Académique Documents
Professionnel Documents
Culture Documents
List of Abbreviations
S. V. R. SUBBA RAO
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vii
Introduction
Ten. Nine. Eight. Seven. Six. Yes, six years are exactly what India has got before it
completely sheds its most protective armour – the Indian Patents Act of 1970 and
embraces product patentsconformingtointernationalstandardsofintellectual property
protection. The countdown began five years ago when India signed the GATT
agreement.
Economic, industrial and corporate soothsayers are busy ever since in predicting
either a doomsday or sunny days for the Indian pharmaceutical industry. For once,
there is no safe middle pathin their predictions.
Impact of GATT
While it is difficult to predict theexact impact of GATT on the Indian pharmaceutical
industry, based on the experiences of other developed countries who have accorded
product patents over the past two decades, experts opine that:
1. Proliferation of the drug companies would be checked. The number of companies
would dwindle.
2. Some of the more efficiently run companies that arenot able to reach the critical
mass would be acquisition targets for the newly entering MNCs or large Indian
companies that are on an expansion spree.
3. Other smaller companies with good manufacturing facilities and practices would
viii
LiberalisationProcess
The government’s efforts to liberalise the industrial and economic environment since
1991 include:
1.Treating MNCs as equal to Indian companies.
2. Automatic approval for 51 per cent foreign equity proposals.
3. Automatic approval for foreign technology agreements.
4. Delicensing of most bulk drugs.
5. Provision of higher rate of return for companies undertaking production from
basicstages.
WTO Requirements
In the light of the transition period allowed as per Uruguay round of GATT resolution,
it was inevitable that less developed countries would delay implementation of new
patent laws in order to allow local manufacturers some breathing time to reorient
themselves. After 2005, however delays will no longer be permissible;India will have
to comply with the following requirements of TRIPS as per GATT resolution:
ix
Advantage India!
All these changes will make the Indian pharmaceutical industry a level playing field.
Neither the MNC sector nor the domestic sector will have any automatic advantages,
although MNCs will have some more advantages than they had in the ‘process patent
raj’asaresultoftheremovalofearlierrestrictions.Atthesametimetheopportunities
for Indian drug companies can be quite considerable. Consider these for example:
1. The marketfor off-patentbrandedgenericswillremainfarbiggerthan for patented
drugs in India even in 2015.
2. Eveninthe highlyindustrialised worldwherealmost the entirepatentableresearch
is takingplace currently, more prescriptionsare written foroff-patentdrugs than
forpatented drugsdue to ever-increasingstringency ofcost containmentstrategies
and measures on health care expenditure by respective governments.
3. The generic drug industry,therefore , will continueto have a strong growth. it is
estimated to reach $ 21 billion by 2005 from $ 14.7 billion in 1997based on sales
of thetop tencountries.Itisestimated that overthe next ten years,on an average
over $ 35 billion per year in branded drugs will be going off-patent opening the
gates to competition from generics.
The Indian pharma industry over the years has developed world-class process
development skills. When you couple this with low labour, capital and research costs
you have winning combination to open the gates of world generic markets. That is
what every Indian pharma major is working at.
chapters.Theseare:
1.Strategicvision
2. Reaching the critical mass
3. The marketing mindset
4. Upgrading technology
5. Focussing on research
6.Integratingstrategically
7.Internationalisingthebusiness
8.Attractingalliances
9.Intellectualcapital
10. Operational excellence
The strategies of these twelve companiesprovide invaluable lessons for the discerning
reader, whether he is an executive who is shaping the future of his company, or an
analyst studying and measuring the corporate performance or a management student
in pursuit of understanding how companies achieve sustainable superior performance.
Pharmaceutical industry: A global perspective 1
1
PHARMACEUTICAL INDUSTRY:
A GLOBAL PERSPECTIVE
Executive Summary
1 PHARMACEUTICAL INDUSTRY:
A GLOBAL PERSPECTIVE
Table 1.1
Top pharmaceutical company deals
The new giants are hoping to get many of their new products from
biotech boutiques that have sprung up in the past decade particularly
in the US. Bigger drug companies have been making deals with
research-intensive firms to get marketing rights to the drugs they are
developing. Drug manufacturers in 1994 alone invested a whopping
$ 1.3 billion in 152 alliances.
Although the industry itself only began to assume importance after the
second world war, several of world’s major pharmaceutical companies
can trace their lineage back to the nineteenth century. Roughly 60
countries now produce at least $ 100 million worth of pharmaceuticals
each year. On a per capita basis, world consumption rose from $ 17 in
1975 to $ 29 in 1990.
The bulk of the world’s pharmaceuticals are manufactured in a very
few industrialised countries. The pattern of drug consumption is much
thesame:overthree-quartersofallmedicinesaresoldinindustrialisedcountries.
Pharmaceuticals have clearly acquired an international character, but
the industry is still not a global one, in the same sense as textiles, food
processing or even steel.
The contrasts are equally great when the attention turns from countries
to firms. Less than 50 multinationals account for almost three-fourths
of world’s production and exports each year.
The top ten pharmaceutical companies in the world accounted for
$ 71.2 billion in 1994 (Table 1.3).
The largest among these in 1994 was Glaxo Wellcome. The company’s
revenues in 1994 were $ 12 billion, an amount exceeding the entire
pharmaceutical production of Latin America, Africa, India and China in
that year.
Table 1.2
Population and pharmaceutical production
Table 1.3
Total 71.2
Integrated Corporations
The integrated corporations are multinationals distinguishable in
several ways. Firstly, they are exceptionally large; with annual sales of
over $1 billion. Secondly, they place particularly high emphasis on
product development, generating the New Molecular Entities (NMEs).
Thirdly, these firms adhere to several well-defined methods of
operation. They secure patents for their inventions at a global level.
They market and distribute their products in a number of countries
through subsidiaries or licensees. They purchase intermediate inputs
only from approved vendors. They market their products under brand
names and compete predominantly in the private market.
Innovative Companies
Innovative companies are easily distinguished from integrated
companies. Annual sales of these companies are comparatively modest
ranging between $ 50 to 300 million. They may be capable of developing
and discovering NMEs . Their revenues are not sufficient to fund the
massive research and development activity that drug discovery programs
require. Their resources are not adequate to market and distribute
their products even if they are able to develop an NME. The innovative
firms, therefore, usually resort to licensing arrangements to market
their products abroad. Innovative firms also enter in to joint venture
agreements for clinical research and product registration of their
promising new product candidates with specialised developmental
research companies or with other innovative and even integrated
companies in other countries. Such strategies to overcome resource
Pharmaceutical industry: A global perspective 9
Imitative Companies
Imitative companies are small in size and are usually family-owned
enterprises. As they lack in-house research and developmental
capabilities, they utilise technological and scientific knowledge developed
by others to manufacture their products. The drugs they produce are
patent-expired and they compete in the highly price sensitive markets.
They often focus on specific regions and on highly price sensitive
segments like institutional and tender business.
CROs
Another, much smaller sub-set consists of firms such as Alza, Elan and
Theratech, which specialise in the development of new therapeutic
systems providing controlled-release oral and transdermal
pharmaceutical preparations for new and established drugs. There are
some other firms, which offer products and services on a contractual
basis. These firms may specialise in the synthesis of new compounds,
in-vivo studies, clinical trials, product registration and so on.
Demographic Effects
Pharmaceutical markets are being reshaped by two types of
demographic trends – rates of population growth and changes in the
age structure. Most countries fall clearly into either of two groups,
depending on the overall demographic pattern. In one group are
countries where the total population is constant or declining, while
the median age is rising. In another group are countries experiencing
a rapid increase in population although the median age is low and not
increasing. Consider these facts:
Population of many industrial countries is stagnating or is declining.
Consequently, the aging process will be quite rapid in these countries.
One-sixth of all Germans will be over 65 by the year 2000 and by
2010 half the country’s population will be 50 years old. The
population of Canada, Italy and Japan are younger but aging rapidly.
Pharmaceutical industry: A global perspective 11
however, has steadily fallen in later years and by 1990, less than 15 per
cent of all pharmaceuticals were sold in developing countries.
Developed countries accounted for the lion’s share of 85 per cent.
It is important to note that population increases, however rapid, do not
by themselves lead to a substantial growth in pharmaceutical markets.
Other factors such as income growth, higher priority for health care by
governments, literacy levels and consequent awareness and importance
attached to personal health are probably more important determinants.
Changing Scenario
The pharmaceutical companies have to be global in a much tougher
market. Robert C. Holmes, Executive Director for Strategic Planning
and Management at Astra Merck, presented a vivid picture of the
changing scenario of the drug industry sometime ago in an interview.
“The drug industry had been a very profitable gentleman’s club. All
could make money and there was no pressure on prices. The doctors
determined the treatment. Then came the health care debate and a
revolt against double-digit inflation. The whole industry’s dynamics
changed. It became more competitive. Now the people are very
conscious of costs and the consumer is involved. So to cut costs health
organisations, for example, look at the 12 ACE inhibitors, which
control blood flow and pressure and may be put just two on the
formulary and then negotiate the price of these two with the respective
pharmaceutical companies. In the 1980s all 12 could sell profitably.
The market for secondary products is disappearing. You have to be
the first or second to the market. A second generation of somewhat
better drugs that have fewer side effects but are six times as expensive
as the ACE inhibitors came to market in the 1990s with a much
reduced potential. Until the 1980’s a “me-too” drug could be brought
out at lower risk than the trailblazer with prospects of selling very
well (and with a patent that would last beyond the patent of the first
drug). Peak-year sales of a late entrant could run into a billion dollars or
more, but today the follow-on drugs best year would not exceed $ 500
million.”
18 Game plans for post-GATT era
currently account for only 20 per cent of the total pharma market
will increase their share to a third by 2005, growing at 15–19 per
cent as compared to the average growth rates of 7–8 per cent in the
industrialised markets like the US, Europe and Japan.
6. In the new millennium the protection for intellectual properties will
be much stronger than in the past. Almost all countries with local
pharmaceutical industries will join the WTO. Those who do not
join will find it extremely difficult to survive the competitive pressures
and will not have access to newer drugs.
7. The current biotech revolution will only accelerate and gain
momentum further. The research pipeline of biotech companies
will be very deep with an unprecedented promise to treat, hitherto
difficult-to-treat diseases. The Genomics is another area, which will
have a profound impact on the bio-pharmaceutical industry. It may
eventually provide remedies for diseases like Parkinsons,
Alzheimer’s, cancer, AIDs and other infectious diseases. Robert
Thong, pharmaceuticals industry consultant with Renaissance
Worldwide, compares the current situation to the revolution in
information technology 15 years ago, which saw a raft of computer
giants swept aside by the new and faster kids on the block. He says,
“There is a chance for the Microsofts and Netscapes of the
pharmaceutical industry to emerge, but we don’t know who they
are yet!”
8. In addition to mergers and acquisitions, strategic alliances too will
be on the increase, particularly in the area of biotechnology and
genomic research. Scientists will be able to identify the precise
molecular defect responsible for the disease state. They will also be
able to develop the magic (molecular) bullet to set the defect right
with great precision. These target-specific drug delivery systems will
be the engineering marvels of our times. Companies that do not
have these capabilities will naturally source the technology that will
be needed for their own products to deliver what they promise.
9. Inspite of the dramatic new medical advances and the
unprecedented progress, that the Human Genomic Project may
make, the rich and poor divide will remain. These advances may
not be available to the third world. Those, who need them the
most, may not be able to afford them even in the next fifty years.
20 Game plans for post-GATT era
34 Game plans for post-GATT era
3
GATT – A THIRD WORLD
PERSPECTIVE
Executive Summary
Anti-dumping Actions
Anti-dumping actions have increasingly become the cutting edge of
restrictive trade policies. Though GATT’s anti-dumping rules have
tightened, they still leave national authorities considerable leeway to
treat unfairly, with the possible outcome of a slow-down in the growth
of imports. Some observers have found that the Uruguay round failed
to deal adequately with the increasing use of anti-dumping measures to
harass legitimate trade. As important players in the world export markets,
it is necessary for developing countries to devise a more rational method
of calculating dumping margin and better multi-lateral surveillance of
anti-dumping investigations.
Fewer Subsidies
Subsidies are now classified as:
Red Category: Prohibited
Non-agricultural export subsidies and subsidies
contingent on domestic content requirement.
Yellow Category: Certain low levels of assistance to cover operat
inglosses, allowing unprofitable firms to stay
in business instead of retrenching. These can
be challenged if they harm the trading interests
of other countries.
Green Category: Regional aid, environmental infrastructure and
R&D – if they are provided within limits. How-
ever, even these can be challenged, if they have
serious adverse effects on the trade interests of
other WTO member states.
40 Game plans for post-GATT era
Static Gains
Static gains result from less distortion to production and consumption,
and a consequent reallocation of resources. A GATT study on static
gains suggests that when it is fully implemented (Uruguay round), global
trade will increase by $ 750 billion (in 1992 dollars) or by about 12 per
cent over the level that otherwise would exist in the year 2005. If exports
of developing countries benefit in proportion to their trade in
manufactured goods, their export gains would total about $ 200 billion.
Larger export and import gains should induce static income gains, on a
global basis, of about $ 250 billion per year (in 1992 dollars) after 10
years. The developing country share of this gain is probably a quarter or
approximately $ 60 billion.
Dynamic Gains
Dynamic gains arise from stronger competition within economies,
higher investment rates, greater efficiency and thus faster growth. The
dynamic gains, while harder to measure, are likely to be more important
than the static gains.
be not only between those who know and those who do not know,
but also between the useful and the less useful, both nationally and
internationally. Countries that are not useful in the global economy,
countries that do not make any effort or fail to be relevant, could be
bypassed, marginalised and relegated to the periphery for decades to
come.”
