Eli Lilly-Ranbaxy Alliance

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  • Kshitij
  • Group 2
  • Krishnanand
  • Tarun
  • Akhil
  • Akhil
  • Nidhi
  • Nidhi
  • Lalima
  • Eli Lilly-Ranbaxy Alliance

    1. 1. ELI LILLY RANBAXY Group 1 Akhil Ajith Mathews Krishananad S Pai Lalima Bassi Nidhi Soni Sidhant Gupta Tarun Jain Kshitij Ahuja Group 2 Anubhav Gupta Gautam Hariharan Karan Jaidka Mayank Bathla Saurabh Saxena Vibhav Srivastava
    2. 2. 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
    3. 3. 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%
    4. 4. The Companies Eli Lilly        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 Ranbaxy       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%
    5. 5. Rethinking the Business Resource Based View Transaction Cost Rationale Organizational Learning Resource Dependence Agency Theory Eli Lilly  Eli Lilly Eli Lilly  According to agency theory, for smooth governance the goals of partners and alliance managers  Competitive advantage comes distributionhad generic andof and the patents it hadthe various having After the on Ranbaxy‟s and from of of cost of manufacturing of generic  Dependentmanufacturing knowledge its itof on JV were benefitting bothandfrom Ranbaxy bulk drugs should be aligned. In of Indian motivesfocusthe innovation either establishingcostsfor partners by: a JV with an Learn liberalization this JV markets, lower the option bulk drugs at lower a subsidiary or medicines established player to benefit from lower cost of and R&D  Combination of highly sophisticated technology production in India  Dependent getting access to Indian distribution network gives “Competitive advantage to bringing breakthrough  Eli Lilly was on Ranbaxy‟s establishedmarkets and also manufacturing drugs at a lower cost  medicines” It had Laboratories exporting its drugs to Indian market or and knowledge  Ranbaxy the option ofaccess to knowledge/ learning‟s of globalhave a JV to utilize the marketing networksourcing of  Ranbaxy wasof over a century, commitment to scientific and managerialpharmaceuticalsglobal reach getting leader in excellence and and lower cost of a established player Experience  Ranbaxy Laboratories innovation and medicine breakthrough processes of Eli Lilly as it plans to increase R&D  intermediate pharmaceutical ingredients Learn from the product spend Laboratories  Dependent on 8%,  Ranbaxy Laboratories  Ranbaxy by 7% -Eli Lilly for lower cost of intermediate pharmaceutical ingredients It could use the developed of bulk other network  Dependent on manufacturerdrugs of drugs and genericfocus on itsstrong domestic market share (15%)  India‟s largest Eli Lilly‟s global distribution player and drugs and core strength of manufacturing generic drugs or invest in R&D to develop its own product portfolio  Core competency: Chemical synthesis capability, Capital cost 50% – 75% lower than US counterparts  Ranbaxy could have grown its established global marketing network or take the help of dominant global players  Solid manufacturing base with strong backward integration from lab to market
    6. 6. Creating the Alliance Strategy Ranbaxy Eli Lilly • 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 • 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 Alliance Overview Synergies • 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 • High Ethical Standards • Focus on technology and innovation • Believed in future of product patents in India
    7. 7. Structuring the Alliance 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. 50% 50% ELI LILLY- RANBAXY $7.1 million Board of Directors 6 directors- 3 from each company Management committee 2 directors- 1 from each company Andrew Mascarenhas, GM, Lil ly (MD) Financial Analyst Recruitment theme Medical director “Opportunity of a Lifetime” Rajiv Gulati, Director, marketing & Sales Sales Manager HRM To manage high prevalent employee turnover; creating ununionised staff
    8. 8. Managing the Alliance (1/2) The Team • Andrew Mascarenhas from Eli Lilly-Managing Director of the JV • Rajiv Gulati from Ranbaxy-Director of Marketing & Sales of the JV JV Name • Eli Lilly Ranbaxy sounded foreign enough Leveraging Ranbaxy • Government Approvals, Licenses and Supplies • Distribution Network High Turnover Rate • Unionized Pharma Industry • Opportunity of a Lifetime Eli Lilly’s Red Book • MR told Doctors both pros & cons of the drug Challenges Marketing Strategy • Govt. Regulations-IPR, Pricing • Financing the affiliate • Off-Patented Drugs • Patented Drugs
