Eli Lilly in India: Rethinking the Joint Venture Strategy

In 1993 Eli Lilly, one of the leading pharmaceutical firms in the USA, started a joint venture in India with the leading Indian company Ranbaxy. The decision was dictated by the conditions of the US market and opportunities of the Indian market.

Costlier manufacturing practices due to strict governmental control, soaring prices in 1990s, invasion of cheap generics to the USA market as opposed to low costs in India and new regulations that opened Indian market to foreign investments (up to 51%) created tempting conditions to enter one of the emerging huge markets of the world.

Alliance with Ranbaxy was a smart strategy for Eli Lilly to establish its presence in India. Ranbaxy was the second largest manufacturing company of bulk drugs and generics with domestic market share of 15% in India with established distribution network and the second largest exporter to different countries, including Russia (which Eli Lilly was attempting to reach), with capital cost 50-75% lower than those of comparable US plant and R&D expenses of 2-5% of sales. Besides, Ranbaxy developed its own process for Eli Lilly’s patented drug Cefaclor. Since Eli Lilly’s product patent for Cefaclor expired in 1992 and the firm was expecting to protect its monopoly with process patents which were due to expire only in 1994, this gave great scope for a mutually advantageous agreement between the two companies. There was also possibility to conduct cheap clinical trials in India.

Although the joint venture ran into problems because of weak patent laws in the country, which prevented the American partner from sharing its research expertise, Eli Lilly obviously, realized the benefits of an arrangement with Ranbaxy in sourcing low-cost basic research from India.

Question 2: Evaluate the three successive IJV leaders. Identify the unique challenges faced by them.

Andrew Mascarenhas was the first managing director and was building the JV’s team, positioning the JV in the market, setting its operations developing the marketing dtrategy and enlarging the staff later on. Challenges he faced included hiring sales force and recruiting doctors and financial people and training them on the company’s philosophy and communicating Eli Lilly’s values and code ethical conduct. He introduced a new scheme of HR management to cope with a high turnover rate. At the end of his managing time the JV reached break-even and was becoming profitable.

Chris Shaw succeeded Mascarenhas and built systems and processes to bring stability to the fast growing organization.

Rajiv Gulati became managing director in 1999. He enlarged the staff even further, to correspond the growing company and created a medical and regulatory unit to handle the product approval processes with the government. At the end of 1990s India went through a number of reforms, which brought the Eli Lilly the challenge to review and evaluate its current strategy.

Question 3: How would you assess the overall performance of the IJV? What did the partners learn from the IJV?

The Joint venture was mutually profitable for the both parties.

Eli Lilly benefited in acquiring low-cost sources of IPIs and clinical trials, possibility to export to Russia, presence on the Indian market sheltered under Ranbaxy’s name as well as knowledge of the Indian market and local peculiarities that Eli Lilly gained through cooperation with Ranbaxy.

In its turn, Ranbaxy, obviously, also realized the benefits of an arrangement with a company that was strong in cardio-vasculars, anti-infectives, and anti-cancer drugs. Ranbaxy obtained good image in the Indian market due to Lilly’s Code of Ethics, practiced by JV’s sales force, it grew and received access to a number of international markets, including the USA.

By 2000-2001 Eli Lilly Ranbaxy JV became almost independent, autarkic; it was growing at 8% annually.

Question 4: What action would you recommend regarding the Ranbaxy partnership? What are the implications (смысл, подтекст) of your recommendations? How would you implement this?

The changing environment brought the challenge to the two leading pharmaceutical companies, Eli Lilly and Ranbaxy, to review and re-evaluate their joint venture alliance.

What was happening on the US market?

Consolidation trend and trend to go back to basics, to high-margined prescription preparation;

Escalating R&D costs;

Longer development and approval time;

Growing competition from generics and follow-up products;

Rising cost-containment pressures;

Prozac going off the patent in 2001.

The situation created the threat of higher competition and the need for new high-potential products.

Changes in India included:

By 2005 product patent recognition

Allowance of 100% foreign investment companies

Internal consolidation, GATT, entrance to WTO

This situation also intensified competition

The two companies, despite their successful venture, had different focuses. Eli Lilly was focused on innovation & discovery while Ranbaxy was concentrated on generics. Now that they grew and mature they could proceed on their own and concentrate on their core activities and have a full control over decision making.

Besides, Ranbaxy was experiencing cash flow difficulties due to its network of international sales and selling its share would have been a chance to improve its financial situation.

Eli Lilly did not launch some of its products due to weak intellectual property in the JV times and because it did not want to give it away to the Indian companies (to receal its secrets). Now it could do so, and do it alone, since the new Indian law allowed 100% foreign capital firms, and the new entities would be granted product patent recognition. Being global price brand Eli Lilly did not want local manufacturing during the JV time, now with new price control and patent protection it can introduce its products to the Indian market.