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ELI LILLY IN INDIA RETHINKING THE JOINT VENTURE STRATEGY

Abhay Kishore – 01 Abhishek Kunal – 05 Anil Kumar Jadli – 11 J.Harish – 25 Khushal Malik – 28 Sharad Singh – 49

PHARMACEUTICAL INDUSTRY – Global Trend
• • • •
Mainly concentrated in the United States, Europe, and Japan Developing a drug from discovery to launch took 10 to 12 years. Cost of development of drug is between $500-$800 million. Drugs were strictly controlled by government agencies:
o o o o

Food and Drug Administration (FDA) – USA,

North America 8% 12% 38% 18% Asia Japan Europe

CPMP – Europe
MHW – Japan DPCO & Indian Patent Act - India


Size of industry : USD 960 billion in 2012. Few Firms control entire market (Oligopoly).

24% ROW

• 4 Firms – Control 20% , • 20 Firms – 50-60%, • 50 Firms – 65-75%

PHARMACEUTICAL INDUSTRY – Global Trend • Covered the chemical substance itself • Offered typically 20 years of protection • Usually a lag time of 1012 years by the time the patent was obtained and the launch date • Covered the method of processing or manufacturing the product • Very little protection because it was easy to slightly modify the process .

• Europe by factor 1. • Generic Drugs: unbranded drugs of comparable efficacy available at fractional cost of branded product. o • Independent firm exploited parallel trade by using the differentials in price across various countries. Parallel Trade: an outside company sells a patented product in a market not designated to sell the drug. Generic companies made money by copying the products discovered & developed by other major pharmaceuticals companies.5.2 to 2. .Global Issues in Pharma Sector • Prices in of the drugs varied in developed countries • US & Canada by factor 1.5.1 to 2. o o o Posed as major challenge for pricing power of large pharma companies. No additional expense for drug R&D of new compounds.

Issues in Indian Pharma Sector • • • Initially country had no indigenous production capability & was totally dependent on imports. . FDI upto 51% (up from 40%) was allowed in Drugs & Pharmaceuticals industries. Post independence HAL (promoted by WHO ) & IDPL (Russian assistance) were established in 1954 & 1961 respectively. it abolished Product patent & permitted process patent for 5-7 years. A suitable Environment for entry of Eli Lilly entry into India. Indian Patent Act was passed in 1970. prices due to these.S. Indian drug prices hovered around 5%-20% of U.” In 1990s . stipulated prices for all the drugs. • • • • • Drug Price Control Order (DPCO) instituted price control by which govt. Prime minister Gandhi had said at World Health assembly in 1982: “The idea of a better-ordered world is one in which medical discoveries will be free of patents and there will be no profiteering from life and death. post globalisation.

Gerhard Mayr. head Lily International wanted to expand operation in Asia including India due to : • • Opening of market for foreign investment Opportunity for clinical testing .Eli Lilly & Company • • • • Founded in 1876 with $1400 and 4 employees Chairman Dick Wood decided to take the company global in the mid-1980s By 1992. Lilly manufactured in 25 countries and sold in more than 130 countries.

Had a domestic market share of 15% (1996). R&D expenditure of company was 2-5% of annual sales. The higher price in foreign countries provided the impetus for Ranbaxy to pursue international market.Ranbaxy Laboratories Ltd • • • • • • • Began as a family business in the 1960s By the 1990s. It had presence in 47 markets outside India. it grew to become India’s largest manufacturer of bulk drugs and generic drugs. Capital cost was 50-75% lower than comparable US plants. mainly through exports. .

entry of large competitors). IPR/patent protections  Industry: Slowdown in growth (price competition. trade. shift in demand. Internal consolidation to achieve synergies and economies of scale. Increasing demand. with Ranbaxy signaling an intention to sell its stake” (p.Strategic Environment Strategic Context  Lilly is re-evaluating its strategy for India and “the direction for the JV. improving regulatory framework. better infrastructure. 229)  Lilly’s product portfolio for India is limited  ELR JV depends for manufacturing and distribution on Ranbaxy  India: Healthcare expenditures in India are rising. WTO membership and resulting change in ownership requirements. Increasing rivalry and fierce competition Strategic Objectives  Take advantage of the opportunities present and developing in the Indian market  Emphasis on emerging markets (such as India) to manage company growth  Maximize returns and achieve long-term sustainability  Shape opinions – be a driving force in the industry .

