Eli Lilly in India: Rethinking the Joint Ventures Strategy
I. Brief Summary
Global pharmaceuticals had presence in India since early 80’s and it was not until 1993 that Eli Lilly International decided to establish a Joint Venture with India’s second largest laboratory and exporter, Ranbaxy. This move happened in a very challenging context as both companies have very different profiles and backgrounds. The main differential characteristic was the nature of their products. While Ranbaxy was focused on generics and in other intermediate products, Eli Lilly International core business was the commercialization and development of new drugs through an aggressive R&D strategy. The trigger for Eli Lilly to start thinking of going into India was the liberalization process in pharmaceutical markets as a consequence of the change of the economic model from import-substitution to an export-oriented. The foreign ownership was allowed to be 51% (rose from 30%) and additional free market conditions were expected for the coming years. Despite this trend, there were many restrictions that Eli Lilly would have faced if they did not count with a local partner. These include access to government pharmaceutical and health relevant authorities, an adequate logistics and distribution system, and manufacturing facilities. For Ranbaxy, the main objective was to gain additional market share and increase in sales. The Joint Venture was established, and worked through the years with good results. Ranbaxy (including Eli Lilly) went from the 3rd place in market share in 1996, to the first place in year 2000. Year 2001 brought many variables into the Joint Venture situation. The most important is that government liberalization process continued in a positive trend and at that point of time, foreign investors were allowed to own the 100% of any company in the pharmaceutical industry. This structural change was combined with a relative illiquid situation for Ranbaxy in terms of available cash for additional investments and a need to do so because of many acquisition processes in new markets. Eli Lilly was analyzing how to manage their position in India from 2001 and for the future. Property Rights regulation will recognize patents for many Eli Lilly products and hence the market opportunities could increase for them. The options are to stay/go in India; continue/dissolve the JV; or to buy/sell participation in the JV. From additional information we know that Eli Lilly bought Ranbaxy’s stake in the JV for USD 17mm when some previous analysis gave an indicative value of USD 70m. This reflected a better negotiation position due to Ranbaxy’s needs for cash to continue other projects. About the future of Eli Lilly India, Mr. Rajiv Gulati, Managing Director for India’s Operations, told the press that they will focus on clinical trials of drugs, that they will execute a long-term business and strategic plans, and that they will keep Ranbaxy as a supplier as they will not manufacture products locally. II. Introduction
In the early days of independence, India had no capabilities to produce pharmaceuticals and mainly imported them. This lack of proper chemical industry and the Patent and Designs Act of 1911, almost an extension of the British colonial rule, gave enough incentives for the multinational laboratories to begin exporting drugs from their countries of origin to India. In the decade of 1970s two key changes defined the legal framework under which the pharmaceutical industry would rule its becoming growth: the Patents Act and the Drug Price Control Order. Both encourage local firms to simply copy the drugs from international laboratories by developing their so-called “own” processes. In the other hand, multinational companies began moving out of India. Just before the end of the century, India began embracing globalization, encouraging foreign direct investments and export driven industries within bigger...