimilar iinterests idriving ia ijoint iventure ibetween iEli
iLilly iand iRanbaxy iin iIndia ican ibe iobserved. iThe iappointment iof iDick iWood ias ithe inew
ichairman iof iEli iLily iin i1992, ipropelled ithe icompany itowards iglobal iexpansion istrategies.
iAt ithat itime inew ipolicies iin iIndia iopened iit iup ito iforeign iinvestments iallowing iup ito
i51% iprivate iownership. iBut ithe idifficult ito iunderstand ithe ibusiness ienvironment iin
iIndia imade iit itough ifor iforeign icompanies ito idirectly itap iinto ithe imarket. iHence
iRanbaxy iwas istrategically ichosen iwith ithe ipossession iof ian iestablished idistribution
inetwork, iknowledge iabout ithe ilegal iframework iand iwith ialigned ivalues. iAfter ia iseries
iof ichallenges ithe iJV iachieved ibreak-even iin i1996 iand ithereafter ireflected igood ifinancial
isuccess. iNow ithat ithe iboth ithe icompanies ihave iattained itheir igoals ithrough ithe iJoint
iVenture, ithe iJV istrategy ineeds ito ibe ire-evaluated iand ithe ibest iof istrategies imust ibe
iput iforward.
ABOUT iTHE iCOMPANY
Eli iLilly iand iCorporation, ibased iin iIndianapolis, iIndiana, iis iaa iAmerican ipharmaceutical
icompany. iIt ihas ioffices iin i18 idifferent icountries. iApproximately, ithey isell itheir iproducts
iin i125 inations. iColonel iEli iLilly, ia ipharmaceutical iscientist iand ian iAmerican iCivil iWar
iveteran, iwho ifounded ithe ifirm iin i1876 iand inamed iit iafter ihim.

Lilly's isignificant iaccomplishments iinclude ibecoming ithe ifirst ifirm ito imass iproduce iJonas
iSalk's ipolio ivaccine iand iinsulin. iIt iwas ione iamong ithe ifirst ipharmaceutical ifirms ito iuse
irecombinant iDNA ito imake ihuman iinsulin, iincluding iHumulin i(insulin imedicine), iHumalog
i(insulin ilispro), iand iBasaglar, ithe ifirst ibiosimilar iinsulin iproduct iauthorized iin ithe iUnited
iStates i(insulin iglargine).”

Prozac i(fluoxetine), iDolophine i(methadone), iCymbalta i(duloxetine), iand iZyprexa iare iall
iproduced iby iLilly, iwhich iis inow ithe ileading imaker iof ipsychiatric imedicines.

On ithe i2019 iFortune i500, ithe icompany iis iplaced i123rd. iOn iForbes' iGlobal i2000 ilist iof
ithe iworld's ilargest ipublic icorporations, iit iranks i221st, iand ion iForbes' iAmerica's iBest
iEmployers ilist, iit iranks i252nd.”

Eli iLilly iis ia ifull imember iof iboth ithe iPharmaceutical iResearch iand iManufacturers iof
iAmerica iand ithe iEuropean iFederation iof iPharmaceutical iIndustries iand iAssociation. iIt
iwas iIndiana's ilargest icompany iand itop iphilanthropic idonor iin i1997.”