Life after GATT in Indian pharmaceutical industry 45
4
LIFE AFTER GATT IN INDIAN
PHARMACEUTICAL INDUSTRY
Executive Summary
Table 4.1
Top ten companies: MNCs Vs Indian
MNCs
Rank Company Sales Market
share
1 Glaxo Wellcome 657.3 6.8
2 Hoechst Marion Roussel 325.5 3.4
3 Knoll Pharmaceuticals 230.6 2.4
4 Pfizer 211.6 2.2
5 Novartis 204.1 2.1
6 SmithKline Beecham 171.6 1.8
7 E Merck 152.7 1.6
8 Parke Davis 151.4 1.6
9 John Wyeth 129.9 1.3
10 Rhone Poulenc Rorer 110.1 1.1
Total 2344.8 24.7
Indian sector
Rank Company Sales Market
share
1 Ranbaxy 511.9 5.4
2 Cipla 400.7 4.7
3 Torrent Pharma 231.9 2.4
4 Lupin Labs 231.2 2.4
5 Alembic 230.9 2.4
6 Piramal Group 215.8 2.2
7 Cadila–Zydus 194.7 2.0
8 Cadila Pharma 168.7 1.7
9 Aristo Pharma 165.5 1.7
10 Ambalal Sarabhai 158.7 1.6
Total 2509.1 25.9
Source: Data derived from the Retail Store Audit of ORG-MARG, September,1998
50 Game plans for post-GATT era
Sunset Scenario
Many of the Indian owned pharmaceutical companies which are grouped
under the IDMA ( Indian Drug Manufacturer’s Association), supported
by many politicians and consumer activists, present a ‘Sunset Scenario’.
They oppose product patents and think that it will spell the doom of
the Indian pharmaceutical industry.
Under this scenario, there will be a drug price explosion as soon as
product patents are recognised. Imports will soar. Exports will dry up.
The Indian-owned pharmaceutical companies will be largely wiped out
by multinational patent power with its accompanying exclusivity of
marketing. There will be a reversal of fortunes from being a net exporter
to an import-dependent industry.
Sunrise Scenario
By contrast, the members of the Organisation of Pharmaceutical
Producers of India (OPPI), who include all research-based multinational
drug companies operating in India and a number of progressive,
forward-looking Indian pharmaceutical companies present an
optimistic ‘Sunrise’ scenario. They are supported by a significant number
of independent experts and observers.
The ‘Sunrise’ scenario projects the impact of full patent protection as
a galvanising force for pharmaceutical industry in India. It foresees:
A fundamental change of attitude towards India on the part of
multinationals, with a renewed willingness to invest and conduct R&D
locally after decades of clamping down on Indian commitments.
Increased collaboration between multinationals and Indian companies
in the development and marketing of patented drugs.
The transition of the more advanced Indian companies from a drug
copying culture to a research-based strategy with its own aspirations
to eventual multinational status.
The advocates of both scenarios are striving to enlist the most important
player in the political triangle – the Indian government – on their
side. The proponents of the ‘Sunset scenario’ appeal to the government
to maintain status quo of the Indian Patents Act of the 1970. The
Life after GATT in Indian pharmaceutical industry 51
Table 4.2
Source: ORG – MARG’s ‘ Milestones – Book of Papers’, Client conference, Mumbai, 1998 and
Orange Book
Opportunity Horizon
The opportunity horizon for the progressive Indian drug companies is
indeed very wide. Indian companies are low cost producers. Consider
these opportunities on the horizon for Indian companies:
1. Marketing of branded generic formulations in home country.
2. Marketing of bulk actives and intermediates in home country in
addition to captive consumption.
3. Marketing of branded generic formulations in countries with little
or no intellectual property protection.
4. Marketing of bulk actives of off-patented drugs in highly regulated
markets with strong intellectual property protection.
5. Marketing generic formulations of off-patented drugs in regulated
markets with strong IPR protection.
6. Marketing branded generic formulations of difficult-to-make, off-
patent-yet single-source drugs in regulated markets with strong IPR.
7. Marketing formulations of patented drugs through licensing
arrangements in home country and select international markets.
8. Custom synthesis for bulk active substances of patented and off-
patent drugs under secrecy agreements with multinational firms.
Life after GATT in Indian pharmaceutical industry 59
Future Positive!
The wide opportunity horizon by itself should convince the sceptics
about the opportunities in the product patent regime. The future for
Indian pharmaceutical industry can be very optimistic for the positive
minded. Consider these facts for example:
India’s process developmental skills are very well known by now.
The technological capabilities too are evident from the fact that India
exports pharmaceutical substances, drug intermediates and dosage
forms of off-patent drugs not only to the developing and third world
countries with little or no IPR protection, but to the highly regulated
first world countries as well. There are more than thirty
manufacturing facilities in India today, which are approved by the
US FDA.
In less than three years after launching the ‘drug discovery programs’,
two companies – DR. Reddy’s Labs and Ranbaxy have developed
and filed international patents for new chemical entities. They have
completed pre-clinical research and are entering the clinical research
phase. DR. Reddy’s have even licensed their molecule to the Danish
drug major, Novo Nordisk. Wockhardt too has identified lead
compounds in the anti-infective segment and is looking for an
international partner to take these through further development,
registration and to commercialization worldwide. Other companies
like Lupin, Torrent, Sun Pharma and Zydus group are gearing up to
launch their respective drug discovery programs.
With a large pool of scientific talent comparable to the best in the
world, huge manufacturing infrastructure and process development
skills that are world class, Indian pharmaceutical industry is on the
threshold of emerging as a leader among the developing countries
in pharmaceuticals. A strong protection of IPR would only facilitate
and accelerate this process.
60 Game plans for post-GATT era
5
GAME PLANS FOR POST-GATT ERA:
THE INDIAN EXAMPLE
Executive Summary
track and monitor the signals of change. Like in war, in business too
forewarned is forearmed!
The challenges faced by the Indian drug industry are at two levels.
One is at the functional level of marketing which essentially revolves
around the improvement of operational efficiency and effectiveness.
The other is at the organisational level. Marketing is not to be viewed
in the relatively narrow functional level but in a much broader per-
spective encompassing the whole organisation. This holistic view of
marketing has been emphasised by management practitioners as well
as by theoreticians. Consider these for example:
“There is only one valid definition of business purpose: to create and
keep a satisfied customer. It is the customer who determines what the
business is. Because its purpose is to create a customer, any business
enterprise has two – only two – basic functions: marketing and innova-
tion. Marketing is the whole business seen from the point of view of its
final result, that is, from the customer’s point ofview”. (Drucker)
“Marketing is too important to be left to marketing people”. (Managers
of General Electric)
Marketing therefore is not a mission for the marketing managers alone,
while therest ofthe organisationgoes aboutits businessas before.It is
the responsibility of the whole management of the company to see the
business from the customer’s view point. The key questions for the
senior management towards meeting the future challenges are:
Is our action agenda mostly offensive or defensive?
Are we devoting too much energy to preserving the past and not
enough to creating the future?
What percentage of our improvement efforts (quality, customer ser-
vice, innovation, operational excellence) focuses merely on catching
up with our competitors?
Catching up is necessary, but it is not going to turn an also-ran into a
leader. Defending today’s leadership is no substitute for providing
tomorrow’s leadership, and market leadership today certainly does not
equal market leadership tomorrow. This requires clear, well-defined
answers for these key questions. Consider these questions that Gary
Hamel and C.K. Prahlad have suggested in their insightful article in
68 Game plans for post-GATT era
Today’s Questions
Which customers are you serving today?
What channels do you use to reach customers today?
What is the basis for your competitive advantage today?
Where do your margins come from today?
In what product/markets do you participate today?
Tomorrow’s Questions
Which customers will you be serving in the future?
What channels will you use to reach customers in the future?
What will be the basis for your competitive advantage in the future?
Where will your margins come from in the future?
In what product/markets will you participate in the future?
Some Indian drug companies have started asking these questions about
the future and have been gearing up to meet the challenges involved.
Acarefulanalysisof thehigh-profile initiativestakenbysomeaggressive
Indian pharma companies like Ranbaxy, Dr. Reddy’s, Lupin, Cipla,
Torrent, Wockhardt, NPIL and Sun Pharma suggests that there is a
pattern which emerges from their game plans. There is a common
thread that runs through their carefully woven strategies. There may
be some differences in the relative importance given to various strate-
gic elements. Here is a broad outline of their action agenda for effec-
tively competing in the post-GATT era.
1. Strategic Vision
A vision is merely an idea or an image of a more desirable future for the
organisation, but the strategic vision is an idea that, in effect, jump-
starts the future by calling forth the skills, talents and resources to
make ithappen. A strategic vision essentially does four things:
1. It attracts commitment and energises people across the organisation.
Game plans for post-GATT era: The Indian example 69
3. Marketing Mindset
Achieving a dominant position in a therapeutic segment requires a fo-
cused marketing strategy like careful selection of product-mix in terms
of both width and depth, superior customer service programs, target-
specific communicationstrategies inrelevant therapeuticand prescriber
segments. Above all, one needs a strong customer-orientation.
4. Upgrading Technology
Upgrading technology is a must not only for growth, but is vital even
for survival in the rapidly changing pharmaceutical industry in India.
Upgradation of manufacturing facilities to international regulatory
standards like US FDA, UK MCA (Medicine Control Agency), and
Canadian HPB (Health Protection Bureau) are essential prerequisites
toexport pharmaceuticalsubstances and formulations tothese countries.
5. Focusing on Research
The pharmaceutical industry is highly research-intensive. Process
development is an area where Indian companies have excelled over the
years and have brought the country a net-exporter status. The R&D
investment currently is a tiny 1.5 percent on average by Indian pharma
companies as compared to the 12–18 percent by multinational
70 Game plans for post-GATT era
6.Integrating Strategically
Strategic integration – be it backward integration to manufacture phar-
maceutical substances by a manufacturer of formulations or a forward
integration to manufacture formulations by a manufacturer of pharma-
ceutical rawmaterials – offers adistinct competitiveadvantage. Control
on input costs, continuous supply, quality and even unique customer
perceptions are some of the important advantages that strategic integra-
tionoffers.
8. Attracting Alliances
Collaborate tocompete seems to bethe newstratagem in the international
business arena. In aresearch-intensive sectorlike the pharma industry,
more and more strategic alliances are being formed every day. To pool
Game plans for post-GATT era: The Indian example 71
9.Intellectual Capital
Technology upgradation, and R&D effort are highly investment inten-
sive.They requirehuge outlaysofcapital. Internationaloperations too,
require large up front investments for product registration and market-
ing thrust. A company that is profit making, with an impressive track
record, clearly defined and well crafted strategy and a high degree of
transparency in its transactions can attract huge investments from the
capitalmarkets. Inthe final analysis, the key determinantof effective-
ness or success is a healthy bottom line. This can be achieved only by a
systematic approach to all aspects of business and uncompromising
standards in operations across the board. Generating surplus is essen-
tial andonly companies with high profitability caninvest strategically
for future growth. What can generate substantial surplus other than
intellectual capital in the new knowledge era that is changing the way
business are run world over? Companies need to focus on building and
developinga strongbase ofintellectual capital.It isno longera matter
of choice.It is rather mandatory!
6
STRATEGIC VISION
Executive Summary
6 STRATEGIC VISION
values. It has worthy goals and aspirations. Some times you reach them.
Some times you don’t. But you always try because it is the right thing to do.
Here are some examples of vision and mission statements articulated by
some of the leading Indian pharmaceutical companies. Neither all of
them are official vision or mission statements. Nor are they widely
communicated and shared across their companies. All of them however,
have concepts, gameplans, strategies, goals or dreams straight out of the
horses’ mouths – all of them are either statements made by their
respective CEOs in interviews to the business press or in corporate
advertisements, brochures and annual reports.
Some of them are in the form of specific corporate goals in the short
and medium term. Some goals are even for the long term. Others are
value statements, principles and game plans. All of them clearly
communicate what the company is or does or what it intends to do.
They all are declarations of their strategic intents. Consider these:
Ranbaxy
Ranbaxy has clearly been the intellectual leader of the Indian
pharmaceutical industry. What seperates Ranbaxy from the rest of the
industry is its ability to spot change and assess its impact quickly.
When the Indian drug industry was viewing exports as a necessary evil
(to get import licenses), Ranbaxy thought otherwise. It considered ex-
ports as an opportunity as early as the 1970s. Since drug prices are
higher in overseas markets, exports offer an opportunity for higher
price realisations for the price controlled Indian drug industry.
Again in 1992, when the entire Indian industry was raged against the
Dunkel draft, which advocated a strong product patent regime, Ranbaxy
accepted the new era as an evolution that every company had to be
ready for. The logic was simple. You cannot be a global player by following
one set of rules in your home country and another in the developed
markets.
As early as 1992, Dr. Parvinder Singh, the chairman of Ranbaxy had
articulated the company’s vision to be a research based international
pharmaceutical company with a turnover of $ 1 billion by 2003. He
knows that highly successful companies use their mission statements
Strategic vision 79
to ‘gather the troops’ and effect a new corporate culture and behaviour.
He is probably the only chief executive in the Indian pharmaceutical
industry, who communicates through the monthly missives, ‘from the
CEO’s desk’ – directly with each employee highlighting the objectives
of the organisation as well as his concerns. The highlights of Ranbaxy’s
strategic vision and mission are:
1. To become a research-based international pharmaceutical company.
2. To achieve a sales turnover of $ 1 billion by 2003.
3. To achieve a minimum 0.5 per cent share of the market within five
years of entry.
4. To focus on building 25 global brands in all markets including India.
5. To be among the top three international generic companies in the
world by 2015.
