Upload
karan-jaidka
View
1.444
Download
4
Embed Size (px)
DESCRIPTION
Citation preview
ELI LILLY RANBAXYGroup 1 Akhil Ajith Mathews Krishananad S PaiLalima BassiNidhi SoniSidhant Gupta
Tarun JainKshitij Ahuja
Group 2Anubhav GuptaGautam HariharanKaran JaidkaMayank BathlaSaurabh SaxenaVibhav Srivastava
Life cycle of a JV
Rethinking the Business Firms compelled by the pressures and threats posed by new or international
competitors begin reassessing their businesses to enhance their competitive positioning, including thinking of forging alliances
After thinking of forging an alliance, the form must establish the role it wants the alliance to play in its overall business strategy
Crafting an Alliance Strategy It involves evaluating a firm’s value activities to determine which activities add the
most value to itself and which can be performed by other firms (alliance partners) and to re-distribute them accordingly
In this way, the firm can leverage itself through ‘borrowing’ from partners and freeing up its own resources
In the event of an ally turning adversary, firms maintain fallback and strategic options to avoid adverse eventualities
Structuring the Alliance An alliance structure is given utmost importance. An appropriate structure should
facilitate the realization of a firm’s strategic objectives and should be operationally feasible
The structure is determined by the role the relationship is expected to play in the firm’s long term strategy, the operational efficiency the firms would achieve and the learning the alliance partners would derive
Firms come together when they feel they have something to offer in return for something (bargaining power)Evaluating Alliances
Both ongoing management and timely intervention play a part in ensuring that an alliance meets expectations
Firm’s diverse experience with the potential and pitfalls of various alliance partners allow them to revisit and modify, as necessary, their original alliance based strategies
Global Pharmaceutical Industry in 1990s
Global Pharmaceutical Industry• Growth drivers • Increasing worldwide incomes• Universal demand for better health-care
Changes in 1990s• Rising health-care costs -> increased scrutiny of Pharma companies• Rise of generics -> Challenged the pricing power of the Pharma companies• HMOs were growing and consolidating their drug purchases -> Increasing power of the buyer• US Government was looking to implement comprehensive health plan with emphasis on generics
Indian Pharmaceutical Industry• DPCO and 1970 Patent Act encouraged generic drugs production
Changes in 1990s• FDI encouraged by increasing maximum limit of foreign ownership to 51% from 40%
The Companies
Eli Lilly Ranbaxy 1876 – founded in United States “Commitment to scientific and managerial
excellence” Before 1950
Passive strategy Most OUS were export focused
1950s Undertook systematic expansion Set up affiliates overseas
Mid-1980s Active strategy ELIC – separate division was formed
1992 Manufactured and distributed through
25 countries Sold in more than 130 countries
Future Plans - Expansion in Asia Opening of markets for foreign
investment Opportunities to use world for clinical
testing Shape opinion with leaders in medical
field around the world
1960s – founded in India “Our mission at Ranbaxy is to become a
research based international pharmaceutical company”
Strengths Visionary Management
Turned family business into global corporation
Supported tough patent regime Operational leadership
Advantages Capital costs were 50%-75% lower than
US counterparts Stricter quality control requirements in
developed countries Presence in 47 markets outside India through
exports handled through an international division
Future Plans To increase R&D expenditure to 7-8% of
annual sales from 5%
Eli Lilly Learn the manufacturing and distribution of generic and bulk drugs at lower costs from
Ranbaxy
Ranbaxy Laboratories Learn from the product innovation and medicine breakthrough processes of Eli Lilly as it
plans to increase R&D spend by 7% - 8%,
Eli Lilly Competitive advantage comes from its focus on innovation and the patents it had for various medicines Combination of highly sophisticated technology and R&D gives “Competitive advantage to bringing
breakthrough medicines” Experience of over a century, commitment to scientific and managerial excellence and global reach
Ranbaxy Laboratories India’s largest manufacturer of bulk drugs and generic drugs and strong domestic market share (15%) Core competency: Chemical synthesis capability, Capital cost 50% – 75% lower than US counterparts Solid manufacturing base with strong backward integration from lab to market
Eli Lilly After liberalization of Indian markets, it had the option of either establishing a subsidiary or
having a JV with an established player to benefit from lower cost of production in India It had the option of exporting its drugs to Indian market or have a JV to utilize the marketing
network and knowledge of a established player
Ranbaxy Laboratories It could use the developed drugs of other player and focus on its core strength of
manufacturing generic drugs or invest in R&D to develop its own product portfolio Ranbaxy could have grown its established global marketing network or take the help of
dominant global players
Eli Lilly Dependent on Ranbaxy’s knowledge of lower cost of manufacturing of generic and bulk
