1. 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
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2. 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:
Food and Drug Administration (FDA) – USA,
CPMP – Europe
MHW – Japan
DPCO & Indian Patent Act - India
Size of industry : USD 960 billion in 2012.
Few Firms control entire market (Oligopoly).
4 Firms – Control 20% ,
20 Firms – 50-60%,
50 Firms – 65-75%
* If any of these issues caused a schedule delay or need to be discussed further, include details in next slide.

3. PHARMACEUTICAL INDUSTRY – Global Trend
Covered the chemical substance itself
Offered typically 20 years of protection
Usually a lag time of 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
* If any of these issues caused a schedule delay or need to be discussed further, include details in next slide.

4. Global Issues in Pharma Sector
Prices in of the drugs varied in developed countries
US & Canada by factor 1.2 to 2.5.
Europe by factor 1.1 to 2.5.
Parallel Trade: an outside company sells a patented product in a market not designated to sell the drug.
Independent firm exploited parallel trade by using the differentials in price across various countries.
Generic Drugs: unbranded drugs of comparable efficacy available at fractional cost of branded product.
Posed as major challenge for pricing power of large pharma companies.
No additional expense for drug R&D of new compounds.
Generic companies made money by copying the products discovered & developed by other major pharmaceuticals companies.
* If any of these issues caused a schedule delay or need to be discussed further, include details in next slide.

5. Issues in Indian Pharma Sector
Initially country had no indigenous production capability & was totally dependent on imports.
Post independence HAL (promoted by WHO ) & IDPL (Russian assistance) were established in 1954 & 1961 respectively.
Indian Patent Act was passed in 1970, it abolished Product patent & permitted process patent for 5-7 years.
Drug Price Control Order (DPCO) instituted price control by which govt. stipulated prices for all the drugs.
Indian drug prices hovered around 5%-20% of U.S. prices due to these.
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.”
In 1990s , post globalisation, FDI upto 51% (up from 40%) was allowed in Drugs & Pharmaceuticals industries.
A suitable Environment for entry of Eli Lilly entry into India.
* If any of these issues caused a schedule delay or need to be discussed further, include details in next slide.

6. 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.
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

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

8. Strategic Environment
Strategic Context
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
Lilly is re-evaluating its strategy for India and “the direction for the JV, with Ranbaxy signaling an intention to sell its stake” (p. 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; Increasing demand, improving regulatory framework, better infrastructure; WTO membership and resulting change in ownership requirements, trade, IPR/patent protections
Industry: Slowdown in growth (price competition, shift in demand, entry of large competitors); Internal consolidation to achieve synergies and economies of scale; Increasing rivalry and fierce competition

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

10. SWOT Analysis Strengths
Lilly is one of the largest pharmaceutical companies in the world (12th largest)
Large, 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. expiration
Financial risks – increasing costs 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, markets, and demands
Emerging markets – low cost labor, new customers, etc.
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, entry of new & large competitors
India – weak IP protection/enforcement, new competitors
Limitations on pricing – small margins -> cash flow constraints
Escalating costs (R&D, clinical trials, pricing pressures etc.)

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

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

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

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

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

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

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

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

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

20. 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).
Address key issues and concerns faced by Lilly, while allowing the company to respond to global as well as local industry changes.
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. 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.
Help to returns will be maximized and profitability increased, thus meeting Lilly’s strategic objectives .

21. Thank you