After iworking ifor idrugstores iin iIndiana, iLilly ibecame ia ipartner iin ia iParis idrugstore iwith
iJames iBinford iin i1869. iIn i1873, iLilly ileft iBinford's ipartnership iand imoved iback ito
iIndianapolis. iIn i1874, iLilly iforged ia icollaboration iwith iJohn iJohnston ito iform iJohnston
iand iLilly, ia ipharmaceutical icompany. iThe ipartnership, ihowever, iwas idissolved iin i1876.
iLilly iused ia iportion iof ithe iassets ito icreate ihis iown ipharmaceutical imanufacturing
icompany iin iIndianapolis iin iMay i1876."
Lilly iestablished iown ilaboratory iin iIndianapolis ion iMay i10, i1876, iand ibegan iproducing
ipharmaceuticals. i"Eli iLilly, iChemist," iread ithe isign iover ithe ishop's ientrance. iThe
imedication iquinine, iwhich iis iused ito itreat imalaria, iwas ione iof iLilly's iearliest iproducts. i
iSales ireached i$4,470 iby ithe iend iof i1876. iThe ifirm ihad iexpanded ito i$48,000 iin i1879.
iGelatine-coating ifor itablets iand icapsules iwas iLilly's ifirst ibreakthrough. iFruit iflavorings
iand isugar-coated itablets iwere iamong ithe icompany's iearly iinventions, iwhich imade ithe
imedications isimpler ito itake.” i

Insulin, ithe icompany's i"most isignificant imedication," idid i"more ithan iany iother" ito imake
iLilly i"one iof ithe iworld's ileading ipharmaceutical iproducers." iFor ialmost itwo iyears, iEli
iLilly ihad ia imonopoly ion iinsulin iin ithe iUS, iuntil iFrederick iStearns i& iCo., iIn iJune i1924,
ithe ifirst iof ithe inew iAmerican ilicensees ientered ithe imarket. iBecause iof ithe isuccess iof
iinsulin, ithe icompany iwas iable ito iattract iwell-known iprofessionals iand icollaborate iwith
ithem ion iother imedical ibreakthroughs. iSales ihad isurpassed i$9 imillion iby ithe ifirm's
ififtieth ianniversary iin i1926, iand ithe icompany ihad imanufactured iover i2,800 idistinct
iproducts.”

EXPANSION
During iWorld iWar iII, iLilly's ioutput isoared ito inew iheights ithanks ito ithe iproduction iof
iMerthiolate iand ipenicillin. iLilly icooperated iwith ithe iAmerican iRed iCross ito iprocess
iblood iplasma iduring ithe iwar, iand iby ithe iend iof ithe ifight, ithe icompany ihad idried iover
itwo imillion ipints iof iblood, i"about i20% iof ithe itotal" iin ithe iUnited iStates. iAfter ithat,
iLilly iproceeded ito idevelop iand imarket inew imedicines ifor iseveral idecades. iIn i1971, ithe
icompany iwas iincluded ito ithe iS&P i500 iIndex. iIn i1997, iLilly isold ia i40% iownership iin
ithe icompany ito iDow iChemical ifor i$1.2 ibillion, iand iit iwas irenamed iDow iAgro iSciences.

Eli iLilly iformed ia ijoint iventure iwith iIcos iCorporation i(ICOS), ia ibiotechnology icompany
ibased iin iBothell, iWashington, iin i1998 ito idevelop iand imarket iCialis, ia itreatment ifor
ierectile idysfunction. iIn iOctober i2006, iLilly iannounced iits iintention ito ipurchase iIcos ifor
i$2.1 ibillion, ior i$32 iper ishare. iLilly's ibiologics iplant iin iBothell iwas ipurchased iby iCMC
iBiopharmaceuticals iA/S i(CMC), ia icontract ibiomanufacturing iservices ifirm ibased iin
iCopenhagen, iDenmark, iin iDecember i2007 iand ithe ipresent i127 iemployees iwere
iretained. iIn iJanuary i2009, iLilly iwas icharged iwith ithe ilargest icriminal ipenalty iin iUS
ihistory, itotaling i$1.415 ibillion, ifor iillegally iadvertising iZyprexa, ian iatypical iantipsychotic
idrug. iIn iApril i2014, iLilly iannounced iplans ito ipurchase iSwiss idrugmaker iNovartis iAG's
ianimal ihealth isector ifor i$5.4 ibillion iin icash ito ienhance iand idiversify iits iElanco
ioperation.