drugs Dependent on Ranbaxy’s established distribution network
Ranbaxy Laboratories Dependent on Eli Lilly for lower cost of intermediate pharmaceutical ingredients Dependent on Eli Lilly’s global distribution network
According to agency theory, for smooth governance the goals of partners and alliance managers should be aligned. In this JV motives of the JV were benefitting both the partners by:
Eli Lilly was getting access to Indian markets and also manufacturing drugs at a lower cost Ranbaxy was getting access to knowledge/ learning’s of global leader in pharmaceuticals
and lower cost sourcing of intermediate pharmaceutical ingredients
Resource Based View
Rethinking the Business
Transaction Cost
Rationale
Organizatio-nal
Learning
Resource Dependen
ce
Agency Theory
Creating the Alliance Strategy
Eli Lilly
• New Emerging Market Access• Gain local market knowledge from Ranbaxy• Low cost procurement of pharmaceutical ingredients• Distribution Network• Supplier Network of Ranbaxy• Focus on manufacturing generics, scrapped later• Easier access to government approvals, licenses
Ranbaxy
• Credibility from Lilly’s reputation in international market• Build presence in global market, already had presence in 47 markets outside India• Step to fulfill Ranbaxy mission’ of becoming research based international pharmaceutical company• Acquire skills by learning from Eli Lilly which had experience of more than 100 years
Synergies
• High Ethical Standards• Focus on technology and innovation• Believed in future of product patents in India
Alliance Overview
• JV formed in November 1992• Authorized capital of 200 million rupees, initial subscribed equity capital of 84 million rupees• Equity ownership of 50 percent each
Structuring the Alliance
ELI LILLY- RANBAXY
$7.1 million
6 directors- 3 from each
company
50% 50%
Management committee
Board of Directors
2 directors- 1 from each
company
Andrew Mascarenhas, GM,
Lilly (MD)
Rajiv Gulati, Director,
marketing & Sales
Sales Manager
HRMFinancial Analyst
Medical director
Lilly brought R&D whereas Ranbaxy provided outstanding support in the form of govt. approvals, licenses, distribution and supplies. Both the companies had different focus- Lilly was driven by innovation whereas Ranbaxy’s business depended on generics.
Recruitment theme
To manage high prevalent employee turnover; creating un-unionised staff
“Opportunity of a
Lifetime”
Managing the Alliance (1/2)• Andrew Mascarenhas from Eli Lilly-Managing Director of the JV
• Rajiv Gulati from Ranbaxy-Director of Marketing & Sales of the JV
The Team
• Eli Lilly Ranbaxy sounded foreign enoughJV Name
• Government Approvals, Licenses and Supplies• Distribution NetworkLeveraging Ranbaxy
• Unionized Pharma Industry• Opportunity of a LifetimeHigh Turnover Rate
• MR told Doctors both pros & cons of the drugEli Lilly’s Red Book
• Govt. Regulations-IPR, Pricing• Financing the affiliateChallenges
• Off-Patented Drugs• Patented DrugsMarketing Strategy
Managing the Alliance (2/2)
Alliance Manager Top Management
Establish the right tone• Andrew and Rajiv had a strong and cohesive
relationshipMonitor Partner Contributions• Used Ranbaxy’s name for getting licenses• Lilly handled human resources• Code of ethical conduct – Red book• Lilly handled marketing activities and Ranbaxy
handled logistics and distribution
Recognize the importance of information flows• Ranbaxy provided market information• Lilly decided which products to sell
Maintain links at all levels• Lilly and Ranbaxy allowed free interaction among all
levels
Exploring the dimensions of executive participation• Organizational changes with executives from Lilly
and Ranbaxy taking over ELR
Fostering organizational reciprocity• Ranbaxy and Lilly’s vision were in sync and both
respected each other
Exploring new strategic opportunities• Generic drugs agreement
Resource allocation• 50-50 distribution agreement (informal)
Catalyzing cultural change• Brought in executives to bring is SOP and provide
career development scope
Evaluating the JV - Possible Ways out
Grow it
Ranbaxy uses
employees of Lilly’s R&D team
Lilly uses Ranbaxy’
s distributi
on channel
Fix it
Ranbaxy goes
back to focusing
on generics
Lilly introduce
s more products
in the market
Lilly puts in more
capital to cover
Ranbaxy’s losses
by buying more
stake in the JV
Exit
Ranbaxy buy’s out
Lilly’s stake/Lilly buy’s
out Ranbaxy’s stake
Both find new
partners
A Few Questions remain…
Opportunities of Indian Market•Low costs•Favourable legislation
Constraints in US Market•Higher costs of regulatory compliance
•Threat from generics
Ranbaxy as a partner Second largest manufacturer with 15%
domestic market share Established distribution network Second largest exporter, with countries
like Russia (Eli Lilly aspiration) 50-75% lower capital costs compared to
U.S. Low cost basic research and clinical trail
opportunities
1. Was this the right strategy for Eli Lilly? 2. Performance and mutual learning from JV
Profitable to both partners
Eli Lilly
• Low cost IPI’s• Low cost clinical
trials• Russia export
opportunity• Market entry under
Ranbaxy brand ageis
• Market knowledge
Ranbaxy
• Capabilities in cardio-vascular, anti-infectives and anti-cancer drugs
• Good reputation from sales force ethics practises of Eli Lilly
• Access to international markets including U.S.