Cipla
Technology and marketing are core competencies of Cipla. Cipla has
built an enviable manufacturing infrastructure in the Indian
pharmaceutical industry. Its process development skills too are
80 Game plans for post-GATT era
among the industry’s best. Its strategic vision amplifies its values and
objectives:
A. To achieve technological leadership in the domestic market.
B. To achieve quality not to just meet the regulatory requirements but
to meet the ultimate requirement of quality – the requirements of
the customer and the market place.
C. To exploit the opportunity that the liberalized environment has given
the Indian companies by using the technological strengths to expand
overseas.
D. To set up at least one production base in each region and then
leverage these bases through technical tie-ups and franchising
agreements. Initially all these tie-ups or joint ventures will
manufacture and market only formulations. Once these
international markets take shape, the ventures will move into the
manufacture of bulk drugs through backward integration. Cipla will
provide the required technology.
E. To achieve over one third of turnover through exports by the year
2000.
Lupin
Lupin’s strategy can be described in one word – Focus. The company
focused first on the anti-tubercular market in India, which accounts
for half of the T B cases in the world. It has integrated backward and
gone whole hog to become a leading anti-TB player in the world. The
next area of focus for Lupin has been the huge $ 10 billion world
cephalosporin market, in which a number of major molecules are going
off-patent in the next few years. The company has become a fully
integrated cephalosporin player to become competitive. It has made
strategic acquisitions and alliances to ride the first wave of generic
cephalosporins in the US and Europe. Lupin has set itself a very
ambitious goal of achieving $ 1 billion in sales by 2003. It has upgraded
technologically to a world class level and has been focusing on research
to become a vertically integrated international generic company. The
salient features of its strategic vision and mission are:
1. To upgrade technology to world class level.
Strategic vision 81
Wockhardt
Habil F. Korakhiwala, chairman of Wockhardt believes that speed is
necessary for staying ahead, which is what competition is all about. He
has certainly ensured this, for Wockhardt has always been ahead of the
industry in terms of profitability. He has steadfastly built Wockhardt
into one of the Indian drug majors, which is ready to compete in the
post-GATT era. His strategy has been a classical one. The company has
regained its focus by pulling out of unrelated diversifications into real
estate and put a hold on its hospital and diagnostic businesses at the
suggestion of McKinsey, the leading international consultancy firm
specialising in strategic issues. It is also one of the biggest spenders on
R&D in India. Wockhardt is bang on target on its key strategic objectives.
A. To achieve Rs. 10 billion in sales by the year 2000.
B. To reach a critical mass through acquisition and organic growth. Set
aside Rs. 2 billion for acquiring pharmaceutical brands and
companies.
82 Game plans for post-GATT era
Nicholas Piramal
Six acquisitions and seventeen strategic alliances in 10 years. That should
describe the strategic vision of Nicholas Piramal. The company believes
in having a large number of products in its portfolio instead of depending
on a few strong brands. It would like to grow by individual companies
while others grow by individual products. The company has recently
filled an important gap in its overall strategy – focus on research and
development – through its acquisition of the Hoechst Research Centre
at Mumbai. Nicholas Piramal is the only Indian pharmaceutical company
which is planning to be a leading player in the counter drug market in
addition to the prescription drug market. It has also very big plans to
set up clinical research facilities in India.
1. To be among the top three health care companies in India by the
year 2000.
Strategic vision 83
Torrent
Torrent has been the first Indian pharmaceutical company to exploit
the opportunities in speciality therapeutic segments like psychiatry,
cardiology and gastroenterology. It has become a trendsetter and a role
model to other companies like Sun Pharma and Intas. Many other
pharma companies are now focusing on these speciality segments.
Torrent now has embarked on a massive business diversification
program into unrelated areas like power generation and manufacturing
of cables etc. The company has, however, regained its focus and is
planning aggressively to build up its pharma business to become a major
player. It has also built a state-of-the-art research and development
facility and launched its drug discovery program and has met with an
early success in developing a NCE in cardiovascular area. Torrent
describes itself as ‘the great Indian tomorrow.’ The company’s strategic
objectives are:
A. To reach the leadership position.
B. To become the most integrated pharma company in India.
C. Focus on exports.
D. Step up research and development activity and launch drug discovery
program.
E. To gain access to new products, technologies and markets through
strategic alliances.
84 Game plans for post-GATT era
Sun Pharma
Right from inception Sun Pharma has chosen the path of least resistance.
It has focused on speciality segments. The company firmly believes that
the road less travelled need not necessarily be long. Mergers and
acquisitions have been the major growth drivers for Sun Pharma. To
sustain growth, the company has created six strategic business units,
which will focus on different therapeutic and prescriber segments. Sun
Pharma has also concentrated on exporting bulk actives of speciality
drugs and marketing of branded generics in international markets.
Strategic vision 85
Ipca
What are the three most important areas of focus at Ipca? Backward
integration in bulk drugs. Brand building in marketing of formulations.
Export thrust. These three areas have helped Ipca reach a critical mass
of Rs. 3.3 billion in fiscal 1998. The company has embarked on a major
product diversification plan. It is expanding its therapeutic coverage
with a massive new product launch plan: about ten new introductions
per year. It has already introduced ten new products in 1998 and is
planning for ten more in 1999. Here are the strategic objectives of the
company:
1. To achieve a sales turnover of Rs. 3.3 billion in 1998–99.
2. To extend the therapeutic coverage through aggressive new product
introduction.
3. To grow at a minimum rate of 20 per cent per annum.
4. To concentrate on exports of bulk actives and drug intermediates to
developed markets.
5. To target developing markets in South East Asia, Africa, Middle
East and the CIS for formulation exports.
6. To optimise the capacity utilisation through contract manufacturing,
approved by international regulatory authorities for select overseas
companies at its facilities.
86 Game plans for post-GATT era
Kopran
Kopran in a bid to enhance its presence in domestic as well as
international markets has started a massive restructuring exercise. It is
also forging a series of tie-ups with leading players to sharpen focus on
the value added formulation business.
Kopran will spin off its semi-synthetic penicillin business into a separate
company called Kopran Drugs Limited.
The company is also hiving off its research division as a separate profit
center called Kopran Research Labs.
Kopran is recasting itself by forming three SBUs. These strategic
business units will operate in different therapeutic areas like respiratory
products, speciality molecules and the general marketing division,
marketing the remaining products. Kopran will expand their field
force to 750 by end 1998.
To boost its exports of bulk drugs, drug intermediates and off -patent
generic formulations in regulated markets like the US and Europe,
Kopran has entered into a number of strategic alliances.
Orchid
Orchid has started as a 100 per cent export-oriented bulk drug
manufacturer with focus on cephalosporins. It has built a world class
manufacturing facility and been exporting its bulk actives to major
international world markets including US and Europe. Having reached
a turnover of Rs. 2.4 billion in the fiscal 1997 with exports of bulk
actives and drug intermediates, the company is planning a major
expansion program in bulk drugs and is integrating forward into
formulations. The essence of its strategic vision is:
1. To become the most integrated Cephalosporin producer in the
world.
2. To achieve cost leadership.
3. To diversify into all the six basic process technologies.
4. Product strategy with an eye on patent protection trends.
5. To create world class manufacturing facilities.
Strategic vision 87
Vision 2020
What is the ultimate goal of a generic manufacturer in a developing
country like India? Ask these companies, they all would say in unision:
to become a research-based international pharmaceutical company. That
is what at least ten of these companies are planning or preparing
themselves to become. The journey or the transition, or perhaps the
metamorphosis from a generic manufacturer to a research-based
international pharmaceutical company is tough and arduous to say the
least. The evolutionary process (Table 6.1) would take anything between
88 Game plans for post-GATT era
Table 6.1
Evolution of a research-based pharmaceutical company
2 Branded Generic Backward integration into bulk actives and
drug intermediates
Upgradation of technology to internat stan-
dards and international regulatory approvals
Formulation development capabilities
3 International Generic Stepping up investment in R&D
company Strategic company alliances
4 Research based interna- Innovative research
tional pharmaceutical
company
Strategic vision 89
7
REACHING THE CRITICAL MASS
Executive Summary
Acquisition Route
Mergers and acquisitions have promoted growth for over a century in
the West, most of all in corporate America. It is clear that mergers and
acquisitions have become a staple of the world pharmaceutical indus-
try. The many transactions that have been concluded in the last five
yearsamplytestifytothis.
The Indian drug industry too seems to have been caught by the acqui-
sition and merger bug. Piramal, Ranbaxy, Sun, Wockhardt and Dr.
Reddy’s have been on the prowl and account for almost all the drug
industry mergers and acquisitions (companies as well as brands), in In-
dia duringthe last three years.
History shows that acquisitions are one of the surest ways of accom-
plishing ambitious corporate growth targets with acceptable returns.
Buying a business can be favorably compared with expanding an exist-
ing line of products, starting up an entirely new venture or entering
into a halfway arrangement such as a joint venture, passive investment
or marketing alliance. Compared with these alternatives, buying an
established business can be a preferable development strategy for four
key reasons:
1. Less risk. Established businesses that are acquired have a developed
customer base, a verifiablefinancial trackrecord and a demonstrated
product line. The prospective acquisition has long ago passed the
most riskyphaseofcorporate life,the start-up.
Reaching the critical mass 95
Winning Moves
There are at least 12 to 15 pharma companies that are preparing vig-
orously to compete in the post-GATT era. Their corporate workouts
are indeedvery rigorous.Their strategicapproach isto reachthe criti-
cal mass in all key functional areas that are crucial for success in the
product patent regime. All these successful companies have been fol-
lowing four broad strategic routes. These strategic highways are:
A. Mergers and acquisitions: The fastest way to reach the critical mass
is of course the M&A route. Mergers and acquisitions provide in-
stant access to products, markets and technology. The sudden flurry
of mergers and acquisitions across the industry and across borders
clearly indicates the rushcompanies are in, to achievethe critical
mass.
B. Strategicalliances: Another routethat isbriskenough,ifnotasfast
as mergers and acquisitions to reach the critical mass is through
strategicalliances.Thealliance routetoo,helpsgainafasteraccess
to products, markets and technology. In the case of acquisitions
you own them and, in the case of alliances, you share them. No
wonder that there is a dramatic increase in the number of alliances
forged by Indian companies of late, now that the product patent
eraisareality.
C. New products: New products are the lifeblood of any business. All
Reaching the critical mass 97
these twelve companies have been pursuing very aggressive new prod-
uct introductionstrategies. Theyaccount fora fifthof allnew prod-
ucts introduced in the Indian pharmaceutical industry during 1998.
Between them they have introduced 128 new products, which ac-
count for a quarter of the industry’s new product sales during the
year.
D. Expansion strategies: Business expansion into new markets, whether
they are new therapeutic segments or new geographical markets, is
vital not only for growth but is essential even for survival. And
business expansion strategies, bydefinition, require structural ad-
justments and changes to manage complexities of growth and diver-
sification. Re-engineering of business processes and even
organisational structures, therefore become necessary. These com-
panies have been quick to adopt a dynamic approach towards struc-
turingtheir operations.
Ranbaxy
Ranbaxy has a very clear idea of the critical mass it wants to reach
to become a research-based international pharmaceutical company;
$ 1 billion by 2003. The company has been aggressively pursuing a
strategyof internationationalisingits businessand consolidationof its
domestic market position. It has worked out a detailed plan till 2003
for achieving the $ 1 billion target. Mergers and acquisitions are an
important element of its growth strategy.
Considerthese facts:
A. Mergers and acquisitions: Ranbaxy has taken over Croslands Re-
search Laboratories through a merger in 1996. By this, Ranbaxy
gained an instant access to the fast growing therapeutic segments
of dermatalogicals and orthopaedics. It has also added a turnover
of Rs. 760 million to its sales and 0.6 per cent share of the Indian
pharmaceutical market through this merger. Furthermore, the
product-mix acquired has higher gross margins.
The company has picked up a 30 per cent stake in Hyderabad-based
Vorin Laboratories, a manufacturer of ciprofloxacin and norfloxacin
bulk actives and drug intermediates. This has given the company
98 Game plans for post-GATT era
customer coverage. The company’s 560 strong field force has achieved
an enviable reach, covering customers across different prescriber
segments. The company has achieved the distinction of the fastest
growing pharmaceutical company among the industry’s top thirty
sincethemerger ofits divisions.
Cipla
Cipla’s technological strength is widely acknowledged both in India
and abroad. The company, over the years, has built an enviable
manufacturing structure. Three of its manufacturing plants have
been approved by all major international regulatory authorities. Its
product portfolio too, is both wide and deep, covering various
therapeutic and prescriber segments. The company, naturally is not
keen on acquisitions.
The process of internationalisation began only a few years ago at Cipla.
It has made rapid progress within these three years. It has formed seven
strategic alliances with overseas partners, essentially to gain market
access. The basic structure of allthese alliancesis thatCipla provides
technology and products and the alliance partners abroad provide
marketing support and distribution net work. Some of these alliances
could culminate in full-fledged joint ventures involving local manufac-
turing, once they make the required progress.
Cipla’s game plan is to have at least one manufacturing facility in each
of the major geographical regions.
Cipla has been a very aggressive player in terms of new product
introductions. In fact, it has been oneof thefirst-movers inalmost all
its new product introductions. That explainsthe largeproduct portfolio
it has and the kind of customer franchise it enjoys. It hasintroduced 25
new products in1988, which have contributed Rs. 53.6 million in sales.
Cipla has two maketing divisions – Cipla and Protec – for promoting
its productsacross differentprescriber segments in India.
Lupin
Lupin, like Ranbaxy is chasing a criticalmass of $ 1 billion by 2003. Its
priorities too are the rapidly expanding generic markets in the US and
102 Game plans for post-GATT era
Wockhardt
Wockhardt has a clear focus. It is a determined player in the fiercely
competitive Indian pharmaceutical industry. Determined to become a
vertically integrated international pharmaceutical company. The com-
pany has been using a judicious blend of acquisitions and alliances to
reachtheobjective.