In iMarch i2015, ithe icompany iannounced ia i$690 imillion icollaboration iwith iHanmi
iPharmaceutical ion ithe idevelopment iand imarketing iof iHanmi's iphase iI iBruton's ityrosine
ikinase iinhibitor iHM71224. iArmo iBiosciences iwas ipurchased iby ithe icompany ifor i$1.6
ibillion iin iMay i2018. iIn iJanuary i2019, iEli iLilly iannounced ithat iit iwould ipurchase iLoxo
iCancer ifor i$235 ia ishare, ivaluing ithe ifirm iat i$8 ibillion, isignificantly iexpanding ithe
icompany's ioncology icapabilities.

In iJanuary i2020, ithe icompany iannounced iits i$1.1 ibillion iacquisition iof iDermira, igaining
icontrol iof itwo ikey iassets: ilebrikizumab iand iglycopyrronium icloth, iboth iof iwhich iare
iused ito itreat ihyperhidrosis. iIn iJune, ithe icompany iannounced ithat, iin icollaboration iwith
iAbCellera, iit ihas ibegun ithe iworld's ifirst iPhase i1 itrial iof iLY-CoV555, ia ipotential
imonoclonal iantibody itherapy ifor iCOVID-19. iThe ibusiness iannounced iin iJuly i2021 ithat iit
iwill ipay imore ithan i$1 ibillion ifor iProtomer iTechnologies.

ACCOLADES
In i2006, iFortune imagazine inamed iEli iLilly iand iCompany ias ione iof ithe itop i100
icompanies ito iwork ifor iin ithe iUnited iStates. iIn i2006, iBarron's iMagazine inamed ithe ifirm
ito iits ilist iof ithe itop i500 ibest imanaged icorporations iin ithe iUnited iStates.

Working iMothers imagazine inamed iLilly ione iof ithe i"100 iBest iCompanies ifor iWorking
iMothers" ifor ithe ieighth iyear iin ia irow iin i2012. iAccording ito iWorking iMother, iwomen
imade iup i48 ipercent iof iLilly's iU.S. iemployees iin i2012, iand i34 ipercent iof ithe icompany's
iU.S. imanagers iand iexecutives.
Eli iLilly iand iCompany ihas ibeen idesignated ione iof ithe iWorld's iMost iEthical iCompanies
ifor ithe isecond iyear iin ia irow iby ithe iEthisphere iInstitute.

PROBLEMS i
General iissues iin ipharmaceutical icompanies-

• Parallel itrade: iParallel itrade ioccurs iwhen ia ipatented iproduct iis isold iin ia imarket
iwhere iit ihas inot ibeen iapproved ifor isale.
• Independent ienterprises itook iadvantage iof iprice idiscrepancies iacross icountries ito
iallow iparallel icommerce.
• The igeneric imedication iproblem: iGeneric idrugs iare iunbranded ipharmaceuticals
ithat ihave ithe isame iefficacy ias ibranded iproducts ibut icost ia ifraction iof ithe iprice.
• Tough icompetition ifrom igeneric imedication imanufacturers ithat irip ioff itheir
iproducts.
• A iproblem iwith ipricing

In iorder ito ibe icompetitive iin ithe ipharmaceutical ibusiness, iEli iLilly iand iCompany ihad ito
imake isome ipainful idecisions. iThe ipharmaceutical iindustry ihas igotten imore icompetitive
iin irecent iyears, iand iits igrowth ipace ihas islowed.

Eli iLilly iand iCompany imust idecide ion ithe itype iof imanufacturing ifacilities ito ibuild. iA
iSpecialised, iFlexible, ior iHybrid iproduction ifacility iis ione iof ithe ialternatives ioffered. iEach
iof ithe ifollowing ioptions ihas ibeen ievaluated iin iterms iof iits ipotential ito ireduce
idevelopment ilead itimes iand iproduction icosts iwhile ialso iincreasing iincome. iOn ithe ibasis
iof ithis iassessment, iEli iLilly iand iCompany ihas ibeen iadvised ito iconstruct ihybrid
imanufacturing ifacilities ifor iits iproducts.

