Novartis - Strategy Memo


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Critical analysis of Novartis pulling out its R&D from India following Supreme Court's verdict

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Novartis - Strategy Memo

  1. 1. Prepared & Presented by: Group B7 Kunal Kumar Singh (PGDM 12024) Samanvitha Mahen (PGDM 12040) Indu J (PGDM 12091) Akilan P (PGDM 12123) Sharanya L S (PGDM 12139) Rheetam Mitra (PGDM 12156) Shreetha (PGDM 12176) BPSM STRATEGIC MEMO
  2. 2. quits investing in R&D in India Your 01
  3. 3. Novartis • Novartis is a Swiss multinational pharmaceutical company based in Basel, Switzerland, ranking number two in sales (46.806 billion US$) among the world-wide industry in 2010. • Novartis is a full member of the European Federation of Pharmaceutical Industries and Associations (EFPIA), the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) and the Pharmaceutical Research and Manufacturers of America (PhRMA). 02
  4. 4. Novartis (Contd.) • Novartis was created in 1996 from the merger of CibaGeigy and Sandoz Laboratories, both Swiss companies with long histories. • Novartis has its major bases for R&D in Basel (Switzerland), Hyderabad (India), Shanghai (China), and Cambridge (USA). 03
  5. 5. The Novartis Saga: a timeline 1 1997: Novartis files a patent application in India for its drug Gilvec 2 2005: India introduces the Indian Patent Act preventing frivolous patents 3 Jan 2006: The Patent Controller in Chennai denies Novartis a patent 4 May 2006: Novartis challenges the Indian government and four other companies in the Madras High Court 5 Aug 2007: The Madras High Court rules against Novartis’ case 6 June 2009: The Intellectual Property Appellate Board rejects a fresh appeal 7 August 2009: Novartis approaches the Supreme Court of India Your 04
  6. 6. R&D Myth Revenue India’s drug production is of over Rs. 100,000 crore. Novartis’ turnover is a little over Rs. 1,000 crore. Which constitutes to be around one per cent R&D Total expeenditure incurred by Novartis India in 2012 was Rs. 800 crores. Out of the total expenditure, Rs. 29 lakhs was for R&D, Which is around 0.03 per cent. Your 05
  7. 7. Strategic Group  R&D strategy   Applied R&D Basic R&D  Strategic Group of Novartis   Sun Pharmaceutical, Cipla, Dr. Reddy's Laboratories GlaxoSmithKline, Pfizer, Novartis Your 06
  8. 8. Ethical issue in Novartis  Ethical dilemmas  Drug pricing and marketing,  Role of intellectual property rights and patent protection  Moral and economic requisites of research  Sales team - bribing stockist  Massive discounts to push sales  Drug for free on some occasions, up to 20% discount  Fired the sales man who generally follows the strategy formulated by the top management Your 07
  9. 9. Corporate Governance in Novartis  Board of Directors  Four Directors - Executive and three Non- Executive  50% of the Board - Independent Directors  Audit committee  Provisions of Clause 49 of the Listing Agreement and Section 292A of the Act  External and Internal Auditors  Information access from records Your 08
  10. 10. Corporate Governance in Novartis  Remuneration Committee  Criteria of payment of Managerial remuneration  Shareholders’/Investors’ Grievances Committee  Shareholders’ and investor complaints/grievances  Means of Communication  Quarterly, half-yearly and annual results of the company are published in newspapers. Your 09
  11. 11. Stakeholders’ Strategy  Employees’ point of view  Restricted Shares and Tradable Options granted under “Select” plan  Benefit Plans for post-employment benefits -Provident Fund, Gratuity, Leave Encashment, Non-Contractual Pension Plan and Post-retirement Medical Benefits  Long Service Awards Your 10
  12. 12. Stakeholders’ Strategy (Contd.)  Society’s point of view  Fight against leprosy  Donation of cash and drugs worth 15 million RMB - earthquake-stricken Sichuan  Challenge to reduce and formulate price based on country’s economy Your 11
  13. 13. Pharmaceutical policy  Patent law  Applied to all inventions, whether mechanical, pharmaceutical or electronic, the int erpretations of patent law made by government patent granting agencies and cour ts are very subjective.  Licensing  Licensing involves the approval of a product for sale in a jurisdiction. It is controlled by Central Drugs Standard Control Organization under the ministry of health department, Indian government. Your 12
  14. 14. SWOT Analysis Threats 1. Increasing obsolesce of technology 2. Competition from peers Weakness 1. Case regarding Indian patent laws also created a problem for the brand 2. Company’s image was affected due to the unethical advertisement 3. No formulation for children; only one formulation is available 4. Failure of Galvus to position Novartis in the Diabetes market Opportunities 1. High market growth rate due to increasing rate of diseases 2. Venture into health needs in under-developed and poor countries 3. Broad-based medical innovation (in technologies and businesses) Strengths 1. Market leader in terms of sales (Has a global reach in over 140 countries) 2. Core businesses in health care sector 3. Wide range of products in pharmaceuticals, vaccines, consumer health, generics and animal health 4. Well established Research and Development 5. Strong brand image Your 13