Reaching the critical mass 103
Nicholas Piramal
Acquisitions and alliances drive Nicholas Piramal’s business strategy.
Ajay Pirmal entered the pharmaceutical industry through the acquisi-
tion route. He acquired Nicholas Laboratories in 1988 and grabbed
every opportunity that came along. He stormed in to the top-ten league
in Indian drug industry in ten years – entirely through acquisitions.
A. Mergers and acquisitions: Five acquisitions in ten years (1988–
1998) to reach a critical mass of Rs. 5.42 billion. Acquired the In-
dian subsidiary of Roche in 1993 and increased market share by 0.6
per cent. Took over Sumitra Pharmaceuticals, the Rs.600 million
bulk drug manufacturer in 1995 to achieve backward integration.
Acquired the Indian subsidiary of Boerhinger Mannheim in 1996
and increased market share instantly by 0.5 per cent. These acqui-
sitions have given the group an increased market share, extended
therapeutic coverage to more profitable speciality segments like
cardiology, neuro-psychiatry, oncology, haematology etc. The ac-
quisition of Boerhinger Mannheim has given access to (and the
leadership position), virtually overnight, the new rapidly growing
diagnostics business overnight. The group has acquired what has
Reaching the critical mass 105
Nicholas 1988
Roche 1993
Sumitra Pharma 1995
Boerhinger Mannheim 1996
Hoechest’s R&D Centre 1998
B. Strategic alliances: Nicholas Piramal has also been working to build
a manufacturing infrastructure that is comparable to the best in
the world, even while acquiring companies with the insatiable ap-
petite of a predator. The company has been planning these moves
essentially to become an attractive suitor for an alliance. And an
attractiveifnotirresistiblesuitor,ithascertainlybecome.Howelse
can you explain seventeen alliances in five years? Sales from alli-
ances currently account for a third of the company’s total sales.
Nicholas Piramal is planning to achieve half of its total sales from
alliances within two years from now.
C. New product introductions: All these alliances and acquisitions
give the company an enviable access to new products. Nicholas
Piramal, after acquiring Roche has introduced sixteen speciality
products of Roche in India. The company has also got the right of
first refusal for marketing in India for all new products developed
by Boerhinger Mannheim. The seventeen alliances, covering a wide
range of therapeutic segments in both prescription and over-the-
counter drug categories, offer a tremendous scope for introducing
new products. New product access in the product patent regime,
once it is implemented in India by 2005, is the main reason for the
alliance-driven strategy behind Nicholas Piramal’s grand plan. The
company has introduced five new products in 1998.
D. Expansion strategies: Nicholas Piramal has consolidated all its
acquisitions and structured its marketing operations around four
106 Game plans for post-GATT era
divisions–Multi-specialitydivision,Extra-caredivision,Diagnostics
division and the Biotech division. The divisions provide a focused
approach with a disease management orientation. The divisions
are focused on market leadership in selected areas. The size of the
combined field force is one of thelargest in the industry. The joint
venture with the OTC major Reckitt Colman India has led to the
formation of a separate company.
Torrent
Torrent has been following for years a very aggressive new product
introductionstrategy.Ithas anumber of‘first launches’to itscredit in
a number of therapeutic segments. It has expanded its field force to
over 800 to expand its customer coverage. It is planning to add 200
more.
The company has entered the anti-infective segment in a big way and
has introduceda number of antibiotics. This is essentially toextend its
therapeutic coverage. The company is also planning a big expansion
on the export front. It has already achieved an export turnover of Rs.
1.05 billion in fiscal 1998. It is planning to enter major international
markets like Western Europe and China in 1999.
Torrent has also entered into a 50:50 joint venture with the French
drug major Sanofi and started a separate company Sanofi Torrent.
Torrent group is planning to be among the top three in the Indian
pharmaceutical industry in the next few years.
Sun Pharma
Sun Pharma entered the pharmaceutical industry through the niche
route ofspeciality segments fifteen years ago. Thespeciality segments,
which were considered as a ‘path of least resistance’, have now become
a ‘path of most resistance’. They are getting crowded by the day, with
more and more players joining the fray. The highly ambitious Sun, like
its mostaggressive peers,has beenpursuing allmajor strategicroutes to
108 Game plans for post-GATT era
move up the ladder in the Indian drug industry and indeed, to become
one of the integrated international pharmaceutical companies.
A. Mergers and acquisitions: Sun’s acquisition spree started in
September 1996, when it acquired a controlling stake in Gujarat
Lyka, the Rs. 520 million manufacturer of bulk actives of
semisynthetic antibacterials. This has been a part of the grand
strategy of Sun, to become a vertically integrated firm. To expand
itscapacitiesfor bulkactives, ithas alsoacquiredKnoll’sbulk drug
manufacturing facility at Ahmednagar in Maharashtra in 1996.
Further, the company has acquired M J Pharma in January 1997.
M J Pharma holds regulatory approvals from the Medicine Control
Agency (MCA) of the UK for all its manufacturing lines, and from
the US FDA for cephalosporin capsules.
Sun has taken over through a merger towards the end of 1997 the
Chennai-based TDPL, an integrated pharmaceutical company with
a turnover of Rs. 600 million and gained an immediate access to
large new therapeutic segments such as gynaecology, paediatrics and
speciality segments like oncology and anaesthesiology. It has also
acquired in the bargain the R&D center of TDPL at Chennai, which
has considerable process development skills. Having acquired and
builta sizeablemanufacturing infrastructureSun hasstarted looking
forbrand acquisitions.
The company has acquired almost the entire basket of the
Hyderabad-based Natco’s prescription brands to extend its thera-
peutic coverage and to consolidate its position in select speciality
segments. The total turnover of the acquired brands in 1998, the
year of acquisition, was around Rs. 520 million. All these acquisi-
tions have catapulted Sun in to the top ten of the Indian pharma-
ceutical industry (monthly rank of 8 in November 1998 as per ORG
Retailchemist audit).
Sun has also gained an immediate entry into the opthalmic seg-
ment and an instant customer franchise, when it acquired Vadodara-
based Milmet Laboratories, the Rs. 100 million firm specialising in
opthalmic preparations.
Reaching the critical mass 109
Ipca
Ipca has a strong presence in the anti-malarial, anti-emetic and cardio-
vascular segments. It also has a strong international presence and sup-
plies drugs and intermediates to Teva of Israel, Sintofarm of Italy and
Hoechst Celenase of the US. The company is planning to add to this
list of prestigious clients an even a more prestigious client – Merck of
the US.
The company has created a new marketing team to step up its new
product launches and improve its market share. It has introduced more
than 10 products in 1997–98 and is planning to introduce many more
high-margin products in fiscal 1999. New products are the key drivers
of growth at Ipca.
Kopran
In the domestic market, Kopran is forming a marketing alliance with
the industry giant – Glaxo, to beef up its formulations business. It is
starting a new strategic business unit – Kresp to market respiratory
products. Kopran has in all three strategic business units – Kopran,
Kramer and Kresp to market its formulations in the domestic market.
Kopran isrestructuring its business operationsto achievea sustainable
growth and is planning three joint ventures abroad. Two of these
alliances are in the UK; one is with Synpac to boost its bulk actives and
formulations of penicillin-based products and the other is with DDSA
for marketing its formulations of off-patent generic drugs in Europe.
Kopran is also taking up a 39 per cent stake in a new pharmaceutical
company being set up in Dubai by Dubai Investments, a domestic
company promoting business opportunities in the United Arab
Emirates (UAE). The company will manufacture and market a range
of life saving drugs including antibiotics, anti-ulcerants and
cardiovascular drugs. The company would be the first in the region to
manufacture active ingredients and innovative dosage forms.
Kopran has introduced three new drugs in 1998 and these have con-
tributedabout Rs.5.3 millionin sales.
Reaching the critical mass 111
Orchid
Orchid hasreached acritical massof Rs.2.4 million in thefiscal’ 97 as
a 100 per cent export oriented bulk drug manufacturer, focusing only
on cephalosporins till now. The company is undertaking a major prod-
uct diversification program in bulk actives by entering into other high
value bulk drugs and intermediates like anti-virals and next generation
cephalosporins.
The company is also planning to integrate forward into value-added
formulations of cephalosporins non-cephalosporins to accelerate its
chase forcritical mass,to become a verticallyintegrated international
pharmaceutical company.
What is Critical?
Companies have taken all the possible strategic routes to reach the
criticalmass.Theyseemtohave,literally andfiguratively,leftnostone
unturned and no path unexplored. They have pursued all winning
wayslike:
A. Mergers
B. Acquisitions ofbusinesses, facilitiesand brands
C. Strategic alliances includingjoint ventures
D. Extension of therapeutic coverage
E. Expansion of customer coverage
F. Exploration of new shores
Unlessa firmreaches acritical massofinvestiblesurplus, itcannot fuel
thegrowth strategies.Inthefinal analysis,what iscriticaltothe whole
businessofcriticalmassisreachingit!
112 Game plans for post-GATT era
The marketing mindset 113
8
THE MARKETING MINDSET
Executive Summary
Product Portfolio
One of the most important aspects of value creation inside a corporation
is the management of product portfolio. A strongly positioned company
should have products that are highly capable of generating cash today
and others that show potential and promise for value creation over the
next three to five years. Then, there should be some products and
businesses that are in embryonic stage today that can be potential winners
10–15 years from now.
Companies that have a balance of all the three horizons are well poised
to work towards the maximisation of economic value in a long-term
perspective. Consider how some of the leading Indian drug companies
are faring against this marketing mindset backdrop.
Brand Building
Some years ago, the editor of the Journal of Marketing Research asked
Larry Light, a prominent advertising research professional, for his
perspective on the future of marketing in the next three decades. Light’s
analysis was at once perceptive, instructive and even prophetic.
“The marketing battle will be a battle of brands – a competition for
brand dominance. Businesses and investors will recognise brands as
the company’s most valuable assets. This is a critical concept. It is a
vision about how to develop, strengthen, defend and manage a business.
It will be more important to own markets than to own factories. The
only way to own markets is to own market-dominant brands.”
This explains why a number of companies are in a rush to acquire
brands with a strong presence in the market and brands that strengthen
their presence in their therapeutic segments of focus. In retrospect, it
The marketing mindset 117
may look simple but it takes time to build brands or businesses but to
buy them, it only requires cash. It has taken a long time for the
companies to recognise this seemingly simple truth. Brand building,
of course, becomes a continuous activity once you acquire brands or
businesses. Consider the spate of brand acquisitions in recent past in
the Indian pharmaceutical industry:
Ranbaxy acquired Gufic’s leading brands like mox, suprimox
and others to strengthen its pre-eminent position in the anti-infective
segment.
Dr. Reddy’s Labs have acquired riflux and clamp from Standard
Organics and becelac from Pfimex to reinforce their position in anti-
ulcerant and anti-infective segments and to enter the essential
co-prescription segment of vitamin B complex. They have also acquired
five more brands from Dolphin Laboratories to reinforce their
presence in anti-infective and gastro-intestinal segments and to enter
the new haemostatic segment.
Nicholas Piramal has acquired a number of leading over-the-counter
brands like strepsils, sweetex, cherana and burnol from Boots and
dettol and disprin from Reckitt & Colman through innovative joint
ventures to establish a strong OTC presence.
Nicholas group has also acquired a number of leading prescription
drug brands from Ambalal Sarabhai Enterprises through another
creative joint venture Sarabhai Piramal.
SmithKline Beecham in India has acquired crocin, the leading OTC
analgesic anti-pyretic brand of Duphar Interfran.
Sun Pharma has acquired a bevy of brands covering a wide range of
therapeutic segments from Natco. The total sales of these acquired
brands are around Rs. 520 million.
Ranbaxy
Ranbaxy, the largest Indian pharmaceutical company, has moved to the
coveted 2nd position in the domestic formulations market. It has a
market share of 4.9 per cent of the Rs. 106.6 billion large domestic
formulation market. The company has achieved this through a strategic
recipe of organic growth, brand acquisitions and a merger.
118 Game plans for post-GATT era
Table 8.1
Ranbaxy’s leading brands
1. Cifran 507.4
2. Sporidex 550.1
3. Revital 398.3
4. Mox 385.6
5. Fortwin 201.6
6. Histac 145.6
7. Calmpose 126.1
8. Zanocin 152.5
9. Volini 116.5
10. Keflor 114.8
11. Cifran-CT 108.9
12. Gramogyl 101.6
13. Silvirex 101.0
Table 8.2
1. Omez 262.0
2. Nise 186.2
3. Stamlo 146.6
4. Enam 124.8
of the company’s brands – omez, stamlo, enam and nise are among
the industry’s top 250. These contribute to about 51 per cent of the
company’s total domestic formulations’ sales. Furthermore, the company
has achieved the 5th position in the cardiovascular segment with only four
brands and a strong presence in gastro-intestinal segment with only two
brands.
Even in its international operations the company has been focusing on
registering its branded generic formulations in overseas markets and
promoting them either through the company’s sales force or through
distributors’ sales forces.
Cipla
Cipla has cultivated a very strong marketing mindset over the years.
The company is ranked third in the Indian pharmaceutical industry
with a market share of 4.2 per cent. It has a dominant leadership position
in the anti-asthmatic segment and a very strong presence in a number
of therapeutic segments like anti-bacterials and anti-infectives,
cardiovascular, anti-helminthic and anti-cancer etc. Cipla’s customer
franchise among all key prescriber segments is extremely high. It is
among the top three companies in terms of number of prescriptions
generated by all major speciality prescriber segments.
Cipla as an organisation is a lateral thinker. The company has found
unique first-time solutions for many of the common problems that
would bog down any ordinary company.
