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FMCG v/s Pharmaceuticals: Strategic Alliances & Joint Ventures

The document discusses strategic alliances and joint ventures between pharmaceutical companies. It provides details of four examples of partnerships: Merck partnered with Alnylam in a non-equity strategic alliance to collaborate on RNAi drug development. GSK partnered with Dong-A through an equity strategic alliance to co-promote products in South Korea. Hisun and Pfizer formed a joint venture to collaborate on local production and distribution in China. Intrexon partnered with Sun Pharmaceuticals through a joint venture to develop new methods for treating ocular diseases using synthetic biology.

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Group 5 Strategic Alliances & Joint Ventures Pharmaceuticals v/s FMCG Strategic Alliances & Joint Ventures Sagar Gupta Radhika Bhatter Rakshit Sharma Soumyajit Sengupta Varun Gopal Aneesha Chandra Cristina Morini 12P041 12P096 12P160 12P171 12P174 12P186 Exchange
Introduction Pharmaceutical Industry Key Trends u  The market size of the global pharmaceutical industry stood at USD 962.1 billion in 2012 u  In 2018, it is expected to grow to a market size of USD 1,226 billion u  Asia is expected to witness the highest growth rate between 11.4%-14.4% u  Latin America, Africa and Australia are expected to closely follow at a CAGR between 10%-13% u  Japan 12% ROW 8% It is expected to grow at a CAGR of around 5% in the next 5 years u  Market Size by Geographies The developed parts of the world are expected to show comparatively much lower growth rates: u  USA: 0.7%-3.7% u  Europe: (0.4)%-2.6% u  Japan: 1.7%-4.7% u  According to market size, North American market would remain the most important u  Aging population North America 38% Asia 18% Key Industry Drivers Changing lifestyles Hectic daily activities Europe 24% Key Risks Strict Regulation Un-healthy eating activities Increasing incidence of chronic diseases across the entire global population R&D Spending (USD million) 140 High Investment Requirement Pricing Pressures and Shrinking Margins Reputation Management A key success factor would be the ability to create new technology and innovative drugs 131 127 129 120 Developing innovative products (Patent Cliff) 2007 -- 2 -- 2008 2009 2010 2011
Key Drivers for Strategic Alliances and Joint Ventures Pharmaceutical Industry Enter into Emerging Markets • Asia and Latin America are expected to grow at the highest rate Sharing R&D Costs • R&D generally account for 15-20% of the revenues of a pharmaceutical company • Increasing customer demands for more specific and direct cures • Average cost per new drug is USD 300 million Co-Developing New Products • Share the risks associated with NPD • Technology in return for Resources Product Licensing and Co-Marketing • Marketing accounts for 25% of the revenues of a pharmaceutical industry Economies of Scale • One of the main motives for cross-border alliances are for sharing production to increase capacity utilization and reduce investment Benefitting from Partners Having an Established Strong Reputation • As having a strong reputation is essential in this industry, firms can benefit from tying with partners who have a strong reputation in a country/region Cost Effective Sourcing • Drugs over $9 billion are expected to go off patent in 2015 • Firms are looking for outsourcing the drugs to players who can produce them at a low cost -- 3 --
Merck – Alnylam Non-Equity Strategic Alliance u  Publicly listed on NYSE, $140.56b M.Cap u  Publicly listed on Nasdaq, $3.71b M.Cap u  Founded in 1917 (USA nationalized the German subsidiary) u  Founded in 2002 in Cambridge, Massachusetts u  Core focus is development & commercialization of novel therapeutics based on RNAi u  7 specific patient assistance programs u  Among the top 7 Global Pharmaceutical Giants by Revenue & Market Cap u  Created Regulus Therapeutics for development of microRNAi in collaboration with Isis u  Revenue : $48billion u  Revenue : $66.21million u  2012 Facility of the Year Winner for its Vaccine Facility u  Has entered into numerous strategic alliances with all the major players in the industry Key Drivers Merck would provide Alnylam with a series of proprietary drug targets for validation purposes u  Alnylam would provide the technical know-how in RNAi based therapeutics, which Merck lacked u  Merck would inject cash in RNAi based drug development, giving it financial control over the research u  Alnylam would test and develop RNAi based drugs for Merck to commercialize, helping it remain an innovation leader u  Merck would help in commercialization of products u  Alnylam scientists would head the operational aspects u  Agreement Details u  Merck would make upfront & annual cash payments to Alnylam u  u  Merck would also undertake equity investment if certain technological milestones were achieved by Alnylam Merck would receive a co-exclusive license to Alnylam’s intellectual property u  Merck would also make available all necessary requirements for RNAi based drug R&D to Alnylam, after evaluation Any promising development could be further harnessed by Merck to create novel drugs u  Alnylam would dictate the pace of R&D and handle the operations u  -- 4 --
GSK – Dong-A Equity Strategic Alliance Publicly listed on LSE, GBP 75b M.Cap u  Publicly listed on KSE, Won 862m M.Cap u  Founded in 2000;Merger: Glaxo & Smithkline) u  Founded in 1932, in Seoul, South Korea u  99 cities, 39 countries of operations, 70 countries of sales, 97,389 employees u  32 cities, 2 countries of operations, 7 countries of sales, 2281 employees u  4th Largest company by Revenues, 7th Largest by Market Cap. u  Largest manufacturer of OTC drugs, ethical products, consumer brands & energy drinks u  Revenue : GBP 26billion u  Revenue: $817million u  Follows a Tuck-in M&A policy acquiring companies to fill its portfolio gaps u  Largest Subsidiary of Dong-A Socio Holdings. Agreement Details Key Drivers u  u  Dong-A would lend its local marketing expertise in South Korea where it had become the industry leader with lesser products u  GSK would impart its experience of managing other dynamic markets to Dong-A to help it maintain its domestic leadership u  Dong-A would also help increase GSK’s product penetration in South Korea through its efficient distribution network u  Dong-A would be able to learn of the processes followed by GSK to help it become a global player in the industry u  GSK would be able to tap the “healthy” image created by Dong-A u  GSK’s proven product portfolio would help Dong-A enter new markets within South Korea u  GlaxoSmithKline would invest GBP 74million to acquire a minority stake of 9.9% u  Initial activities included co-promotion of select GSK products & Dong-A products in South Korea for primary care u  Co-sharing of profits at 50-50 -- 5 -- u  A new separate team would be created within Dong-A to demarcate areas of cooperation and for proper management of the alliance u  Alliance to be extended to other product segments if the initial agreement proved successful.
