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. 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. 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. The Companies
Eli Lilly


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
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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. THANK YOU