parallel trade •Some products exist that perform the same or similar function •Buyers may face uncertainty and/or inconvenience when switching •Existing substitute products (generics) satisfy price.Porter’s 5 Forces Analysis Barriers to Entry are high: Bargaining Power of Suppliers is medium/low: •Suppliers are diverse and geographically dispersed •Some raw materials are basic resources – low switching costs.) •Forward & backward integration •Access to distribution •Experience/learning curve •Strict government policies/controls •Proprietary knowledge and patents •Brand identity/loyalty relating to patents Threat of Substitution is medium: Threat of Substitutes Bargaining Power of Customers is low: •Switching costs depend on drug – generic vs. government agencies) •Product may be a critical input •Substitutes are available– generics vs.e. patented •Substitutes are available for some drugs •Buyers are fragmented with only few influential ones (i. easily available. clinical trials.e. value. and quality expectations •Brand loyalty usually exists . bulk production •Some suppliers provide differentiated inputs (i. R&D. prescription. etc. APIs) •Switching costs depend on input type Threat of New Entrants Bargaining power of Suppliers Competitive Rivalry within Industry Bargaining power of customers •Economies of scale exist •High start-up capital requirements as well as investment intensive operation (R&D.

pricing pressures etc. expiration • Financial risks – increasing costs vs. durable organization • Commitment to scientific and managerial excellence • Global influence spans 151 countries • Leading brands and R&D capabilities • Ethical marketing & integrity • Good stakeholder relationships • World-class sales process • Expertise in clinical trials Weaknesses • Patents – infringement vs. pricing constraints • Limited product focus (two groups – off-patent drugs & patent drugs with barriers to entry) • Dependent on international sales Opportunities • Changes in population. clinical trials.SWOT Analysis Strengths • Lilly is one of the largest pharmaceutical companies in the world (12th largest) • Large. and demands • Emerging markets – low cost labor. entry of new & large competitors • India – weak IP protection/enforcement. • Use world for clinical testing • Shape opinion with leaders in the medical field around the world • Strong performance of ELR JV • Shift in R&D focus (chronic therapies) •Positive changes in India’s business environment Threats • Ranbaxy is local market leader • Competitive structure of the industry is evolving – consolidation trend. markets. new customers. etc. new competitors • Limitations on pricing – small margins -> cash flow constraints • Escalating costs (R&D.) .

3 from each Company.Eli Lilly & Ranbaxy . Lilly was driven by innovation and discovery .Ranbaxy. Ranbaxy would also package and distribute Lilly’s products. Alignment of broad values. Ranbaxy would supply certain products they already made under the JV then formulate and finish some of Lilly’s products locally in India. Lilly retained right to appoint the CEO of the JV. Management committee comprised of 2 directors. Exit option: Agreement provided for transfer of share incase any partner desired to dispose a part or its entire share in the company. Each had a 50% stake with an initial investment of roughly $10 million Board of Director of JV: comprising of 6 directors. Ranbaxy was driven by the generics business. named as Eli Lilly .The start of the JV • • • • • • • • • • JV signed in November 1992. 1 from each.

 Lilly’s training program was made available to Ranbaxy. licenses. approvals.Mutual Advantages to JV Partners – Complimenting Eli Lilly  Eli Lilly got access to distribution network in India.  Eli Lilly built its brand in India.  JV offered life time association to new employees to counter employee turn over.  Technical learning for Ranbaxy. . distribution & supply. gained economy of scale.  Lilly’s product portfolio was unknown to Indian physicians which got accepted due to JV. Ranbaxy  Ranbaxy helped JV in getting govt.  Eli Lilly built its production facility in India.  Ranbaxy learned global HR practices about non-unionised workforce.