Hisun – Pfizer Joint Venture u  Publicly listed on SSE, CNY 15.6b M.Cap u  Publicly listed on NYSE, $190b M.Cap u  Founded in 1956, in Taizhou, China u  Founded in 1849, in Connecticut, USA u  30 countries, 9897 employees, u  34 factories, 5 countries of operations, 92 countries of sales, 91,500 employees u  Largest Chinese pharmaceutical firm by revenues with subsidiaries in 7 countries u  Among the Largest research-based pharmaceutical companies in the world u  Revenue : RMB 450million u  Revenue: $58.9billion u  Winner of numerous efficiency awards & also voted as one of the most loved brands in China u  Major player in the M&A market with $68b acquisition of Wyeth being the biggest deal Key Drivers Hisun would provide local production & distribution expertise for the joint venture u  Pfizer would lend its global marketing expertise for the penetration of the new products among the masses u  Local demand & environment based R&D would be imparted by Hisun u  Pfizer would impart managerial assistance in scaling up Hisun’s operations within China and also surrounding regions u  Pfizer would gain entry into the growing Chinese branded generics market and increase its global reach u  Hisun would be able to achieve its strategic goals of becoming the Chinese pharmaceutical leader by a margin u  Agreement Details u  The management of the Joint Venture would be comprised of equal representation from Pfizer & Hisun u  Both parties to make available any resources, both financial and physical, for the successful operation of the Joint Venture u  Primarily a manufacturing collaboration to tap the Chinese competitive advantage of production ability u  Pfizer would support the Chinese pharmaceutical industry by lending global feedbacks with respect to changing market dynamics u  Both parties to contribute an equal number of products to the Joint Venture for initial operations u  Profits from the sale of products released by the JV would be shared equally after management set aside funds for reinvestment -- 6 --
Intrexon – Sun Pharmaceuticals Joint Venture u  Publicly listed on BSE, INR 129,582Cr. M.Cap u  Publicly listed on NYSE, $2.1b M.Cap u  Founded in 1983, in Kolkata, India u  Founded in 1998, in Virginia, USA u  23 countries of operations & sales, 11,200 employees u  Pre-dominantly present in USA as a Syntheticbiology player u  3rd Largest Indian Pharmaceuticals company by Revenue and the Largest by Profits & M.Cap u  1st of its kind company to combine engineering & design aspects to create gene-systems u  Revenue : INR 8005 Cr. u  u  Active in the M&A segment with inorganic growth being a primary driver for the last 20 years Has collaborations with almost every advanced R&D lab in USA dealing with synthetic biology u  Recently successful in launching IPO Key Drivers Sun Pharma would lend its past experience in developing and manufacturing complex dosage forms u  Intrexon would lend its biotechnology capabilities to the JV for development of methods to deal with ocular diseases u  Sun Pharma would impart its marketing & production capabilities in specialty pharmaceuticals in niche areas u  Sun Pharma would be able to leverage cutting edge technology to become an innovation leader in a virgin field in India u  Intrexon would gain easy access to an emerging market like India u  Intrexon would also allow JV to use its RTS platform helping Sun gain knowledge of such technology u  Agreement Details u  Joint development of controllable gene-based therapies to tackle eye diseases causing partial/total blindness u  Financing requirements would be fulfilled by equal contribution by both Sun Pharma & Intrexon Corporation u  Equal Profit sharing mechanism from JV’s profits -- 7 -- u  JV would have access to Intrexon’s full product portfolio u  Sun Pharma would be the sole channel collaborator for Intrexon in India u  JV could be extended to other forms of ocular disease treament if the initial arrangement succeeded.