The credit for exploiting the opportunities of a multiple media-mix in
pharmaceutical promotion should go to Cipla. It started and developed
to a very fine art what the industry refers to as a multi-media approach
to marketing. In fact, Cipla is considered to be a benchmark for this
innovative marketing approach to enhance brand registration, recall
and prescription generation. Another first to Cipla’s credit is the
development of a customer database indicating users and non-users
and its validation through special task forces called, “prescription-
watchers.” This has helped Cipla considerably in brand building through
precision marketing.
Cipla has 12 of its brands among the industry’s top 250. These account for
about 53.7 per cent of the company’s total domestic formulations’ sales.
The marketing mindset 121
Table 8.3
1. Ciplox 443.5
2. Novamox 398.7
3. Norflox 372.2
4. Novaclox 173.9
5. Asthalin Inhaler 172.8
6. Asthalin 150.4
7. Aerocort 138.2
8. Cefadur 129.9
9. Theo-Asthalin 117.2
10. Ibugesic Plus 110.3
11. Norflox-TZ 107.9
12. Ciplox-TZ 107.1
Lupin
If one has to describe Lupin’s strategy in one word, it is “Focus.” The
company has had an unwavering focus on the anti-TB segment right
from the start. It has achieved, over the years, the distinction of being
the world leader in its chosen anti-TB segment. Having achieved
uncommon success in one segment through focus, the company has
spotted another major segment, oral and sterile cephalosporins. Lupin,
here too, is not viewing merely the domestic market. It has set its sights
on the world cephalosporin market, in which a number of major
molecules are going off-patent in a few years from now. Since leadership
should, like charity begin at home, it has focused on the oral
122 Game plans for post-GATT era
Table 8.4
1. R Cinex 407.7
2. R Cin 280.5
3. Ceff 225.3
4. AKT-4 216.1
5. Combutol 142.2
6. Odaxi 124.8
7. Optineuron 108.2
8. Hepp 106.4
cephalosporins market in India and has already pushed two of its brands
in this segment – ceff and odaxil – into the top 250 brands of the
industry.
Wockhardt
Marketing has always been a priority at Wockhardt. The company first
focused on pain management. The company has entered into
cardiovasculars, gynaecology and paediatrics and large volume parenterals,
anaesthesia and critical care and is planning to enter into enteral
nutrition. In its chase for critical mass, the company has followed the
M&A (mergers and acquisitions) route. Its acquisition of Merind and
Tata Pharma has given access to neuro-psychiatry among others.
Wockhardt has moved up to the 9th position in the Indian
pharmaceutical industry and has a market share of 2.3 per cent. Five of
its brands, which account for about one-fourth of the company’s
domestic formulations’ sales are among the industry’s top 250.
The marketing mindset 123
Table 8.5
1. Spasmoproxyvon 170.3
2. Wokadine 126.9
3. Zedex 124.7
4. Proxyvon 104.6
5. Decdan 106.2
NPIL
Ajay Piramal has set one objective, when he entered the pharmaceutical
industry. The Piramal group has to be among the top three in the
industry by the year 2000. He has chosen the route of mergers,
acquisitions and joint ventures to reach critical mass. Today, when you
add the domestic formulations’ turnover figures of all Piramal group
companies including the joint venture – Sarabhai-Piramal, the group has
achieved 4th position with a market share of 2.7 per cent just behind
HMR.
The group has a strong presence in cardiovascular, neuro-psychiatry,
nephrology and antacid segments. The group is in the process of
restructuring operations to achieve a sharper marketing focus and has a
total field force strength of 1600 plus, which makes it one of the largest
in the industry. The group’s marketing approach is to apply the disease
management strategy, offering the total package of services – diagnostics,
drug therapy options and post-treatment monitoring and care (in chronic
disease areas like diabetes). NPIL is planning to restructure its marketing
around biotech, diagnostic, extra care and multi-specialities. The group
has five brands among the industry’s top 250. One more brand, polycrol
forte is eagerly waiting in the wings to join the top-brand club. These
five brands account for 23.3 per cent of the group’s domestic
formulations’ sales.
124 Game plans for post-GATT era
Table 8.6
1. Paraxin 181.7
2. Bactrim 138.2
3. Genticyn 120.8
4. Valium 109.5
5. Esgipyrin 105.2
Torrent
Torrent has entered the Indian pharmaceutical market through a niche
strategy. This has been emulated successfully by other companies like
Sun and Intas. Torrent has introduced a number of new drugs for the
first time in its chosen therapeutic segments – psychiatry, neurology
and cardiology. Torrent has achieved a dominant leadership position
in the cardiovascular segment. It has also achieved leadership position
in the psychiatry segment which is being challenged by its one-time
follower (now a leader in its own right and might), Sun Pharma.To
reach critical mass faster, Torrent has diversified into the fastest growing
segment, anti-bacterials, and introduced a number of products. This
entry has certainly accelerated the growth of the company, catapulting
it to the big league.
Torrent has moved up to the 5th position torrentially. It has a market
share of 2.4 per cent. Five of its brands are among the Industry’s top
250. These five brands contribute 35.2 per cent of the company’s
domestic formulations’ sales.
The marketing mindset 125
Table 8.7
1. Quintor 241.0
2. Dilzem 214.4
3. Alprax 190.3
4. Domstal 150.5
5 .Listril 102.3
Table 8.8
1. Ciprobid 320.7
2. Ocid 228.1
3. Oxalgin-DP 132.2
4. GRD 112.5
5. Depin 108.2
6. Oriprim 101.1
12 brands among the industry’s top 250, which were divided equally
after the split. The six top brands of Zydus–Cadila Health Care account
for about 42 per cent of the company’s domestic formulations’ turnover.
Zydus would have (after the Zydus–Bayer joint venture is operative)
four marketing divisions to manage its diverse product portfolios. In
addition, Zydus is planning to launch another marketing division
exclusively to promote cardiovascular products. Zydus has already a wide
product basket for treating various cardiovascular ailments. The idea
behind the creation of different marketing divisions is to sharpen and
retain focus at the same time and to extend therapeutic coverage at the
corporate level.
Zydus group is ranked 11th in the Indian pharmaceutical industry with
a market share of 2 per cent.
Sun Pharma
Sun Pharma has been a highly marketing oriented company right from
the beginning. Dilip Shanghvi, the ebullient founder managing director
had very aptly identified the niche segments – psychiatry, neurology
and cardiology as they had a narrow prescriber base and less competitive
intensity in 1984 ( now they are as crowded as any other segment). The
company focused on these segments and introduced many new products
to offer a complete product basket, a sort of precursor to the emerging
disease management approach. The company provided a superior level
of customer service and has maintained the leadership position in
psychiatry and neurology for two years now. In the cardiology segment
it has achieved the 2nd position with the acquisition of Natco’s brands.
Sun’s marketing mindset can be assessed from the fact that it is the first
Indian pharma company to structure its entire marketing operations
around two or more specific therapeutic segments. It has created
dedicated stand-alone strategic business units to serve the universe of
customers in these segments. Sun has eight strategic business units
focusing on all major therapeutic segments. The underlying philosophy
is that when customer segments are getting increasingly speciality
oriented, can the marketing companies lag behind? Later, many
pharma companies followed suit and are setting up separate business
units to retain the focus on key segments and yet diversify into new
segments.
The marketing mindset 127
Table 8.9
1. Monotrate 147.3
2. Alzolam 109.2
Ipca
Ipca has focused on a few brands consistently over the years. The
company’s major strengths have been technology and the ability to
integrate backward successfully to gain control on input costs. This has
helped the company in building a strong presence in bulk drug exports.
The company now is focusing on marketing and has started another
marketing division to promote speciality products– cardiovasculars
mainly, as the company has a respectable presence in that segment
already.
128 Game plans for post-GATT era
Table 8.10
1. Lariago 299.5
2. Perinorm 183.3
3. Eltocin 141.3
4. Tenolol 126.1
5. Solvin 101.5
The company’s focus on a few products has paid off handsomely. Today
5 of its brands are among the industry’s top 250. These account for
over 70 per cent of the company’s domestic sales of formulations.
The company is ranked 26th in the industry with a market share of 1.1
per cent.
Kopran
Kopran has only one brand among industry’s top 250 brands – Aten.
Aten has a sales volume of Rs. 206.4 million and it accounts for 39.1
per cent of the company’s domestic formulation sales.
Orchid
Orchid has started as a 100 per cent export oriented unit for
manufacturing and marketing bulk drugs and intermediates. It has very
recently integrated forward into manufacturing and marketing
formulations.
Intangible no more!
Brands are no more considered as intangible assets. “It is better to own
brands than factories”, thundered Larry Light rather prophetically quite
The marketing mindset 129
sometime ago. Brand acquisitions have become the order of the day
for speedy, or rather, instant growth. Ranbaxy has set up a whopping $
150 million acquisition fund mainly for acquiring brands globally. The
company’s stated policy has been brand acquisition rather than company
acquisition. Dr. Reddy’s too, have been on a brand-acquiring spree.
Sun Pharma has also made its intentions clear with its recent acquisition
of the entire prescription brand portfolio of Natco. It has adequate
manufacturing infrastructure and what it needs to reach the critical
mass faster is brands. These reinforce its market dominance, facilitate
its entry into new therapeutic segments and extend therapeutic coverage.
and aim for segment leadership position however small or narrow the
segment may be. Achieving segment leadership is brand building. Size
does matter in brand building, but then leadership matters even more.
Sixtyseven of the industry’s 250 brands are from the eleven companies
discussed in this chapter. (Orchid, the twelth company, has just entered
the formulations business.) These 67 brands account for 44.4 per cent
of the combined domestic formulations’ sales of these companies.
Company wise details are given in Table 8.11.
All these companies demonstrate a high degree of marketing acumen.
They are fiercely competitive. Each one of these companies either has a
leadership position or a major presence in more than one therapeutic
segment. Ranbaxy has an undisputed leadership position in the largest
therapeutic segment – anti-bacterial and antibiotic. Cipla has a leadership
position in the anti-asthmatic segment and a major presence in a number
of therapeutic segments including anti-bacterials.
Table 8.11
1. Ranbaxy 13 57.2
2. Cipla 12 53.2
3. Lupin 8 64.3
4. Zydus 6 41.7
5. Ipca 5 71.2
6. Dr. Reddy’s Labs 5 51.0
7. Torrent 5 35.2
8. Wockhardt 5 25.4
9. Nicholas Piramal 5 23.3
10. Sun Pharma 3 16.5
11. Kopran 1 38.6
The marketing mindset 131
UPGRADING
9 TECHNOLOGY
Executive Summary
9 UPGRADING TECHNOLOGY
Entry Barriers
1. Thefirst barrieris that the regulatoryenvironment inthese markets
is very stringent. They allow imports only from those manufacturers
whose facilities are approved by their respective regulatory
authorities. In the US for example, you need to have your facility
approved by the US FDA. Likewise, it is MCA (Medicine Control
Agency) which approves for the UK and the HPB (Health Protection
Bureau) for Canada. The requirements of documentation and
quality standards are very tough and expensive.
2. The second barrier is that, not only do your facilities need their
regulatory authority’s approval but even the bulk actives and other
ingredients used in the formulations need to be sourced only from
approved manufacturers. The approved sources too, need to go
through the regulatory process, thus pushing the input costs high.
You cannot use your own raw materials, even if you can manufacture
them more economically and even if they meet the material
specifications,unlessyourfacilitiesareapproved.
Upgrading technology 137
Gateways
The new Indian ‘techies’ are determined to convert these barriers into
gateways. They have understood clearly that the gateways to the
developed markets are:
138 Game plans for post-GATT era
Ranbaxy
Case 9.1: Technology wins kudos, gets business and even
arranges an alliance!
Ranbaxy’s success with the complicated synthesis of cefaclor (one of
thelargestsellingantibioticsintheworldduringitspatency),hasbecome
an industry legend. The company’s technological prowess was amply
demonstrated when they developed their own process for cefaclor
and patented it in the US.
The story goes that Dr. J.M. Khanna, head of research and development
at Ranbaxy, went to the US patent office with 18 different processes
for cefaclor, each time failing to prove novelty. This is because, Eli
Lilly made life difficultfor potential competitors by patenting various
intermediates as ‘timebombs’ that went off as each stage was reached
through synthesis. Undaunted, he continued to work on the problem
and produced the solution the 19th time. All that diligence and hard
work is paying off. An industry observer said,
“If Ranbaxy can spend Rs. 350–400 million a year on R&D today, it
isthe money from cefaclorthat they are ploughing back. EliLilly, the
discoverers of the drug themselves buy about $ 15 million worth of
cefaclor a year from Ranbaxy”.
A by-productof thissuccess isthe tie-upwith EliLilly fora multi-level
joint venture that covers marketing, manufacturing and development
of pharmaceutical substances and dosage forms in India and select
overseas markets.
Upgrading technology 139
Cipla
Case 9.2: A Small step leads to a giant leap in the
anti-asthmatic market!
Technology has been a core competence of Cipla. The company has
achieved a very high degree of cost effectiveness in its process
technologies for a number of bulk drugs. One of the initial successes of
Cipla was with the synthesis of salbutamol, an anti-asthmatic drug
discovered by the international leader, Glaxo. Cipla has marketed its
salbutamol at prices muchlower thanthe prevailinginternational prices.
The company has never looked back since then.
That small step has indeed become a giant leap towards a dominant
leadership position in the anti-asthmatic segment in India. Cipla, of
course, had developed sophisticated aerosol technology and had
introduced a number of therapeutic options for treating asthma and
has further strengthened its position.
Case 9.3: Value addition through technology
Cipla has also achieved great success with its technological power in
the anti-cancer segment in India. One of its major triumphs was the
commercialisation of the extraction of vinblastin from vinca rosea
leaves,which was later converted to vincristine – a popular anti-cancer
drug through out the world. Earlier, India used to export the dried
leaves of vinca rosea and Eli Lilly used to make vincristine out of them.