Both companies had commonality on following: • • • • • • • • High ethical standards. Selection of alliance managers. exit terms & conditions outlined before hand ALLIANCE MANAGEMENT . No cannibalisation of each other’s employees Clarity on Governance structure. Responsible corporate citizens.Why it worked ! Cultural Fit • • • Andrew Mascarenhas of Lilly and Rajiv Gulati of Ranbaxy were put in charge. Technology & Innovation. honesty and integrity. Concern for employees. Able to see eye to eye on most of the issues. shared a good rapport.

JV surpassed the average growth rate of Indian pharmaceutical industry. By 2001. JV achieved break even point & became profitable.. Patented drugs where significant entry barriers.Alliance Performance …. Focus on two group of products : Off potent drugs. • • • • • • • • • • New Product launch on Human Insulin. . New initiative like Medical U regulatory unit which handled product approval process with govt. Sales increased by around 57% in 2000-01 & PAT increase of 103% during same period. Focus on therapeutic areas where Lilly had a niche. Existing product of Ranbaxy like Seclor marketed by adding significant value in form of medical information to physician In 1996.

In 2000 same were accounting for 45% of market. . Increased challenges of • • • increased R&D cost and development. • • Partnership on pharmaceutical & biotechnology companies was growing rapidly. In 1990 top 10 Cos accounting for 28% Market. • Consolidation trend in industry through Merger & Acquisition. Approval time & Competition from generics.Changing World Order …..

Indian govt. Approval time & Competition from generics. India signed GATT & became member of WTO.Changing World Order …. Increased challenges of • • • • • increased R&D cost and development. . decision to allow 100% FDI in Drug and Pharmaceutical industries in 2001. In 2000 same were accounting for 45% of market. • • • Consolidation trend in industry through Merger & Acquisition. according to which India would grant product patent recognition form 2005 onwards. Partnership on pharmaceutical & biotechnology companies was growing rapidly. In 1990 top 10 Cos accounting for 28% Market..

.Change in Order …. . Due to increased competition in India JV might be less profitable than other markets. Ranbaxy started forming JVs for developed market for US. Ranbaxy formulated a new mission to be a Research based International Pharmaceuticals Company. Canada & Ireland. • • • • Eli Lilly had established foothold in Indian market & expanded their network.

renegotiate JV with Ranbaxy • Pro: maintain successful JV. retain access Ranbaxy’s manufacturing and distribution. integrate technology and knowhow of subsidiary to realize company strategy • Con: large financial commitment. reputable company in India. ELR successful. potential access to manufacturing and distribution. companies goals. revenue to support parent company. well established relationship • Con: Ranbaxy may not easily be swayed to continue JV – possible result: lack of commitment. negotiations take time. lack of manufacturing and distribution channels . country and market risk exposure. JV mission and goals have been achieved Strategy B Form a new JV . structures and visions have changed – alignment may be difficult/impossible. decisions can be made with the interest of Lilly in mind. Ranbaxy may transfer shares without concern fro company fit.Strategy Alternatives Strategy A Restructure . JV purpose/mission? Strategy C Terminate JV – establish subsidiary • Pro: India offers many opportunities.find a new partner • Pro: cooperative partner – support. share risk and burdens • Con: difficult to find suitable partner.

Canada & Ireland. Ranbaxy started forming JVs for developed market for US. • • • • Eli Lilly had established foothold in Indian market & expanded their network.Evaluating Strategic Options …. . Due to increased competition in India JV might be less profitable than other markets. Ranbaxy formulated a new mission to be a Research based International Pharmaceuticals Company..

• Address key issues and concerns faced by Lilly. . while allowing the company to respond to global as well as local industry changes. • Help to returns will be maximized and profitability increased.Conclusion: Actions to be taken •The strategy will help Lilly to increase and strengthen its foothold in India which it has gained over the years from the JV •Enable the company to take advantage of recent positive market developments (economic and political). It will allow the company “to provide clinical trial data to support global registrations” as well as proactively manage costs which is a global concern. thus meeting Lilly’s strategic objectives . •Will be able to utilize its core competencies to take advantage of the many opportunities present in the Indian market. To use India for clinical testing through ELR’s medical infrastructure and expertise in clinical trials.

Thank you .