Introduction FMCG Industry Key Industries Personal Laundry Accessories 5% 3% Others 2% Key Industry Drivers Dramatic population growth (A billion new customers) Income gains in emerging economies (growing middle class and improving purchasing power of rural class) Household Products 7% Personal Healthcare 8% Food and Beverages 35% Rise of the Value Segment will Affect Margins • Private label players account for 40% of supermarket sales in UK, 30% in Germany,15% in USA • Austerity measures in developed countries Volatile raw material prices Rapid urbanization • Due to Emergence of Global Supply Chains • Natural Resources Shortages Changing lifestyles Hair Care 12% Key Risks Shifting demographics – Aging Population Personal Care 28% Price Deflation Rise of Digital Consumers (Both e- and m-commerce) Deteriorated Consumer Environment in Developed Nations Health and Wellness Concerns u  Emerging markets are expected to drive the growth for the FMCG sector Premiumization u  Asia is expected to overtake the West as the main consumer market Flexible Fulfilment of Orders (due to hectic schedules of customers) u  In India, the FMCG sector is expected to grow at a CAGR of 14.7% Greater use of Bid Data Analytics The industry is characterized by low margins and is thus, voume-driven Increase in Environmental and Social Responsibility Increasing competition u  Speed and Success of Innovations Brand and Marketing Effectiveness • Particularly while entering into new markets, companies will have to balance the target customer group and the requisite investment Regulation and Quality Control Norms -- 8 --
Key Drivers for Strategic Alliances and Joint Ventures FMCG Industry Enter into Emerging Markets • Asia is expected to overtake the developed countries in terms of market size • 1 billion more consumers in Asia and Africa in the next decade Sharing Distribution Costs • By entering into a strategic alliance, companies will be able to leverage the already established distribution network of other companies Entering into New Products • Instead of developing products from scratch, firms can form alliances to enter into new product segments Economies of Scale • Setting up of manufacturing facilities involves large capital expenditure • Alliances allows the firms to improve capacity utilization of existing plants and saves cost of constructing new plants Benefitting from Partners Having an Established Strong Brands • Strong existing brands and reputation makes the entry into new markets easier for players Streamlining Value Chain • Strategic alliances may allow firms to source raw materials more efficiently Sharing R&D costs • The emerging value-conscious customers are looking for higher value and lower prices • They also demand products which meet specific requirements • Sharing R&D, allows firms to meet these demands without large outlays Technology Transfers -- 9 --
Tata Coffee – Starbucks Starbucks Coffee, A Tata Alliance (Joint Venture) u  Publicly listed on BSE, INR 2062Cr M.Cap u  Publicly listed on NYSE, $57.75b M.Cap u  Founded in 1922 u  Founded in 1971 u  19 coffee estates in South India u  20,891 stores in 62 countries u  Largest integrated coffee plantation company in the world u  Largest Coffee-house company in the world u  Revenue : $13.29billion (FY 2011) u  Revenue : $64million (FY 2011) u  Profit: $1.38billion (FY 2011) u  Profit: $8.4million (FY 2011) Key Drivers Tata Coffee would get a captive customer in the form of Starbucks for its operations in India u  Starbucks would be able to enter the Indian market after a false start in 2007 (Future Group) u  Indian-grown Arabica’s brand position would improve globally u  Starbucks would earn greater public confidence through Tata u  Business Values fit as the Starbucks brand was known for Quality & a Rich Customer Experience u  Business Values fit as Tata Group had a proven track record of Unparalleled Ethics and Customer Value in India u  Agreement Details u  Opening a Roasting & Packaging Facility in Karnataka u  Store operated by Tata Global Beverages u  Local Development of the signature Starbucks Espresso Roast u  Outlets positioned in Premium areas to preserve positioning u  Product Offerings customized to Indian sensibilities u  A tea brand to be developed under the Tata Tazo brand u  50 stores across the country by end of 2013 -- 10 --
Nestle – General Mills Cereal Partners Worldwide (Joint Venture) u  Publicly listed on SIX:NESN, $233b M.Cap u  Publicly listed on NYSE, $30.55b M.Cap u  Founded in 1905, in Vevey, Switzerland u  Founded in 1866, in Minnesota, USA u  450 factories, 86 countries, 328,000 employees u  66 factories, 11 countries, 35,000 employees u  Largest food company in the World by Revenues u  Largest food company in the USA by Revenues u  Revenue : CHF 92billion u  Revenue: $14billion u  Ranked Most Profitable in Fortune Global 500 in 2011 u  Ranked 124th in Fortune Global 500 Key Drivers General Mills would lend its immaculate production efficiency & product innovation to create new offerings u  Nestle would impart the requisite marketing efforts & distribution channels to increase the sales of cereals u  General Mills would lend it cereal marketing expertise u  Nestle would streamline the value chain across the world u  General Mills had a broad portfolio of successful brands u  Nestle would help in achieving greater scale economies u  Agreement Details u  Created in 1991 to sell breakfast cereals created by General Mills in 130 u  countries, except USA & Canada under the Nestle brand Partner acquisition prohibited as per JV Agreement u  u  u  Independent development of new cereal brands CPW would be independently managed by a neutral board, with freedom to operate as a separate legal entity Allows for production of private label cereals in UK u  General Mills’ cereal specific production facilities outside USA would be transferred to CPW -- 11 --
Gorenje – Panasonic Equity Strategic Alliance Publicly listed on GRVG, $109m M.Cap u  Publicly listed on TSE, Yen 2283b M.Cap u  Founded in 1950, in Velenje, Slovenia u  Founded in 1918, in Osaka, Japan u  83 companies, 70 countries, 10,785 employees, Continental M.Share=4% u  580 companies, 113 countries, 330,000 employees u  Largest Electronics company in Slovenia, 8th largest electronics manufacturer in Europe u  Among the Big 4 Japanese electronics makers, 4th highest market share in TV in 2012 u  Revenue : Euro 1.26billion u  Revenue: $75.8billion u  Winner of numerous innovation awards in appliances manufacturing over the years u  Major player in the M&A market with nearly 25 deals in the last 4 years Key Drivers u  u  Panasonic will help in attaining higher absorption of fixed costs by leveraging on increased production utilization u  Access to Gorenje’s efficient manufacturing capabilities u  Gorenje would lend its European marketing expertise & widespread distribution channels u  Gorenje’s innovations could be developed further to create even better products Panasonic would help lend technical know-how towards development of new products u  Help increase Gorenje’s stature in Europe even more u  Agreement Details u  Panasonic would acquire a minority stake of 13% in Gorenje for $12million u  Exchange of specific knowledge of market requirements, technical solutions & development techniques u  Standstill agreement to be in place u  Panasonic brand to be used by Gorenje in Europe u  Joint development of new products, especially portable electronics u  Gorenje brand to be used in Asia by Panasonic in markets where Gorenje is not present but Panasonic is. -- 12 --