Role of the leaders of the JV
Andrew Mascarenhas
Initial coordination challenges
Setting targetsRecruiting & tackling
attrition
IN & OUT licensing of products and technologies
Training program to spread values & code
of conduct
Chris Shaw
Stabilizing the fast growing organisation
Focus on building systems & processes,
developed SOP’sStreamline the
marketing & sales activities
Rajiv Gulati
New institutional environment
Re-evaluate JV strategy
Staff enlargementMedical and
regulatory unit developed to handle
product approval processes
Alliance Evolution Framework
PRE JV Market
Import substitution regime
Process patents, price controls & profit
limited to 6% sales
Multinationals at a disadvantage, bulk
production of copied drugs.
1993 Frenzied Market
Regulations relaxed, majority foreign stake
allowed (51%)
Focus on market access
Government restrictions on pricing
Building the sales force: unionization, attrition and
Red Book code
Formation of JV
2005 Turbulent
MarketRegulation liberalized allowing fully owned
subsidiaries
Focus on growth & profitability
Many global players in market, emergence of
cross border M&A
Limited Ranbaxy role & cash flow constraints
Dissolution of JV
Post JV Mature Market
Active market for corporate
control
Market integration focus to improve performance via optimization of global business
system (outsourcing)
Global Pharmaceutical Industry: The Past and the Future
2010E 2015E 2020E-25
125
275
425
308 335 335
205 205 195154
303
487
188238
300
US
EU
EM
Other
Rank in
2012Company
Rank in
2001
Rank in 1992
1 Pfizer 1 11
2 Novartis 8 -
3 Merck 3 2
4 Sanofi 16 -
5 GlaxoSmithKline 2 1*
6 AstraZeneca 4 -
7 Johnson & Johnson 7 13
8 Abbott Laboratories 14 15
9 Eli Lilly & Co. 10 12
10 Teva - -
11Bristol-Myers
Squibb 5 3
12 Takeda 15 -
13Boehringer-Ingelheim 17 -
14 Bayer 18 9
15 Astellas - -
16 Daiichi-Sankyo - -
17 Otsuka - -
18 Gilead - -
19 Mylan - -
20 EISAI - -
Bases of
competitiv
e adva
ntage today
Development resources, sales and marketingGlobal high prices, restricting accessMultiple competitors in major therapeutic areas, scale permitting successMulti-billion dollar drug revenues covering high fixed costsEnd to end operational capabilities for “self-sufficiency” strategyAcquisition of technologies and products to augment product pipelineFocus on mature Western Markets
Bases of
competiti
ve advantage in
2020
Value of products and services, distribution strengthPricing based on ability to pay driving volume upliftFewer competitors in a broader range of diseasesMore products with lower revenues and lower costsSignificant outsourcing of operations such as manufacturing and support facilitiesGreater collaboration with academia, biotech and peers Focus on Emerging Markets
Major Pharmaceutical Markets in the
world
Distinct shift towards Emerging Markets
Alliances and New trends in Indian Pharmaceutical Sector
Domestic Indian Market (Market
Access)
Bayer(German) & Zydus Cadila,
50:50 JV,
Eli Lilly(U.S.) & Lupin
Novartis(Switzerland) & USV Ltd.
Omega Pharma(Belgium) &
Modi-Mundi Pharma group
Global Market (Sourcing)
GSK(U.K.) & Dr. Reddy
Pfizer(U.S.) & Aurobindo
Pharma
Merck(German) & Sun
Pharmaceuticals
Global Market (R&D)
Glenmark & Sanofi Aventis(French)
Endo Pharmaceuticals (U.S.) &
Jubilant
Contract Research and Manufacturing Services (CRAMS)
• Outsourcing of research & manufacturing
• Fastest growing segment in Pharmaceuticals
Collaboration Business Models
• Payment / royalty milestone• Co-development• In-license of compounds from
Indian companies• Out-license of research programs
to Indian companies with buybacks at predefined stages
US-FDA Approved plants
India had the largest number of US-FDA approved plants outside U.S.
THANK YOU