Despite ithe ifact ithat iEli iLilly iand iRanbaxy iagreed ito iform ia ijoint iventure, itheir ibusiness
iobjectives iwere ivastly idifferent. iRanbaxy iPharmaceuticals iwas ia igenerics-focused
ipharmaceutical ifirm. iOn ithe iother iside, iEli iLilly iconcentrated ion iresearch iand
idevelopment. iThe ivarious iareas iof ifocus iof ithe itwo ipartners ican ibe iperceived ias ia
istrength ifor ia iJV, ibut ithey ican ialso ibe iviewed ias ia ipotential irisk ifor ithe iventure.

As ia iresult, iEli iLilly iand iCompany ineeded ito iincrease itheir iprofit imargin iin iorder ito
istay icompetitive iin ithe ipharmaceutical isector.

The ifollowing iissues ihave ibeen ifound iwith iEli iLilly iand iCompany: i

• iThe ipatent imay iexpire, iresulting iin ia isignificant ifinancial iloss.

• iR&D icosts ifor inew ipharmaceuticals imay ibe iexpensive; i

• iR&D iproductivity; i

• iGrowing icompetition ifrom igeneric idrug imanufacturers; i

• iMarketing ialignment iin ia icost-constrained ihealthcare ienvironment; iand i

• iChanges iin icustomer iexpectations ifor iinnovative iand ieffective idrugs.

SOLUTIONS
Partnership iwith iRanbaxy

In iterms iof ibuilding ia ipresence iin iIndia, iEli iLilly's irelationship iwith iRanbaxy iwas ia
isensible idecision. iRanbaxy iwas i1 iof ithe ikey iparticipants iin ithe iindustry, iwith ia i15
ipercent idomestic imarket ishare iand ithe i2nd ibiggest iexporter iof iall igoods iin iIndia ito
inations iwhere iEli iLilly iwas iparticularly iinterested. iFurthermore, iRanbaxy's icapital
iexpenses iwere igenerally i50 ipercent ito i75 ipercent icheaper ithan ithose iof icomparable
iUnited iStates ifactories, iand iits iR in iD iexpenditures ivaried ifrom i2% ito i5% iof irevenues,
iwith ifuture iobjectives iof i7% ito i9%. iCooperation iwith iRanbaxy iwas ismart iplan, itoo,
ibecause iLilly icould iutilize iRanbaxy's iname iand iassistance ito iget igovt. ipermits iand
ilicenses.

Further, iRanbaxy iwas ithe ibest ipartner ibecause ithe icompany's ileaders iand iLilly's
iexecutives ishared ia isame ivalue isystem. iWhen iRanbaxy icame iin, ithey imade iit iobvious
ithat ithey irespected ithe ipeople, ithat ithey irespected idoing ithings icorrectly ifrom ilegal
iand iregulatory iviewpoint iin iIndia, iand ithat ithey iwere iconcerned iabout idoing ithings iin
ian iecologically iresponsible imanner. iAs ia iresult, ithere iwere ia inumber iof ielements ithat
imade ithem iconsistent iwith iLilly's ibeliefs iand imade ithem iappear ilike iindividuals iwith
iwhom iit iwould ibe ifeasible ito iconduct ibusiness.

Formation iof iJoint iVenture

Lilly, ion ithe iother ihand, iwas idriven iby ithe ineed ito ilearn iand icreate. iWhen ithe iIndia
iJV iwas iformed, ithe iIndian iministry iof ihealth iset ipricing irestrictions ion iLilly, iand ieven
iwith ithe imargin iallowed iby ithe iIndian igovernment, ithe imajority iof iit iwent ito iwhole-
sellers iand ipharmacies, iaccording ito iIndian iministry iof ihealth icalculations.