Reckitt Benckiser – Hoovers’ Company Non-Equity Strategic Alliance u  Publicly listed on LSE, GBP 30.68b M.Cap u  Privately Held u  Founded in 1999, in Berkshire, UK u  Founded in 1908, in Ohio, USA u  60 countries of operation, 200 countries of sales, 35,900 employees u  Worldwide presence, except Europe where sister concern is owned by Candy Group u  Largest British Consumer Goods company u  u  Revenue : GBP 9.57billion Fallen Giant in the field of home appliances & equipment u  Category leader in most domains of operations, with Dettol being the most iconic u  4th highest selling white goods player in USA u  Critically acclaimed equipment design with the highest no. of patents in floor-care Key Drivers Hoover’s strong brand name in the floor-care segment u  u  Hoover would lend unmatched product innovation capability & manufacturing capacity RB brought the strongest player in the household cleaning consumable market u  RB lent its consumer chemical manufacturing expertise u  Hoover’s patent portfolio would help create a new market u  RB would lend its infrastructure & distribution networks u  Agreement Details u  Joint development of products to create a revolutionary new product segment u  Hoover’s patent portfolio to be made available to RB for product development, with royalty tied to it u  Hoover equipment & RB household cleaning products would be in the operating scope of the alliance u  Cross-sell products in each other’s distribution networks with Hoover’s products being made available to retail consumers u  Incremental investment in distribution networks u  If successful, alliance could be extended in scope & size -- 13 --
Key Drivers Similarities and Differences Similarities u  Differences Entry into emerging markets and products (extremely important for both sectors) u  Order of Importance is highly different u  In case of pharmaceutical sector, the main drivers are u  Sharing of R&D costs u  Sharing of Marketing costs u  u  Leveraging Established Distribution Channel of Partner Sharing of R&D and marketing costs u  Co-development and production of products u  u  Leveraging the Strong Reputation and Brands of Partner u  Achieving economies of scale in production In case of FMCG sector, main drivers are: u  u  -- 14 -- Sharing of distribution networks Leveraging strong brand name of partner
Shift in Balance of Power Similarities and Differences Pharmaceutical Industry u  Merck-Alnylam u  u  u  Collaboration was terminated in 2007 due to power collision Merck got IP rights of all co-development programs u  However, power balance is more towards GSK (global partner) as Dong-A has had to give up some products so as to market GSK’s product line Nestle-General Mills Collaboration still exists u  Sustainable Power Balance Sustainable Power Balance Intrexon-Sun Pharmaceuticals u  Gorenje-Panasonic u  Panasonic is the minority stakeholder in Gorenje u  u  Sustainable Power Balance JV was established in 1991 and has delivered strong returns for both the companies u  Hisun-Pfizer u  JV came in operation in 2012 u  u  Possible Power Balances for Alliances TATA Coffee-Starbucks u  Collaboration still exists u  u  u  GSK-Dong-A u  u  FMCG Industry Towards Local Partner Initial Alliance However, Gorenje has no stake in Panasonic, thus putting it on a weaker end Reckitt Benckiser – Hoover’s Company u  Strong alliance since 2001 u  Sustainable Power Balance JV announced on 1 October 2013 u  Overall, pharmaceutical industry has a higher alliance failure rate of 50%. Power collisions are common and generally results in lengthy court battles over IP disputes u  In case of FMCG sector, shift towards global partner or sustainable power balance are more frequent -- 15 -- Power Collision Towards Global Partner
Strategic Alliance Orientation Similarities and Differences Primary Risk Ø  The primary risk is relational risk as cultural clashes and power collision often lead to failure of the venture Ø  In such a scenario, the strategic alliance should have a security orientation to address the concerns about security of contributed resources Ø  They can be done by ensuring that the operations of alliance are carried out separately example Through a funded R&D Property Performance Risk Control Flexibility Ø  In case of FMCG company, the primary resource is property as economies of scale in production are often a common motive Ø  The primary risk is performance risk as the new products may not work, or macroeconomic environment may worsen etc. Ø  Alliance should have a flexibility orientation to address the concerns about the alliance failing Knowledge Ø  In case of pharmaceutical company, the primary resource is knowledge as it generally involves co-development of products Primary Resource Relational Risk Security Productivity -- 16 -- Ø  They can be done by having an incremental process of alliance making
Value Derived from the Strategic Alliance Similarities and Differences Learning Business Development Most Important Value Creators in an Alliance in the Pharmaceutical Sector Growth Opportunities Cash New Strategic Options Market Share Positioning Supply Capability Development IP Rights Cost Savings Brand Loyalty Component Performance Discounted ROI ROI Short Run Dynamic ROI Long Run -- 17 -- Most Important Value Creators in an Alliance in the FMCG Sector
Industry Life Cycle and Partner Selection Similarities Maturity Phase Growth Phase u  Both industries are facing a mature market in the developed countries u  Both industries are facing a growing market in the emerging countries u  The growth rates are low and the big players are already well-established u  The penetration is low and the potential is huge u  Low degree of uncertainty in these markets u  High degree of uncertainty and risk u  Hence, the strategic alliances in these growing emerging markets are u  Hence, the strategic alliances in these mature developed markets are u  u  u  Select partners which are strong in terms of resources and capabilities To select partners which have promising ideas/prototypes of new technology and products u  Licensing and co-marketing products to reduce costs and gain market share To find well-established partners to gain local knowledge, leverage distribution system and to reduce uncertainty To develop new products according to the requirements of these regions To optimize the cost structure with the help of process innovations u  u  -- 18 --

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FMCG v/s Pharmaceuticals: Strategic Alliances & Joint Ventures

  • 1.