    9. 9. Managing the Alliance (2/2) Alliance Manager Establish the right tone • Andrew and Rajiv had a strong and cohesive relationship Monitor 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 Top Management 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
    10. 10. Evaluating the JV - Possible Ways out Grow it Ranbaxy uses employee s of Lilly’s R&D team Lilly uses Ranbaxy’s distributio n channel Fix it Ranbaxy goes back to focusing on generics Lilly introduces more products in the market Exit Lilly puts in more capital to cover Ranbaxy’s losses by buying more stake in the JV Ranbaxy buy’s out Lilly’s stake/Lilly buy’s out Ranbaxy’s stake Both find new partners
    11. 11. A Few Questions remain… 1. Was this the right strategy for Eli Lilly? Opportunities of Indian Market Constraints in US Market • Low costs • Favourable legislation • 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 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, antiinfectives and anticancer drugs • Good reputation from sales force ethics practises of Eli Lilly • Access to international markets including U.S.
    12. 12. Role of the leaders of the JV Andrew Mascarenhas Chris Shaw Rajiv Gulati Initial coordination challenges Setting targets Recruiting & tackling attrition Stabilizing the fast growing organisation New institutional environment Re-evaluate JV strategy IN & OUT licensing of products and technologies Training program to spread values & code of conduct Focus on building systems & processes, developed SOP’s Streamline the marketing & sales activities Staff enlargement Medical and regulatory unit developed to handle product approval processes
    13. 13. Alliance Evolution Framework PRE JV Market 1993 Frenzied Market 2005 Turbulent Market Multinationals at a disadvantage, bulk production of copied drugs. Focus on growth & profitability Government restrictions on pricing Many global players in market, emergence of cross border M&A Building the sales force: unionization, attrition and Red Book code Process patents, price controls & profit limited to 6% sales Regulation liberalized allowing fully owned subsidiaries Focus on market access Import substitution regime Regulations relaxed, majority foreign stake allowed (51%) Limited Ranbaxy role & cash flow constraints Formation of JV 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)
    14. 14. Company 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 - Bristol-Myers Squibb 5 3 12 Takeda 15 - 13 Boehringer-Ingelheim 17 - 14 Bayer 18 9 15 Astellas - - 16 Daiichi-Sankyo - - 17 Otsuka - - 18 Gilead - - 19 Mylan - - 20 EISAI - - Value of products and services, distribution strength Pricing based on ability to pay driving volume uplift Fewer competitors in a broader range of diseases More products with lower revenues and lower costs Significant outsourcing of operations such as manufacturing and support facilities Greater collaboration with academia, biotech and peers Focus on Emerging Markets - 11 Development resources, sales and marketing Global high prices, restricting access Multiple competitors in major therapeutic areas, scale permitting success Multi-billion dollar drug revenues covering high fixed costs End to end operational capabilities for “selfsufficiency” strategy Acquisition of technologies and products to augment product pipeline Focus on mature Western Markets Bases of competitive advantage in 2020 Rank Rank in in 1992 2001 Rank in 2012 Bases of competitive advantage today Global Pharmaceutical Industry: The Past and the Future 500 425 350 275 200 125 50 -25 487 US 308 205 188 154 335 303 238 205 335 300 195 EU EM Other 2010E 2015E 2020E Major Pharmaceutical Markets in the world Distinct shift towards Emerging Markets
    15. 15. Alliances and New trends in Indian Pharmaceutical Sector Domestic Indian Market (Market Access) Bayer(German) & Zydus Cadila, 50:50 JV, Contract Research and Manufacturing Services (CRAMS) Global Market (Sourcing) GSK(U.K.) & Dr. Reddy Eli Lilly(U.S.) & Lupin Global Market (R&D) US-FDA Approved plants Glenmark & Sanofi Aventis (French) Omega Pharma(Belgium) & Modi-Mundi Pharma group Merck(German) & Sun Pharmaceuticals India had the largest number of US-FDA approved plants outside U.S. Collaboration Business Models Pfizer(U.S.) & Aurobindo Pharma Novartis(Switzerlan d) & USV Ltd. •Outsourcing of research & manufacturing •Fastest growing segment in Pharmaceuticals Endo Pharmaceuticals (U.S.) & Jubilant •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
    16. 16. THANK YOU

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