Once ithose iwere ideducted ifrom ithe igross imargin, iattaining iprofitability iwas ia isignificant
istruggle, isince ithe iIndian igovernment's iimport itaxes iand iother iregulatory idifficulties
iwere iamong ithe ilargest iroadblocks. iBecause ithe iIndia iJV ilacked ia idistribution inetwork
iand iLilly iwas iunwilling ito ispend iin iestablishing ione, iRanbaxy iwas iable ito ifill ithe igap.
iBecause iof ithe ipatent iissue iin iIndia, iwhich iis iplagued iby ian iinadequate iintellectual
iproperty irights iframework, iLilly iwas iunable ito icommercialise iany iof iits idrugs, iincluding
iProzac.

Market iconditions inecessitated ithe iadoption iof iproduct iand imarketing itactics. iSome
idifferent iways ithat ithe iIndia iJV ihad ito iadapt ito imarket irealities iby ifocusing ion itwo
itypes iof iproducts i: ioff-patent ipharmaceuticals i(e.g. iCeclor) iwhere iLilly imay iprovide
isignificant ivalue, iand ipatented iproducts iwith ia ihigh ibarrier ito ientry i(e. ig. iReopro iand
iGemzar).

ELR ipromoted iCeclor, ia iRanbaxy imedication, ibut itried ito iadd ivalue iby isupplying
iphysicians iwith imedical iinformation iand iengaging iin iother iunusual imarketing iefforts.

The iadvantage iof idoing iso iwas ithat iby ithe iend iof i1996, ithe iventure ihad ibroken ieven
iand iwas iprofitable. iBecause ithe iIndia iJV ilacked ia idistribution inetwork iand iLilly idid inot
iwant ito ispend imuch iin ibuilding ione, ithey icompensated iRanbaxy ifor ithe ifunction. iThe
iadvantage iwas ithat ithey iwere iable ito iobtain ithe inecessary idistribution inetwork ihelp
ifrom ione iof ithe iparent ibusinesses. iThe idisadvantage iwas ithat ithey ihad ito ipay ifor ithe
iservice, iwhich iadded ito ithe icompany's iexpenses.

Figure ii1 iiProportional iiGrowth iiof iiSales, iiMarketing iiExpenses iiand iiTotal iiAssets
Chris iShaw icontributed ihis iown iknowledge iin ioperations ito ithe ifirm, iwhich imade ia
ihuge icontribution, isince ithe icompany ilacked istructures iand iprocesses ithat igave istability
ito ithe ifast-growing iorganization. iA ihigh ilevel imanager iwas ialso ihired isince ithey idid inot
ihave istandard ioperating iprocedures i(SOPs) iin iplace ito iensure ismooth ioperations. iChris
iShaw isimplified isales iand imarketing iefforts iaround itherapeutic iareas ito ifocus iand
ienhance ithe icompany's isales iforce's iexpertise iskills.

RECOMMENDATIONS
The imain iquestion iis iwhether ithere iis istill iany ivalue ifor ithe ijoint iventure icreated ior
inot iand iwhat iwill ibe ithe ibest iroute ito itake ifor ithe isame.

Our irecommendation ifor iEli iLilly iis ias ifollows:

1. iRestructure iand irenegotiate iwith ithe iRanbaxy iagain- iThis ican ibe idone iin iorder ito
imaintain ia ipre iformed isuccessful iJV iand ican ibe iretained iRanbaxy's imanufacturing,
idistribution iand iestablished irelationship. iThe iaspects ito ibe itaken icare ihere iare
icompanies igoals, icommitment, ivisions, iand igetting ialigned itowards ieach iother's igoals.

2. iFormation iof ia inew iJoint iVenture icould igive iaccess ito inew idistribution iand
imanufacturing ipower. iThe irisk iand iburden iwill ibe ishared iamong iboth. iEli iLilly ican itap
iinto inew iareas ior isegments iof ithe imarket iby istrategically ichoosing ia inew ipartner ifor
iJoint iVenture.
One iof ithe ichallenges iwill ibe ifinding ia isuitable ipartner ithat ialigns iwith iEli iLilly’s igoals.
iNegotiations imay ialso itake itime iwhich icould ilead ito ilags iin ian ieverchanging ibusiness
ienvironment.