    Group 5 Strategic Alliances& Joint Ventures Pharmaceuticals v/s FMCG Strategic Alliances & Joint Ventures Sagar Gupta Radhika Bhatter Rakshit Sharma Soumyajit Sengupta Varun Gopal Aneesha Chandra Cristina Morini 12P041 12P096 12P160 12P171 12P174 12P186 Exchange
  • 2.
    Introduction Pharmaceutical Industry Key Trends u  Themarket size of the global pharmaceutical industry stood at USD 962.1 billion in 2012 u  In 2018, it is expected to grow to a market size of USD 1,226 billion u  Asia is expected to witness the highest growth rate between 11.4%-14.4% u  Latin America, Africa and Australia are expected to closely follow at a CAGR between 10%-13% u  Japan 12% ROW 8% It is expected to grow at a CAGR of around 5% in the next 5 years u  Market Size by Geographies The developed parts of the world are expected to show comparatively much lower growth rates: u  USA: 0.7%-3.7% u  Europe: (0.4)%-2.6% u  Japan: 1.7%-4.7% u  According to market size, North American market would remain the most important u  Aging population North America 38% Asia 18% Key Industry Drivers Changing lifestyles Hectic daily activities Europe 24% Key Risks Strict Regulation Un-healthy eating activities Increasing incidence of chronic diseases across the entire global population R&D Spending (USD million) 140 High Investment Requirement Pricing Pressures and Shrinking Margins Reputation Management A key success factor would be the ability to create new technology and innovative drugs 131 127 129 120 Developing innovative products (Patent Cliff) 2007 -- 2 -- 2008 2009 2010 2011
  • 3.
    Key Drivers forStrategic Alliances and Joint Ventures Pharmaceutical Industry Enter into Emerging Markets • Asia and Latin America are expected to grow at the highest rate Sharing R&D Costs • R&D generally account for 15-20% of the revenues of a pharmaceutical company • Increasing customer demands for more specific and direct cures • Average cost per new drug is USD 300 million Co-Developing New Products • Share the risks associated with NPD • Technology in return for Resources Product Licensing and Co-Marketing • Marketing accounts for 25% of the revenues of a pharmaceutical industry Economies of Scale • One of the main motives for cross-border alliances are for sharing production to increase capacity utilization and reduce investment Benefitting from Partners Having an Established Strong Reputation • As having a strong reputation is essential in this industry, firms can benefit from tying with partners who have a strong reputation in a country/region Cost Effective Sourcing • Drugs over $9 billion are expected to go off patent in 2015 • Firms are looking for outsourcing the drugs to players who can produce them at a low cost -- 3 --
  • 4.
    Merck – Alnylam Non-EquityStrategic Alliance u  Publicly listed on NYSE, $140.56b M.Cap u  Publicly listed on Nasdaq, $3.71b M.Cap u  Founded in 1917 (USA nationalized the German subsidiary) u  Founded in 2002 in Cambridge, Massachusetts u  Core focus is development & commercialization of novel therapeutics based on RNAi u  7 specific patient assistance programs u  Among the top 7 Global Pharmaceutical Giants by Revenue & Market Cap u  Created Regulus Therapeutics for development of microRNAi in collaboration with Isis u  Revenue : $48billion u  Revenue : $66.21million u  2012 Facility of the Year Winner for its Vaccine Facility u  Has entered into numerous strategic alliances with all the major players in the industry Key Drivers Merck would provide Alnylam with a series of proprietary drug targets for validation purposes u  Alnylam would provide the technical know-how in RNAi based therapeutics, which Merck lacked u  Merck would inject cash in RNAi based drug development, giving it financial control over the research u  Alnylam would test and develop RNAi based drugs for Merck to commercialize, helping it remain an innovation leader u  Merck would help in commercialization of products u  Alnylam scientists would head the operational aspects u  Agreement Details u  Merck would make upfront & annual cash payments to Alnylam u  u  Merck would also undertake equity investment if certain technological milestones were achieved by Alnylam Merck would receive a co-exclusive license to Alnylam’s intellectual property u  Merck would also make available all necessary requirements for RNAi based drug R&D to Alnylam, after evaluation Any promising development could be further harnessed by Merck to create novel drugs u  Alnylam would dictate the pace of R&D and handle the operations u  -- 4 --
  • 5.
    GSK – Dong-A EquityStrategic Alliance Publicly listed on LSE, GBP 75b M.Cap u  Publicly listed on KSE, Won 862m M.Cap u  Founded in 2000;Merger: Glaxo & Smithkline) u  Founded in 1932, in Seoul, South Korea u  99 cities, 39 countries of operations, 70 countries of sales, 97,389 employees u  32 cities, 2 countries of operations, 7 countries of sales, 2281 employees u  4th Largest company by Revenues, 7th Largest by Market Cap. u  Largest manufacturer of OTC drugs, ethical products, consumer brands & energy drinks u  Revenue : GBP 26billion u  Revenue: $817million u  Follows a Tuck-in M&A policy acquiring companies to fill its portfolio gaps u  Largest Subsidiary of Dong-A Socio Holdings. Agreement Details Key Drivers u  u  Dong-A would lend its local marketing expertise in South Korea where it had become the industry leader with lesser products u  GSK would impart its experience of managing other dynamic markets to Dong-A to help it maintain its domestic leadership u  Dong-A would also help increase GSK’s product penetration in South Korea through its efficient distribution network u  Dong-A would be able to learn of the processes followed by GSK to help it become a global player in the industry u  GSK would be able to tap the “healthy” image created by Dong-A u  GSK’s proven product portfolio would help Dong-A enter new markets within South Korea u  GlaxoSmithKline would invest GBP 74million to acquire a minority stake of 9.9% u  Initial activities included co-promotion of select GSK products & Dong-A products in South Korea for primary care u  Co-sharing of profits at 50-50 -- 5 -- u  A new separate team would be created within Dong-A to demarcate areas of cooperation and for proper management of the alliance u  Alliance to be extended to other product segments if the initial agreement proved successful.
