Eli Lilly in India : Rethinking the Joint Venture Strategy

Pharmaceutical companies spend more than 20% of their sales on research and development (R &D). Patents for product ( for 20 years) and process were essential means by which a firm protected its proprietary knowledge and they could command higher prices for their products. Many multinational pharmaceutical firm subsidiaries in India imported drugs from their country of origin and made a huge profit. However in 1970¶s, the patents for all pharmaceutical and agricultural products were abolished and process patents permitted for 5 to 7 years. The Drug Price Control Order (DPCO) instituted price controls by government, multinationals market share dropped from 80% in 1970 to 35% in mid 1990s so they were forced to exit from India due to lack of patent protection in India. In November 1984 Dr. Manmohan Singh , the finance minister encouraged foreign direct investment and increased the maximum limit of foreign ownership from 40% to 51%. Colonel Eli Lilly founded Eli Lilly and Company in 1876. It was a world leader in injectable antibiotics and in supplying insulin. Ranbaxy in early 1990¶s was India¶s largest manufacturer of bulk drugs and generic drugs. Ranbaxy approached Lilly to supply certain active ingredients or sourcing of intermediate products to Lilly in order to provide low cost sources of intermediate pharmaceutical ingredients. Success of Joint Venture i) Lilly used Ranbaxy¶s help for getting government approvals, licenses, distributions and supplies. ii) The joint venture gained the trust and respect of doctors due to strong values adhered by Lilly i.e, honesty and integrity used to get a competitive advantage, iii) There was a strong and cohesive working relationship of Mascarenhas of Lilly and Gulati of Ranbaxy. Problems faced by the Joint Venture Team i) ii) High turnover rate . Pharmaceutical industry of India is very unionized The team faced constant challenges in dealing with government regulation and financing. There were cash flow constraints.The Ministry of Health provided limitation on Lilly¶s pricing, even with the margin the Indian Government allowed, most of it went to wholesalers and pharmacists Other obstacles were duties imposed by the Indian Government on imports and other regulatory issues Ranbaxy provided manufacturing and logistics support to the JV and breaking up the partnership would require significant amount of renegotiations

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How they approached and solved their problems: i) ii) Did not encourage new recruits to join unions, they promoted them and spent money on training them. So they were satisfied with their jobs Considering the weak intellectual property rights regime, Lilly focused on therapeutic areas of Diabetes and Oncology where they had a niche. They did not adopt a localization strategy. They did not launch several patented products th because generics were selling at 1/60 the price Product and marketing strategies were adopted to suit market conditions. ELR¶s strategy was to focus on 2 groups of products, one was off patent drugs e.g. µCeclor¶ and 2 patented drugs where there is a significant barrier to entry ( e.g. Reopro & Gemzer). ELR created a Medical and Regulatory unit that handled the product approval processes with government Non-unionised sales force and world class sales processes Has medical infrastructure and expertise to run clinical trials to international standards Provide clinical trial data to support global registration

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Recent developments have been indicating that Ranbaxy may sell its stake in the company and also lilly wanted to re-evaluate the directions for the JV therefore a meeting was scheduled between Dr. Lorenzo Tallarigo Mr. D.S. Brar to discuss these critical issues.

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