Cipla has scaled up the known-but-difficult process of extracting the
alkaloid vinblastin from vinca rosea, converting it to vincristine and
marketing it at a price slightly less than onethird of the international
price. That is value addition through technology.
140 Game plans for post-GATT era
Lupin
Lupin’s successful affair with technology started with the manufacture
of vitamin B6. The problem with the manufacture of vitamin B6 is
that it has a complex 12-stage process, where some of the intermediates
are unstable. Lupin acquired the technology from National Chemical
Laboratories (NCL), took up the challenge of scale-up and has mastered
the technology.
Lupin has also achieved significant success in three other areas. The
company is the world leader in the production of the anti-TB drug
ethambutol, accounting for 60 per cent of world production. Their
ethambutol process is so efficient that even the discoverer of the drug,
Lederle, is buying the bulk from Lupin.
Rifampicin is another success story of Lupin. They have a dominant
leadership in the domestic market and also export the bulk to several
countries. Cephalosporins is another area where Lupin has achieved
considerable success. It is the technology strength of Lupin in
manufacturing injectable cephalosporins that is instrumental in finding
a strong partner like Merck Generics of Germany for marketing these
in developed markets like the US, Europe and Japan once they come
off-patents.
Lupin has recently achieved yet another technological breakthrough
instabilising itsRs. 800millionplantdevoted tofermentation products,
which will put them ahead of the others in fermentation technology.
Wockhardt
Wockhardt has constantly expanded its manufacturing technology. Over
the years it has invested over Rs. 1 billion in 8 manufacturing plants
that harness six different technologies. The company’s aim of matching
the world players both in terms of presence and technology is being
achieved through its massive modernisation and structural changes.
Itsmanufacturingfacilities haveinternational regulatoryapprovals from
US FDA and the MCA of UK.
Wockhardt, in addition is seeking tie-ups with the technology leaders
of the world for development and manufacture of biotechnology based
therapeutic proteins and vaccines. The technology thrust areas of
Wockhardt are:
Upgrading technology 141
Bulk drugs
Intermediates
Formulations
Biotechnology products
IV fluids and
Pesticides
Nicholas Piramal
Nicholas Piramal has created, in less than ten years, an impressive
manufacturing infrastructure, almost entirely through acquisitions. In
1992, it had invested Rs. 200 million to build a world class
manufacturing plant for formulations at Pithampur in Madhya Pradesh.
The company realised that creating green field projects is expensive
and time consuming and has taken the acquisition route. The company
had acquired a bulk drug plant for manufacturing vitamin A at Thane
near Mumbai, when it took over Roche. It is being spruced up to meet
the international standards and approvals.
The group has acquired in 1996 the Hyderabad-based bulk drug company
– Sumitra Pharmaceuticals and Chemicals, which has one of the largest
multi-product bulk drug manufacturing facilities in the country. The
companyisplanningtoupgradethesefacilities sothatitcanuseitslarge
manufacturing infrastructure to meet domestic requirements and also use
itas asourcing basefor someof the overseas markets.
Torrent
Torrent has embarked on a modernisation plan, which incorporates
thelatestavailabletechnologyandreorganisationoftheexistingfacilities
between manufacturing locations. The company has also modified the
existing layout of its Vatva plant, to enhance production capacity and
storage facilities. Torrent manufactures a number of bulk drugs and
drug intermediates as well as formulations across a wide range of
therapeutic segments. The technology thrust areas for Torrent are:
Bulk drugs
Drug intermediates
142 Game plans for post-GATT era
Sun Pharma
Sun Pharma has reached the critical mass in manufacturing
infrastructure in a short time through acquisitions, mergers and
investments. It has in all six manufacturing facilities spread over the
states of Gujarat, Maharastra and Tamil Nadu for manufacturing bulk
actives and pharmaceutical dosage forms. All these facilities conform
to the international regulatory standards. The company is actively
preparing to file the drug master files and to get US FDA and UK
MCAapprovals for its bulkdrug facilities.Sun Pharma,in additionhas an
off-shore manufacturingbase inthe US(through itsequity-based alliance
with Caraco Pharmaceuticals in Michigan), that is approved by FDA.
Zydus
Zydus–Cadila Health Care group is putting up Rs. 1 billion manufac-
turing facility at Moriaya in Ahmedabad. This is one of the largest
investments in a single location in Indian Pharma industry. The facil-
ity willhave separate blocks for biological production, antibiotic for-
mulations and formulations for different therapeutic segments. It will
confirm to US FDA and European regulatory authorities.
Zydus is also investing Rs. 500 million in a joint venture project with
KGCC for manufacturing hepatitis-B vaccine. The company is also
investing Rs. 250 million up a joint venture with BYK Gulden of
Germany to manufacture and market pantaprazole.
Further more, Zydus has developed a number of cost-effective alterna-
tive processes for some important bulk drugs. Zydus believes that tech-
nological upgradation to international standards is a must to compete
effectively in the post-GATT era.
Ipca
Ipca has putup its first bulk drug unit in 1985. The companyhas invested
in technology and upgradation of manufacturing facilities over the last
two decades. As a result, it had three formulation manufacturing
Upgrading technology 143
facilitiesandsixbulkdrugplantsin1996,whichcertainlyshouldindicate
the technology focus of Ipca. What is even more credit worthy is that
the company has US FDA approvals for nine of its bulk drugs
manufactured at its plant at Ratlam in Madhya Pradesh. Its Athal plant
is in the process of getting US and European approvals.
The company manufactures 25 products covering segments from anti-
malarials,anti-bacterial,anti-TBtocardiovascular.
Kopran
Kopran has systematically expanded and upgraded its technological and
manufacturing base since 1986. For example:
In 1986, Kopran started making one ton of amoxycillin per month.
By 1995, Kopran had become the fifth largest producer in the world
and the first in Asia. Its plant at Khopoli near Mumbai boasts of
800 ton-per-annum (TPA) capacity of amoxycillin. Furthermore,
this plant has the approval of US FDA and the MCA of UK.
Orchid
Orchid has started as a 100 per cent export oriented unit for
manufacturing bulk actives, with emphasis on cephalosporins. Building
plants and upgrading technology to world class standards, therefore,
has been a pre-requisite and it has had its facilities approved by US
FDA and UK MCA. The company practices the latest cGMP standards
in its manufacturing facilities. It has its own power plant for captive
generation and an effluent treatment plant that meets the
international standards in terms of creating an eco-friendly
manufacturing environment.
Up or Out!
Technology upgradation is no longer a matter of choice, it is a must. It
is not only vital for progress or rapid growth, but is essential even for
survival. The domestic market place in the coming product patent
regime will be a level playing field. The level of competition and
intensitywill bedifferent.Companies,thatareupgrading technologically
are the ones that are growing faster than the rest. The combined
144 Game plans for post-GATT era
market share of top ten multinational companies and the top ten Indian
companies in Indian pharma market in 1998 is almost identical.
Eight of the twelve companies discussed here are among the top ten in
the domestic sector. The other four would also be among the top twelve
if you consider total turnover and not just formulations’ sales. What is
common to all these leading Indian pharma companies? All of them
have been investing consistently in technology upgradation. They
account for almost eighty per cent of the total approvals in India by
international regulatory authorities like US FDA and UK MCA.
The more aggressive players in the Indian pharmaceutical industry are
vying with each other to build a technological infrastructure that is
internationally comparable and training their people to be
internationally competitive. Apart from competing effectively in the
post product patent regime, these companies are keen to exploit the
various opportunities that the global pharmaceutical industry has to
offer.
Another major opportunity area is that the European companies are
looking for sourcing arrangements with Indian companies for patent-
expired generic formulations. There are two reasons for this. European
Union laws prohibit local pharmaceutical companies from undertaking
any sort of developmental activities before the expiry of patent. They
have to approach either the American companies for development
prior to the expiry of patents, which can be very expensive, or exploit
the scientific talentin developingcountries likeIndia andChina. India
can be the most favored destination because of the proven track record
inprocess developmentand availabilityof avast, cost-effectivepool of
Englishspeakingscientifictalent. Upgradation oftechnology,therefore,
will be a sustainable competitive advantage for Indian drug companies.
Furthermore, when trade barriers disintegrate and when the protective
armor of process patents give way to strong IPR protection, the only
option is to be internationally competitive. When the competition is
world class the only option is to be world class your self. Implicit in a
level playing field is the ‘level’ of competence and competitiveness.
For those who are well prepared, it is a level playing field. For others,
it could as well be a minefield. In a market place that is driven by
technology, it is indeed Up or Out!
Focusing on research 145
10
FOCUSING ON RESEARCH
Executive Summary
10 FOCUSING ON RESEARCH
Difficult Odds
Pharmaceutical research is expensive, time consuming and risky. The
process of discovering and developing a new drug is long and complex
and faces difficult odds. It takes upwards of 5,000 chemically synthesised
molecules to produce just one approved drug. According to data
compiled by the Tufts Centre for the study of drug development, of all
the drugs that entered clinical trials between 1980 and 1984, only 18.3
per cent have entered the market and a mere 23.5 per cent are ever
expected to become marketed drugs.
148 Game plans for post-GATT era
Role of Government
It is now widely recognised that the real function of government is not
to carry out, or even pay for, R&D in drugs and pharmaceutical
biotechnology, but to help by way of fiscal and other incentives.
Government’s basic responsibility is to ensure that the prerequisite
150 Game plans for post-GATT era
Project 1035
The government in China has played a very supportive role in the
recent years to bolster the research and development activity in the
country. It has earmarked $ 1.2 billion for 1996–2000 for ‘Project 1035’,
which is aimed at producing 10 new chemical entities, 3 therapeutic
mechanisms and 5 centres for synthesis, screening and testing – all in
four years.
Table 10.1
Table 10.2
New Drug Development Process
Stage Process Activity Time
taken
Stage I Screening: Plants and animals
screened for biological 2 years
activities
Stage II Identification: Compounds are isolated
from plants concerned 2 years
Stage III Toxicity studies: The drug (isolated
compound) is tested on 1 year
animals for toxicity
Stage IV Clinical trials: The drug is tested on
humans for efficacy and 7 years
tolerance
Stage V NDA filing: The drug is released in
the market after FDA 1 year
approval
Launch of Post-marketing Feed back on the efficacy and After FDA
the drug surveillance side effects of the drug in approval
actual clinical practice after
launch
Development Time
Drug development time has grown from 8.1 years in the 1960s (11.6
years in the 1970s, 14.2 years in the 1980s) to 15.3 years for drugs
approved from 1990 through 1995. A large part of this increase is due
to the lengthening of the clinical phase of drug development.
154 Game plans for post-GATT era
the cost of developing a new drug at $ 231 million. This has risen
to $ 300 million in 1993. His other findings are equally astonishing.
It took an average of 12 years to develop a new drug and only 30
per cent of the new drugs actually generate sufficient returns to
cover the R&D costs. The break even time for a new drug was 16
to 17 years on the average.
It is estimated that 20 substances out of 10,000 examined enter the
stage of animal studies. Of these, 10 may reach clinical studies and
finally one of these may gain FDA approval. These facts amply
demonstrate the cost and difficulty involved in discovering new
drugs. It is difficult to do fundamental research without possessing
a critical mass. And the list of the top ten R&D spenders bears this
out (Table 10.3).
Table 10.3
Collaborate to compete
Since Indian companies cannot match the MNCs for financial clout, it
probably makes sense to work in tandem, either with one another or
with the national laboratories. Some large Indian companies like
Ranbaxy are holding discussions with the government on drug
development with equal cost sharing. The infrastructure for R&D in
the public sector is sizeable. There are as many as twenty-five state-owned
national institutes that undertake research and development activities.
These can be broadly classified under CSIR (Council for Scientific and
Industrial Research) and ICMR (Indian Council of Medical Research)
as presented in Table 10.4. What needs to be done is to upgrade these
160 Game plans for post-GATT era
Table. 10.4
Government research institutes
CSIR Laboratories
1. Centre for Biochemical Technology (CBT), New Delhi
2. Central Drug Research Institute (CDRI), Lucknow
3. Central Food Technological Research Institute (CFTRI), Lucknow
4. Central Institute of Medicinal and Aromatic Plants (CIMAP), Lucknow
5. Central Electro-chemical Research Institute (CERI), Karaikudi
6. Centre for Cellular and Molecular Biology (CCMB), Hyderabad
7. Indian Institute of Chemical Biology (IICB), Hyderabad
8. Indian Institute of Chemical Technology (IICT), Hyderabad
9. Institute of Microbial Technology (IMT), Chandigarh
10. Indian National Scientific Documentation Centre (INSDC), New Delhi
11. Industrial Toxicology Research Centre (ITRC), Lucknow
12. National Institute of Science of Technology (NIST), New Delhi
13. National Botanical Research Institute (NBRI), Pune
ICMR Institutes
1. National Institute of Nutrition (NIN), Hyderabad
2. National Institute of Virology (NIV), Pune
3. Institute for Research in Reproduction (IRR), Mumbai
4. Tuberculosis Research Centre (TRC), Chennai
5. Central JALMA Institute for Leprosy (CJIL), Agra
6. Malaria Research Centre (MRC), Delhi
7. Institute for Research in Medical Institute (IRMI), Chennai
8. Institute of Cytology and Preventive Oncology (ICPO), New Delhi
9. Enterovirus Research Centre (ERC), Mumbai
10. ICMR Genetic Research Centre, Mumbai
11. National AIDS Research Centre (NARC), Pune
Others
1. National Institute of Pharmaceutical Education and Research NIPER),
Chandigarh
2. B.V. Patel PERD Centre, Ahmedabad
Focusing on research 161
Key Issues
One of the key issues is that most of the new investments being made
now will not yield immediate results as they are making up for the lack
of R&D investments in the past years to acquire facilities that are taken
for granted abroad.