  • 6.
    Hisun – Pfizer JointVenture u  Publicly listed on SSE, CNY 15.6b M.Cap u  Publicly listed on NYSE, $190b M.Cap u  Founded in 1956, in Taizhou, China u  Founded in 1849, in Connecticut, USA u  30 countries, 9897 employees, u  34 factories, 5 countries of operations, 92 countries of sales, 91,500 employees u  Largest Chinese pharmaceutical firm by revenues with subsidiaries in 7 countries u  Among the Largest research-based pharmaceutical companies in the world u  Revenue : RMB 450million u  Revenue: $58.9billion u  Winner of numerous efficiency awards & also voted as one of the most loved brands in China u  Major player in the M&A market with $68b acquisition of Wyeth being the biggest deal Key Drivers Hisun would provide local production & distribution expertise for the joint venture u  Pfizer would lend its global marketing expertise for the penetration of the new products among the masses u  Local demand & environment based R&D would be imparted by Hisun u  Pfizer would impart managerial assistance in scaling up Hisun’s operations within China and also surrounding regions u  Pfizer would gain entry into the growing Chinese branded generics market and increase its global reach u  Hisun would be able to achieve its strategic goals of becoming the Chinese pharmaceutical leader by a margin u  Agreement Details u  The management of the Joint Venture would be comprised of equal representation from Pfizer & Hisun u  Both parties to make available any resources, both financial and physical, for the successful operation of the Joint Venture u  Primarily a manufacturing collaboration to tap the Chinese competitive advantage of production ability u  Pfizer would support the Chinese pharmaceutical industry by lending global feedbacks with respect to changing market dynamics u  Both parties to contribute an equal number of products to the Joint Venture for initial operations u  Profits from the sale of products released by the JV would be shared equally after management set aside funds for reinvestment -- 6 --
  • 7.
    Intrexon – SunPharmaceuticals Joint Venture u  Publicly listed on BSE, INR 129,582Cr. M.Cap u  Publicly listed on NYSE, $2.1b M.Cap u  Founded in 1983, in Kolkata, India u  Founded in 1998, in Virginia, USA u  23 countries of operations & sales, 11,200 employees u  Pre-dominantly present in USA as a Syntheticbiology player u  3rd Largest Indian Pharmaceuticals company by Revenue and the Largest by Profits & M.Cap u  1st of its kind company to combine engineering & design aspects to create gene-systems u  Revenue : INR 8005 Cr. u  u  Active in the M&A segment with inorganic growth being a primary driver for the last 20 years Has collaborations with almost every advanced R&D lab in USA dealing with synthetic biology u  Recently successful in launching IPO Key Drivers Sun Pharma would lend its past experience in developing and manufacturing complex dosage forms u  Intrexon would lend its biotechnology capabilities to the JV for development of methods to deal with ocular diseases u  Sun Pharma would impart its marketing & production capabilities in specialty pharmaceuticals in niche areas u  Sun Pharma would be able to leverage cutting edge technology to become an innovation leader in a virgin field in India u  Intrexon would gain easy access to an emerging market like India u  Intrexon would also allow JV to use its RTS platform helping Sun gain knowledge of such technology u  Agreement Details u  Joint development of controllable gene-based therapies to tackle eye diseases causing partial/total blindness u  Financing requirements would be fulfilled by equal contribution by both Sun Pharma & Intrexon Corporation u  Equal Profit sharing mechanism from JV’s profits -- 7 -- u  JV would have access to Intrexon’s full product portfolio u  Sun Pharma would be the sole channel collaborator for Intrexon in India u  JV could be extended to other forms of ocular disease treament if the initial arrangement succeeded.
  • 8.
    Introduction FMCG Industry Key Industries Personal Laundry Accessories 5% 3% Others 2% KeyIndustry Drivers Dramatic population growth (A billion new customers) Income gains in emerging economies (growing middle class and improving purchasing power of rural class) Household Products 7% Personal Healthcare 8% Food and Beverages 35% Rise of the Value Segment will Affect Margins • Private label players account for 40% of supermarket sales in UK, 30% in Germany,15% in USA • Austerity measures in developed countries Volatile raw material prices Rapid urbanization • Due to Emergence of Global Supply Chains • Natural Resources Shortages Changing lifestyles Hair Care 12% Key Risks Shifting demographics – Aging Population Personal Care 28% Price Deflation Rise of Digital Consumers (Both e- and m-commerce) Deteriorated Consumer Environment in Developed Nations Health and Wellness Concerns u  Emerging markets are expected to drive the growth for the FMCG sector Premiumization u  Asia is expected to overtake the West as the main consumer market Flexible Fulfilment of Orders (due to hectic schedules of customers) u  In India, the FMCG sector is expected to grow at a CAGR of 14.7% Greater use of Bid Data Analytics The industry is characterized by low margins and is thus, voume-driven Increase in Environmental and Social Responsibility Increasing competition u  Speed and Success of Innovations Brand and Marketing Effectiveness • Particularly while entering into new markets, companies will have to balance the target customer group and the requisite investment Regulation and Quality Control Norms -- 8 --
  • 9.