  15. 15. SPACE Matrix Sl. No. Financial Strength (FS) Rating 1. Growth of Net Worth @16.34% 6 2. Growth of Market Cap @ 18.46% 6 3. Debt-Equity Ratio of 0.00 since March ‘09 4 TOTAL Sl. No. 16 Industry Strength (IS) Rating 1. India is poised to become Pharma-hub of the world 6 2. Increase in medical expenditure 5 TOTAL 11 Your 14
  16. 16. SPACE Matrix (Contd.) Sl. No. Environmental Stability (ES) Rating 1. Change in Patent rules -4 2. Broader and stronger consumer base -6 TOTAL Competitive Advantage (CA) Sl. No. -10 Rating 1. Worldwide patents -4 2. R&D -6 TOTAL -10 Your 15
  17. 17. SPACE Matrix (Contd.) • Based on the above internal and the external dimensions, the directional vector coordinates are as follows – – X coordinate = CA Rating + IS Rating = -10 + 11 = +1 Y coordinate = FS Rating + ES Rating = +16 – 10 = +6 8 3 -2 -1.5 -1 -0.5 -2 0 0.5 1 1.5 -7 -12 Your 16 2
  18. 18. QSPM Stop investing in R&D India Key Weight AS 1. Worldwide R&D 0.2 2. Product range 3 Brand Image Continue investing in R&D India TAS AS TAS 1 0.2 4 0.8 0.1 3 0.3 4 0.4 0.2 1 0.2 3 0.6 1. New Patent Laws 0.3 2 0.6 2 0.6 2. Unethical advertisement 0.2 1 0.2 3 0.3 SUBTOTAL 1 Strength Weakness 1.5 2.7 Opportunities 1. High Market 0.2 2 0.4 4 0.8 2. Purchasing power 0.3 3 0.9 3 0.9 3. Increase spending 0.2 3 0.6 1 0.2 Threats 1. obsolescence 0.1 4 0.4 5 0.5 2. Competition 0.2 1 0.2 3 0.6 SUBTOTAL 1 2.5 3 Your 17
  19. 19. QSPM (Contd.) • • • • QPSM table clearly indicates that continuing the R&D in India has a relatively higher attractiveness score by comparing the two alternatives based on the key factors both internal and external. As calculated above, it is very much evident that Novartis can have huge prospects by trying to capitalize on its strengths and utilize the current opportunities rather than being defensive. Also the magnitude of the difference between the grand Total Attractiveness Score clearly indicates the relative desirability of choosing to continue investing on R&D rather than not to invest. Considering the growth of pharmaceutical industry and the increased spending of customers, Novartis could have tried to capitalize upon its strong brand image and its wide product range. Your 18
  20. 20. Change Platform Organisation structure and culture Diversity and Inclusion Abosorb and internalize the change At Novartis, performance-oriented culture and responsible approach are the foundations of success. They recognize that their business depends on the creativity, dedication and performance of associates. They encourage associates to focus on achievement through collaboration and innovation. Novartis is committed to equality of opportunity, fairness, work and lifestyle, mutual respect and dignity at work for all associates. Novartis values differences including disability, sexual orientation, race, ethnicity, age, thinking style, gender and religion. Inclusion establish and reinforces behavioural standard that fosters at collaborative culture and work environment ,which will enable individuals and groups to contribute to their fullest potential. Top-down and bottom-up approach to absorb the best practices around, adapting with the inevitable changes. Your 19
  21. 21. Methods for Dealing with Resistance to Change Education and Communication 1 This approach can be used where there is a lack of information or inaccurate information and analysis among the individuals in the organisation. Once the objective of the change is made clear then people will often help with the implementation of the change. Participation and Involvement 2 2 This approach can be used where the initiators do not have all the information they need to design the change, and where others have considerable power to resist. People who participate will be committed to implementing change, and any relevant information they have will be integrated into the change plan. The drawback of this approach is that if participators design an inappropriate change, it consumes time to rework on the same. Facilitation and Support 3 This approach can be used where people are resisting because of adjustment problems. Your 20
  22. 22. Strategy for Novartis  Stockholders’ point of view  Novartis should transform itself from pharmaceutical company to become a broad-based health care company.  They should focus on four high growth segments like eye care, generics, consumer health and vaccines and diagnostics.  Increase more involvement in medicine for diseases like cancer, HIV, Diabetes. Your 21
  23. 23. Strategy for Novartis (Contd.)  Stockholders’ point of view  This particular sector is served by few organization like DTIC-Dome, Cytostar-U.  There is a gradual increase in the cancer patients. The company has its medicine for breast cancer patient like Afinitor. The sales expected from this is 1bn dollar by 2017.  They can manufacture more advanced medicine for lungs cancer and blood cancer as they are competent in this area. Your 22
  24. 24. References • • • • • • (n.d.). Retrieved from (n.d.). Retrieved from (n.d.). Retrieved from (n.d.). Retrieved from (2011). David, F. R. (2011). . In F. R. David, Strategic Management - Concepts and Cases 13th Edition . Pearson education. (n.d.). Retrieved from Your 23
  25. 25. References (Contd.) • • • • • • (n.d.). Retrieved from ttp:// (n.d.). Retrieved from money (n.d.). Retrieved from (n.d.). Retrieved from (n.d.). Retrieved from (n.d.). Retrieved from Your 24
  26. 26. Thank You!