Scientific expertise is another. Since they have become used to
duplicating drugs, few companies have the required knowledge base
and talent to create new ones. Some companies are trying to bridge
the gap by bringing scientists from abroad, mainly from the US, but
have had only modest success so far. Ranbaxy and Dr. Reddy’s Labs
had been advertising in the past in US publications but they had found
that, despite the scarcity of jobs in the US, only one in every ten Indian
scientists settled there is willing to come back.
Winning Moves
A handful of Indian companies have realised the potential that research
and development can offer. They have taken the initiative of investing
in R&D in a bigger way. They have stepped up the R&D investment
to 4–5 per cent of their sales as compared to the industry average of
1.8 per cent. These companies are shifting their focus from process
development to product development. Here are the winning moves
of some of the more progressive Indian drug companies:
Ranbaxy
Ranbaxy is India’s highest spender on research with a budget of
Rs. 350 million in 1995, which was 5 per cent of sales. The company
has come long way since 1978–79 when the research (lab renovation
budget as it was called then) budget was only Rs. 75,000. Today Ranbaxy
has 270 scientists, which will rise to 450 in two years. By the year 2000,
Ranbaxy intends to spend 7 per cent of projected revenues of Rs. 20
billion on R&D. Their objective is to be the first private sector company
in India to bring a new drug to market. Here is the progress of Ranbaxy’s
R&D investment over the years:
Year Rs. mil.
1990–91 52
1991–92 53
1992–93 57
1993–943 50
164 Game plans for post-GATT era
Cipla
Cipla’s product developmental capabilities can be gauged from the fact
that the company has achieved the distinction of developing the first
ever oral drug for the treatment of thalassaemia. The company has
been at the forefront of process development for a long time. It has
developed over the years, innovative processes for over 50
pharmaceutical bulk actives. Many more new molecules are at various
stages of development.
Yet another feather in the cap of Cipla’s innovative process is that it has
developed a number of new drug delivery systems and products
employing new technologies including the micro-emulsion form of
cyclosporin. Development work continues on new formulations in
dispersible and sustained-release forms as well as CFC-free aerosols.
Cipla has three R&D centres and all of them continue to have the
approval of the Ministry of Science and Technology, Government of
India. The company works closely with the CSIR laboratories and other
research and educational institutions.
Lupin Laboratories
Lupin believes that the success of its business lies in innovation and
technology. Lupin is one of the few Indian companies to invest over
3 per cent of its sales on research and development since 1990, as
compared to the industry’s average of 1.8 per cent. The company is
planning for expansion of its R&D activity with an investment of Rs.
200 million. Lupin’s thrust areas in research are:
Synthetic chemistry
Fermentation
Biotechnology
Focusing on research 167
Process development
Novel drug delivery systems
Natural products
Immunodiagnostics
The R&T (at Lupin R&D is called as Research and Training) interacts
closely with national laboratories and academic institutions. The
collaboration with National Chemical Laboratories (NCL) is a case in
point, which has resulted in setting up of manufacturing facilities for
vitamin B6 for the first time in the country. Lupin is developing strategic
alliances with leading research based pharmaceutical companies and is
also open for collaborative and contract research.
Wockhardt
Basic research is one of the major thrust areas of Wockhardt’s plans.
The company plans to invest Rs. 3 billion over the next three years on
research. It is setting up a modern R&D centre in Aurangabad. The
focus areas for research are:
New bulk drugs
Biotechnology
Chiral chemistry
Wockhardt’s focus on biotechnology is in the area of therapeutics
development through genetic engineering. It is estimated that by 2010,
nearly 25 per cent of pharmaceutical products produced in the world
will be through this process. In anticipation of this, the company is
importing nearly 80 per cent of its process technology for basic research,
with the aim of becoming a front runner in this field.
Wockhardt has also committed Rs. 50 million to the United Nations
Industrial Development Organisation (UNIDO), for R&D in
developing hepatitis-B vaccines and other biotechnology products. In
return, the company will have the exclusive rights to manufacture and
market in India, the products developed through this project.
The strategy for research at Wockhardt is to develop patentable drug
delivery systems for off-patent drugs in the western world. These will be
168 Game plans for post-GATT era
the drivers for the company’s growth for the next three to five years.
The company at the same time is investing about 20 per cent of its
research spend on drug discovery program. The immediate focus,
however is to concentrate on research that can be converted into
products and business in the short term. Wockhardt has created the
infrastructure and established a research team for drug discovery. It
takes about 10–15 years to develop a new drug.
The count down for new drug development has not only begun at
Wockhardt, but has also met with an early success. The company has
developed two anti-infective compounds already. It is also carrying out
detailed evaluation of these drugs. Wockhardt is seeking global tie-ups
for further clinical studies of these compounds, after evaluations are
completed. The company’s drug discovery program, which has screened
over 600 molecules, is focused entirely on anti-infectives.
Wockhardt has filed international patents for 3 technologies involving
novel drug delivery systems. The company has invested over Rs. 1 billion
on research and development in the last 5 years and has committed
over 10 per cent of its sales towards research.
Nicholas Piramal
Piramal group has recently acquired the prestigious R&D centre of
Hoechst Marion Roussel (HMR), for Rs. 200 million. While this is a
significant deviation from the group’s game plan, it is the right
acquisition at the right time. Just as the investors and analysts were
getting increasingly critical about the group’s excessive alliance-
dependence without any inherent strengths, this acquisition has come
about to ease all their apprehensions.
HMR’s research centre is a quarter century-old and it is the largest
source of natural product research in the country. Eighty-four scientists,
who have 140 odd patents to their credit, staff the centre. HMR, of
course owns the patents now. What is even more interesting is that
HMR proposed to source its research products from the research centre
that it recently sold to Nicholas Piramal. While the details of the
arrangement have not yet been worked out, collaborative research by
both companies and patents sharing is also a possibility.
Focusing on research 169
Torrent
Torrent Health Care is setting up, an advanced research and
development facility with a capital outlay of Rs. 750 million. The
company spends at present 6 per cent of sales for R&D, with a
commitment to increase it to 10 per cent in the near future. More
than 100 scientists are engaged at their research centre in basic as well
as applied research.
The research activities are concentrated on both non-peptide NCEs
and therapeutic proteins for cardiovasculars, metabolic disorders, anti-
infectives and vaccines. The centre has found some promising molecules
and has already filed for patents in India and in the US for NCE – TR
266 and its analogues. TRC 266 is a selective coronary vasodilator that
does not lose its efficacy with continued usage and is less likely to cause
low blood pressure.
Torrent Research Centre is also extending its scope of activities to
molecular pharmacology, long term toxicology, geno-toxicity and cellular
and molecular diseases. The centre is to undertake a wide range of
activities like:
Developing and synthesising new therapeutic entities of known
pathophysiology and therapeutic modalities in selected therapeutic
segments.
Evaluating the therapeutic and toxic potential of NCEs, developing
process to a stage of clinical application.
Incremental innovation for existing products and developing
innovative and therapeutically beneficial formulation to extend
product and market life cycles.
Tracking developments in various research institutes and universities
for licensing or buying technologies.
Focusing on research 171
Sun Pharma
What is particularly noteworthy about Sun’s research and develop-
mental effort is the fact that the company started a state-of-the-art of
research centre with an initial investment of Rs. 60 million even when
172 Game plans for post-GATT era
the company’s total sales turnover was a mere Rs. 200 million.
Furthermore, the company even when it was smaller, it had the
foresight to invest 4 per cent of sales before the other Indian drug
majors did. Today, Sun Pharma Advanced Research Centre (SPARC)
at Baroda is one of the best equipped R&D centres in India with over
70 qualified scientists focusing on areas like:
A. Organic synthesis
B. Novel drug delivery systems
C. Dosage form development
D. Peptide synthesis
E. Biotechnology
In addition, Sun Pharma has created another R&D facility at Mumbai
with a focus on dosage form development for highly regulated markets
in the West.
Sun Pharma also is putting in place a core NCE development group as
part of its strategy to prepare itself for the impending product patent
regime. This elite group will comprise of 40–50 top-notch professionals
familiar with the drug discovery process. The group will start
functioning in fiscal 1999. With this, the total strength of R&D
personnel at Sun Pharma will be around 160. The company continues
to spend 4 per cent of its sales on research and development.
Ipca
Ipca’s research and developmental areas are mainly process development
and formulation development. The company is not yet prepared to
launch a drug discovery program. It, however, has developed cost-
effective alternative processes for a number of pharmaceutical bulk
actives and drug intermediates.
Kopran
Kopran has created a research facility in Navi Mumbai with an investment
of Rs. 100 million. Apart from process development, the centre will
focus on tropical and water borne diseases. These areas are neglected by
Focusing on research 173
Orchid
Orchid has set up a research centre at a cost of $ 4 million. The company
is currently working on four molecules – acyclovir, granicyclovir,
clauvulanic acid, 7 ACA and macrolides. Orchid is planning to diversify
into all the six basic process technologies. Its current areas of research
focus are:
Organic synthesis
Anti-virals
Fermentation
country is not ready for patents. We need the window of 5–6 years.
This could be very useful provided the government uses this period
to help the industry.
4. We must have a large corpus for R&D in the pharmaceutical sector.
The pharmaceutical industry contributes some Rs. 35 billion in
taxes to government every year. Out of this, Rs. 5 billion can be put
aside for R&D. Government should set up a committee, which
can identify ten separate drug research projects every year and
provide each Rs. 500 million annually. This can be on a soft loan
basis for ten years at 2–4 per cent interest. The disbursement could
be linked to milestone payments and commitments of technology,
with adequate monitoring mechanisms in place to ensure that the
projects are on fast track. With this we can have at least 2–3 projects
every year with the possibility of creating a new drug.
A Possible Dream!
Dr. Anji Reddy, Chairman of Dr. Reddy’s Laboratories, is very confident,
even inspiring when he talks of research and development. He believes
that Indian companies will do well in the post GATT era. He says,
“there have been many occasions when small companies have done
outstanding research. So why can’t we? Consider the classic example of
Kyorin, a small Japanese company, which has discovered norfloxacin
(anti-bacterial drug) in the mid eighties.
He adds rather prophetically:
“It is true that no Indian company is capable of taking an idea all the
way up to the market, which involves an expenditure of hundreds of
millions of dollars. But as Dr. Reddy’s Labs have proved, it is within
the realm of Indian industry to undertake pre-clinical research and
license it out for upfront payments and royalties. Unless a handful of
Indian pharmaceutical companies come forward to undertake this,
even in the next 100 years, we will not see a ‘Merck’ or a ‘Pfizer’ from
India.”
Integrating strategically 175
11
INTEGRATING STRATEGICALLY
Executive Summary
11 INTEGRATING STRATEGICALLY
Economies of Scale
The unit cost of a product (or operation or function that goes into the
production of a product) declines as the absolute volume per period
increases. Lupin has achieved significant advantages due to economies
of scale to become a world leader in the anti-TB segment. Kopran has
achieved similar benefits to become the second largest producer of
amoxycillin in the world, mainly due to of its backward integration.
Ranbaxy, by virtue of its vertical integration among other strategic
moves, has become India’s largest pharmaceutical company.
Economies of scale also help in creating entry barriers, particularly
when there are economies in vertical integration, when the firms
operate in successive stages of production and distribution. In the
pharmaceutical industry, there are significant economies of scale for a
vertically integrated company. The raw material costs account for
anywhere between one-third to one-half of the production costs. A
178 Game plans for post-GATT era
Backward Integration
Backward integration means that a manufacturer of finished dosage
forms starts producing key raw materials like bulk drugs and
intermediates. Thisgives the integrated firm the necessary control over
costs,qualityandtimelyavailabilityofitsinputs. Italsohelpsthefirm
to lower its production costs and put pressure on competitors, who
cannot afford such integration.
In the case of backward integration, the volume of captive consumption
of the firm contemplating backward integration must be large enough
to support an in-house production unit. Otherwise the firm faces the
dilemma of whether to sell the extra output to its competitors in the
domestic market or to export to reap the economies of scale in producing
theinputs.
Forward Integration
Forward integration means that a bulk drug manufacturer starts
manufacturing the enduse applications of his products – finished dosage
forms or formulations, generic or branded. In the case of forward
integration, the firm is competing with its purchasing firms. Forward
integration, thus helps the company to enhance value addition and
allows it to charge a premium for its products. The firm can achieve
higher margins for its products and a higher rate of return on its
investment due to higher price realisations.
Forwardintegration can often allowthe firmto differentiateits product
more successfully because it can control more elements of production
processes. The race for developing novel drug delivery systems for out
Integrating strategically 179
Vertical Integration
Verticalintegration stated simply, means that a firm is integrated both
forward and backward. Vertical integration in the drug industry has
important generic benefits and costs. They apply to both forward and
backward integration.
Backward integration helps the firm lower costs and forward integration
helpsraise pricerealisation. Verticallyintegrated firm,therefore, can
reapdouble benefits.
Economies of scaleare atthe coreof vertical integration. International
generic companies have a strategic need to achieve low-cost production
and higher price realisation. They have a two-pronged approach for
enhancing value-addition. They place greater value and emphasis on
achieving economies of all types.
A second potential benefit of vertical integration, proposed by Michael
Porterinhisbrillianttreatise“CompetitiveStrategy”,isthatitprovides
a tap into technology. In some circumstances it can provide close
familiarity with technology in upstream or downstream (or both)
businesses; a form of economy of information so important as to deserve
separate treatment.
Formulation manufacturers integrate backward into making bulk drugs
and bulk drug manufacturers integrate further backward into
intermediatesto gain better understanding of this essential technology.