    Key Drivers forStrategic Alliances and Joint Ventures FMCG Industry Enter into Emerging Markets • Asia is expected to overtake the developed countries in terms of market size • 1 billion more consumers in Asia and Africa in the next decade Sharing Distribution Costs • By entering into a strategic alliance, companies will be able to leverage the already established distribution network of other companies Entering into New Products • Instead of developing products from scratch, firms can form alliances to enter into new product segments Economies of Scale • Setting up of manufacturing facilities involves large capital expenditure • Alliances allows the firms to improve capacity utilization of existing plants and saves cost of constructing new plants Benefitting from Partners Having an Established Strong Brands • Strong existing brands and reputation makes the entry into new markets easier for players Streamlining Value Chain • Strategic alliances may allow firms to source raw materials more efficiently Sharing R&D costs • The emerging value-conscious customers are looking for higher value and lower prices • They also demand products which meet specific requirements • Sharing R&D, allows firms to meet these demands without large outlays Technology Transfers -- 9 --
  • 10.
    Tata Coffee –Starbucks Starbucks Coffee, A Tata Alliance (Joint Venture) u  Publicly listed on BSE, INR 2062Cr M.Cap u  Publicly listed on NYSE, $57.75b M.Cap u  Founded in 1922 u  Founded in 1971 u  19 coffee estates in South India u  20,891 stores in 62 countries u  Largest integrated coffee plantation company in the world u  Largest Coffee-house company in the world u  Revenue : $13.29billion (FY 2011) u  Revenue : $64million (FY 2011) u  Profit: $1.38billion (FY 2011) u  Profit: $8.4million (FY 2011) Key Drivers Tata Coffee would get a captive customer in the form of Starbucks for its operations in India u  Starbucks would be able to enter the Indian market after a false start in 2007 (Future Group) u  Indian-grown Arabica’s brand position would improve globally u  Starbucks would earn greater public confidence through Tata u  Business Values fit as the Starbucks brand was known for Quality & a Rich Customer Experience u  Business Values fit as Tata Group had a proven track record of Unparalleled Ethics and Customer Value in India u  Agreement Details u  Opening a Roasting & Packaging Facility in Karnataka u  Store operated by Tata Global Beverages u  Local Development of the signature Starbucks Espresso Roast u  Outlets positioned in Premium areas to preserve positioning u  Product Offerings customized to Indian sensibilities u  A tea brand to be developed under the Tata Tazo brand u  50 stores across the country by end of 2013 -- 10 --
  • 11.
    Nestle – GeneralMills Cereal Partners Worldwide (Joint Venture) u  Publicly listed on SIX:NESN, $233b M.Cap u  Publicly listed on NYSE, $30.55b M.Cap u  Founded in 1905, in Vevey, Switzerland u  Founded in 1866, in Minnesota, USA u  450 factories, 86 countries, 328,000 employees u  66 factories, 11 countries, 35,000 employees u  Largest food company in the World by Revenues u  Largest food company in the USA by Revenues u  Revenue : CHF 92billion u  Revenue: $14billion u  Ranked Most Profitable in Fortune Global 500 in 2011 u  Ranked 124th in Fortune Global 500 Key Drivers General Mills would lend its immaculate production efficiency & product innovation to create new offerings u  Nestle would impart the requisite marketing efforts & distribution channels to increase the sales of cereals u  General Mills would lend it cereal marketing expertise u  Nestle would streamline the value chain across the world u  General Mills had a broad portfolio of successful brands u  Nestle would help in achieving greater scale economies u  Agreement Details u  Created in 1991 to sell breakfast cereals created by General Mills in 130 u  countries, except USA & Canada under the Nestle brand Partner acquisition prohibited as per JV Agreement u  u  u  Independent development of new cereal brands CPW would be independently managed by a neutral board, with freedom to operate as a separate legal entity Allows for production of private label cereals in UK u  General Mills’ cereal specific production facilities outside USA would be transferred to CPW -- 11 --
  • 12.
    Gorenje – Panasonic EquityStrategic Alliance Publicly listed on GRVG, $109m M.Cap u  Publicly listed on TSE, Yen 2283b M.Cap u  Founded in 1950, in Velenje, Slovenia u  Founded in 1918, in Osaka, Japan u  83 companies, 70 countries, 10,785 employees, Continental M.Share=4% u  580 companies, 113 countries, 330,000 employees u  Largest Electronics company in Slovenia, 8th largest electronics manufacturer in Europe u  Among the Big 4 Japanese electronics makers, 4th highest market share in TV in 2012 u  Revenue : Euro 1.26billion u  Revenue: $75.8billion u  Winner of numerous innovation awards in appliances manufacturing over the years u  Major player in the M&A market with nearly 25 deals in the last 4 years Key Drivers u  u  Panasonic will help in attaining higher absorption of fixed costs by leveraging on increased production utilization u  Access to Gorenje’s efficient manufacturing capabilities u  Gorenje would lend its European marketing expertise & widespread distribution channels u  Gorenje’s innovations could be developed further to create even better products Panasonic would help lend technical know-how towards development of new products u  Help increase Gorenje’s stature in Europe even more u  Agreement Details u  Panasonic would acquire a minority stake of 13% in Gorenje for $12million u  Exchange of specific knowledge of market requirements, technical solutions & development techniques u  Standstill agreement to be in place u  Panasonic brand to be used by Gorenje in Europe u  Joint development of new products, especially portable electronics u  Gorenje brand to be used in Asia by Panasonic in markets where Gorenje is not present but Panasonic is. -- 12 --
  • 13.
    Reckitt Benckiser –Hoovers’ Company Non-Equity Strategic Alliance u  Publicly listed on LSE, GBP 30.68b M.Cap u  Privately Held u  Founded in 1999, in Berkshire, UK u  Founded in 1908, in Ohio, USA u  60 countries of operation, 200 countries of sales, 35,900 employees u  Worldwide presence, except Europe where sister concern is owned by Candy Group u  Largest British Consumer Goods company u  u  Revenue : GBP 9.57billion Fallen Giant in the field of home appliances & equipment u  Category leader in most domains of operations, with Dettol being the most iconic u  4th highest selling white goods player in USA u  Critically acclaimed equipment design with the highest no. of patents in floor-care Key Drivers Hoover’s strong brand name in the floor-care segment u  u  Hoover would lend unmatched product innovation capability & manufacturing capacity RB brought the strongest player in the household cleaning consumable market u  RB lent its consumer chemical manufacturing expertise u  Hoover’s patent portfolio would help create a new market u  RB would lend its infrastructure & distribution networks u  Agreement Details u  Joint development of products to create a revolutionary new product segment u  Hoover’s patent portfolio to be made available to RB for product development, with royalty tied to it u  Hoover equipment & RB household cleaning products would be in the operating scope of the alliance u  Cross-sell products in each other’s distribution networks with Hoover’s products being made available to retail consumers u  Incremental investment in distribution networks u  If successful, alliance could be extended in scope & size -- 13 --
  • 14.
    Key Drivers Similarities andDifferences Similarities u  Differences Entry into emerging markets and products (extremely important for both sectors) u  Order of Importance is highly different u  In case of pharmaceutical sector, the main drivers are u  Sharing of R&D costs u  Sharing of Marketing costs u  u  Leveraging Established Distribution Channel of Partner Sharing of R&D and marketing costs u  Co-development and production of products u  u  Leveraging the Strong Reputation and Brands of Partner u  Achieving economies of scale in production In case of FMCG sector, main drivers are: u  u  -- 14 -- Sharing of distribution networks Leveraging strong brand name of partner
  • 15.
    Shift in Balanceof Power Similarities and Differences Pharmaceutical Industry u  Merck-Alnylam u  u  u  Collaboration was terminated in 2007 due to power collision Merck got IP rights of all co-development programs u  However, power balance is more towards GSK (global partner) as Dong-A has had to give up some products so as to market GSK’s product line Nestle-General Mills Collaboration still exists u  Sustainable Power Balance Sustainable Power Balance Intrexon-Sun Pharmaceuticals u  Gorenje-Panasonic u  Panasonic is the minority stakeholder in Gorenje u  u  Sustainable Power Balance JV was established in 1991 and has delivered strong returns for both the companies u  Hisun-Pfizer u  JV came in operation in 2012 u  u  Possible Power Balances for Alliances TATA Coffee-Starbucks u  Collaboration still exists u  u  u  GSK-Dong-A u  u  FMCG Industry Towards Local Partner Initial Alliance However, Gorenje has no stake in Panasonic, thus putting it on a weaker end Reckitt Benckiser – Hoover’s Company u  Strong alliance since 2001 u  Sustainable Power Balance JV announced on 1 October 2013 u  Overall, pharmaceutical industry has a higher alliance failure rate of 50%. Power collisions are common and generally results in lengthy court battles over IP disputes u  In case of FMCG sector, shift towards global partner or sustainable power balance are more frequent -- 15 -- Power Collision Towards Global Partner
  • 16.
    Strategic Alliance Orientation Similaritiesand Differences Primary Risk Ø  The primary risk is relational risk as cultural clashes and power collision often lead to failure of the venture Ø  In such a scenario, the strategic alliance should have a security orientation to address the concerns about security of contributed resources Ø  They can be done by ensuring that the operations of alliance are carried out separately example Through a funded R&D Property Performance Risk Control Flexibility Ø  In case of FMCG company, the primary resource is property as economies of scale in production are often a common motive Ø  The primary risk is performance risk as the new products may not work, or macroeconomic environment may worsen etc. Ø  Alliance should have a flexibility orientation to address the concerns about the alliance failing Knowledge Ø  In case of pharmaceutical company, the primary resource is knowledge as it generally involves co-development of products Primary Resource Relational Risk Security Productivity -- 16 -- Ø  They can be done by having an incremental process of alliance making
  • 17.
    Value Derived fromthe Strategic Alliance Similarities and Differences Learning Business Development Most Important Value Creators in an Alliance in the Pharmaceutical Sector Growth Opportunities Cash New Strategic Options Market Share Positioning Supply Capability Development IP Rights Cost Savings Brand Loyalty Component Performance Discounted ROI ROI Short Run Dynamic ROI Long Run -- 17 -- Most Important Value Creators in an Alliance in the FMCG Sector
  • 18.
    Industry Life Cycleand Partner Selection Similarities Maturity Phase Growth Phase u  Both industries are facing a mature market in the developed countries u  Both industries are facing a growing market in the emerging countries u  The growth rates are low and the big players are already well-established u  The penetration is low and the potential is huge u  Low degree of uncertainty in these markets u  High degree of uncertainty and risk u  Hence, the strategic alliances in these growing emerging markets are u  Hence, the strategic alliances in these mature developed markets are u  u  u  Select partners which are strong in terms of resources and capabilities To select partners which have promising ideas/prototypes of new technology and products u  Licensing and co-marketing products to reduce costs and gain market share To find well-established partners to gain local knowledge, leverage distribution system and to reduce uncertainty To develop new products according to the requirements of these regions To optimize the cost structure with the help of process innovations u  u  -- 18 --