Manufacturers of bulk drugs integrate forward into formulation to
enhance value-addition by improving margins and by expanding business
asa whole.
Key Issues
Vertical integration can reduce uncertainty of supply and hedge the
firmagainst fluctuationsin prices. At the same time,it is important to
ensurethatinternaltransferpricesreflectmarketrealities.Porterstrongly
suggests thatproducts shouldpass fromunit tounit withinthe integrated
180 Game plans for post-GATT era
Integrate to Succeed
Vertical integration gives the firm competitive advantage over the
unintegrated firm, in the form of higher prices, lower costs and even
lower risk. Thus the unintegrated firm must integrate or bear a
disadvantage. The new entrant to the business is forced to enter as an
integrated firm or face the consequences. The more significant the
benefits of net integration, the greater the pressureon otherfirms also
tointegrate.Ifthecapitalinvestmentrequiredforverticalintegrationis
significant,thenecessitytointegratewillraiseanentrybarrier.
Quasi–integration
Quasi–integration, as the name suggests is establishment of a
relationship between vertically related business that is somewhere
between long-term contracts and full ownership. Common forms of
quasi–integrationare:
A. Minority equity investment
B. Loans or loan guarantees
C. Exclusive dealing agreements
D. Cooperative R&D
Ranbaxy’s 30 per cent equity stake in Vorin Labs, the bulk drug firm,
is an example of quasi–integration.
The following Indian drug companies are among the most integrated
branded generic companies. Between them, they manufacture as many
as 134 bulk drugs and a number of intermediates in addition.
Integrating strategically 181
Ranbaxy
Ranbaxy, when it was still a small company, had decided on backward
integration. The company started manufacturing its own raw materials
in 1973. This hasnot onlyprovided backward integration for its products
inIndia butalso helpedit inexploiting opportunities in industrialised
markets for its pharmaceutical substances. The company’s bulk drug
portfolio ispresented inTable 11.1.
Table 11.1
Ranbaxy’s bulk drug portfolio
The company has developed so far innovative processes for over sixty
drugs eventhough onlythirty-three arelisted inits bulkdrug portfolio.
DRL is a vertically integrated player. The Group’s own bulk drug
production covers over 87 per cent of its formulations.
Table 11.2
Cipla
Cipla has developed over the years cost effective, innovative processes
for over fifty drugs. Many more are under various stages of development.
Integrating strategically 183
Table 11.3
Cipla’s bulk drug portfolio
1.Acyclovir 19. Metopolol 37.Vincristine
2. Albendazole 20. Mitoxantrone 38. Zidovudine
3. Albuterol 21. Nifedipine 39. Carvedelol
4. Alprazolam 22. Nimodipine 40. Leuprolide
5. Campothecin 23. Norfloxacin 41. Mefloquine
6.Cetirizine 24. Omeprazole 42. Olsalazine
7. Ciprofloxacin 25. Ondansetron 43. Bambuterol
8. Clonidine 26. Pefloxacin 44. Trimetazidine
9. Danazol 27.Pentoxyfylline 45. Tenidap
10.Enalapril 28. Progesterone 46. Bambuterol
11. Enrofloxacin 29. Propranolol 47. Lamotrigine
12. Etoposide 30. Salmeterol 48. Fluticasone
13. Febantil 31. Salbutamol 49. Chandonium
14. Felodipine 32.Selegeline 50. Stavudine
15. Fenbendazol 33. Terbutaline 51.Finasteride
16. Ketorolac 34. Terfenadine 52. Estramustine
17. Mebendazol 35. Testosterone 53. Fluconazole
18. Methocarbamol 36. Vinblasine 54. Lansoprqazole
Cipla has been one of the first two companies to come up with
alternative processes for almost all the new molecules that have been
introduced in the country during the last five years. The backward
integration has helped Cipla considerably in controlling the quality,
costs and availability of its bulk actives. Cipla is a highly integrated
pharmaceutical company that is all set to prove its mettle in the
international market. The company’s own bulk production covers about
three-fourths ofits formulations.
184 Game plans for post-GATT era
Lupin
Lupin’s recent acquisition of Max-GB’s cephalosporins and 7-ADCA
unit at Tonsa (near Chandigarh) in Punjab, is indeed a winning move
as itgives Lupinaccess tothe mainraw materialfor its third generation
cephalosporins. This will make Lupin a vertically integrated
cephalosporin player in the international market. Lupin has already
tied up with Merck Generics of Germany to market its sterile
cephalosporins formulations in the first world markets, once their
patents expire. This acquisition will give the company a strategic
advantage. The main producers of cephalosporins world wide are:
Biochemie in Austria, ChunKn Dong and Cheil of Korea, Antibiotics
in Spain and Italy, and Hoechst and Gist Brocades. Max-GB is currently
a 50:50 joint venture between Max and Gist Brocades.
Lupin has already become the world’s leading player in the anti-TB
segment through a carefully planned integrationstrategy. It is planning
to do the same in the oral and sterile cephalosporin market.
Table 11.4
Lupin’s bulk drugs portfolio
1.Cefaclor 6. Cephalexin
2. Cefadroxyl 7. Ethambutol
3. Cefotaxime 8. Rifampicin
4. Ceftizidime 9. Trimethoprim
5. Ceftrioaxone 10. Vitamin B6
Wockhardt
Wockhardt has a sharply focused strategy of integration. It is one of
the world’s largest manufacturers of analgesic – dextropropoxyphene.
Wockhardt has a strong presence in pain management. Two of the
company’s leading brands, which feature among the industry’s top 250
are formulations based on dextropropoxyphene.
Integrating strategically 185
Table 11.5
Wockhardt’s bulk drug portfolio
Nicholas Piramal
Nicholas Piramal, with the acquisition of Roche, became a major
producer of vitamin A. Later, it acquired the Hyderabad-based bulk
drug company Sumitra Pharmaceuticals, essentially as a step towards
verticalintegration.Recentlyit hasunfolded itsstrategy andmadeclear
its intentions to become a vertically integrated player, by forming a
joint venture with the leading European company La Porte, for
manufacturing and marketing bulk drugs. This joint venture would
ensure better technology that would be difficult to copy and give it a
distinct and sustainable competitive advantage.
186 Game plans for post-GATT era
Table 11.6
Torrent
The quest for economiesof scale is thegreat drivingforce inthe Torrent
group. Torrent doubled its penicillin manufacturing capacities, even as
it launched a Rs. 350 million forward integration project in Baroda.
Torrent–Gujarat Biotech Limited (TGBL), by doubling its capacity, will
be able to bring down the fixed cost per unit of penicillin produced to
an extent that it can be internationally competitive. Doubling the
capacity would cost the group about Rs. 750 million, where as a green
field venture would cost about Rs. 2 billion.
Table 11.7
1. Atenolol 8.Ranitidine
2. Centochroman 9. Ketoconazole
3.Diclofenac 10. Amoxycillin (Torrent – Gujarat Biotech)
4. Diltiazem 11. Ampicillin (Torrent –Gujarat Biotech)
5. Famotidine 12. Cefadroxyl (Torrent – Gujarat Biotech)
6. Lithium Carbonate 13. Cloxacillin (Torrent – Gujarat Biotech)
7. Omeprazole 14. Nicorandil
Integrating strategically 187
Table 11.8
Zydus’s bulk drug portfolio
Sun Pharma
Sun Pharma has leap frogged into the bulk drug arena in three years
time through a combination strategy of in-house development at their
state-of-the-art researchcenter SPARC, green fieldproject fora multi-
purpose bulk drug facility at Panoli (that conforms to international
standards), acquisition of Knoll’s plant for bulk drugs at Ahmednagar
and merger with TDPL. Till 1995, Sun Pharma had developed
innovative processes for only a handful of bulk actives. By 1998, the
company had joined the big league comprising Dr. Reddy’s Labs, Cipla
and Ranbaxy in terms of the number of processes developed. Sun
Pharma’s bulk drug portfolio covers diverse therapeutic segments. It
188 Game plans for post-GATT era
Ipca
Ipca has constantly focused on backward integration. Starting with a
range of formulations, it established an R&D laboratory in 1981 which
developed all the bulk drugs it sells today. The company spends a modest
Rs. 15 million every year, which is set to increase. The company has
gone into backward integration essentially to back up its formulations.
All the major formulations of Ipca like lariago, tenolol, perinorm,
eltocin etc., are backed by its own bulk drugs.
After it started producing bulk drugs in 1986, Ipca integrated into
intermediates. Its own bulk drug and intermediate production currently
back overone-third ofits formulations.For instance,in atenelol,it has
integrated right from phenol to its branded formulation – tenolol.
This offers the twin benefits of steady supplies and better margins.
Table 11.10
Kopran
Kopran, a leader in semi-synthetic penicillins has implemented a
backward integration project by manufacturing chemicals and
intermediates required for most of its bulk drugs. The company has
invested about Rs. 1 billion for the backward integration project and
expansion ofits manufacturingfacilities ofbulk drugsand formulations.
About a third of this investment goes towards creating facilities for
manufacturing chemicals and intermediates. With the commissioning
of this plant, Kopran intends to become a highly integrated player for
the drugs that it manufactures. The company is planning to be one of
a few in the world in terms of manufacturing the widest range of anti-
bacterials.
190 Game plans for post-GATT era
Table 11.11
1.Amoxycillin 5. Cephalexin
2.Ampicillin 6.Ciprofloxacin
3.Atenolol 7.Cloxacillin
4.Cefadroxyl 8.Di-cloxacillin
Orchid
Orchid is on its way to become one of the most integrated cephalosporin
manufacturers in the world. It currently has about 13 per cent share of
the world cephalosporin market. The company is about to complete a
backward integrationproject tomanufacture some of thekey intermediates
by end 1998.
Orchid is also implementing a forward integration project by launching
high end sterile and oral formulations of cephalosporins in the domestic
market by October, 1998. For this purpose, the company has set up a
separate division – Orchid Health Care.
Table 11.12
Competitive Advantage
Vertically integrated pharmaceutical companies in India have a distinct
competitive advantage that is sustainable. Many overseas generic
manufacturers out source their bulk requirements, whereas a vertically
integrated manufacturer can achieve lower costs ofproduction. This is a
definite competitive advantage leading to either higher margins or more
competitive pricesto penetratethe market.
Many of these leading Indian drug companies have demonstrated the
benefits of vertical integration. Dr. Reddy’s process innovation skills
and consequent cost advantages are well known to the pharmaceutical
world.Throughhighlycost-effectivealternative,non-infringingprocesses
forproducts likeibuprofen, norfloxacin,ciprofloxacin etc.,the company
has demonstrated that these products can be marketed at unbelievably
lower prices. Lupin hasachieved similarsuccesses inthe anti-tubercular
segments with rifampicin and ethambutol and now it is repeating the
same in the cephalosporins segment. Wockhardt has achieved the
distinction of becoming one ofthe largestproducer of dextropropoxyphene
and is planning to do the same with vitamin B12.
Kopran, which has become one of the largest manufacturers of
Amoxycillin in the world, too has reaped the benefits of integration
strategies. Due to its planned backward integration the company has
been able to realise 4–5 per cent higher margins than its European
competitors inthe fiercelycompetitive high-volume,low marginbulk drug
business.
Ipca’s success with the bulk active of the most widely prescribed anti-
hypertensive molecule– atenolol is due to itsability tointegrate right
up to the basic stage. There are many examples of similar successes by
other companies.
All these companies and others, who have achieved a high degree of
backward integration, are now moving up the value chain into
formulations. That would make them vertically integrated and highly
competitive.
One company that has become vertically integrated in the real sense is
Ranbaxy. It has a clearstrategy tosupport its global brandbuilding for
25 products with its own low cost bulk actives. This puts Ranbaxy in an
192 Game plans for post-GATT era
12
‘INTERNATIONALISING’ THE BUSINESS
Executive Summary
12 ‘INTERNATIONALISING’ THE
BUSINESS
Exports to Internationalisation
There is more than semantics to the expression ‘exports to
internationalisation’. Thefirst pre-requisiteis achange of mindset, to
viewthe worldas a whole. Itis notmerely theact ofestablishing offices
overseas. Thesecond pre-requisite is sharing of knowledgepertaining to
products, processes, technology and customer databases across the
organisation. A global company achieves sustainable advantages over
rival firms through competitive benchmarking and strives to be a cost
leader. The transition from an export-oriented company to an
internationalised company broadly involves five phases:
1. Domestic operations with some exports
2. Stronglyexport oriented
3. Regional operations with core domestic strengths
4. International operations with strong headquarter control
5. Global operations
Ranbaxy
Ranbaxy decided to export in 1975–76. The company has never looked
back since then. Today in 1997–98, about one half of their Rs. 13.5
billionsales come from their international operations. How did Ranbaxy
achieve what it did? By focusing. Through a well defined strategy. Above
allby effectivelyimplementing it.
Ranbaxy wanted to be an international company that stands on its feet
against stiff competition in overseas markets. The only way to achieve
‘Internationalising’ the business 197
Table 12.1
Evolution of Ranbaxy’s internationalisation
1. China 8. Netherlands
2. Malaysia 9.Ireland
3. Thailand 10. Nigeria
4. Hong Kong 11. South Africa
5. Mauritius 12. Egypt
6. US 13. Poland
7. Canada 14.India(withEliLilly)
allianceswillhelpthecompanyrealiseitsambitious objectiveofreaching
a critical mass of $ 150 million in the US generic market. The company
also has plans to create its own marketing team by 2002.
Ranbaxy has divided the world into four regions, each headed by a
regional director. One is India and Middle East, which accounts for 50
per cent of its turnover. The second region is Africa, Europe and the CIS
countries, headquartered in London. Asia-Pacific, the third region has
its headquarters in Hong Kong. The fourth region is America with its
headquarters in New York. Ranbaxy has a manufacturing facility in
each oftheregions.
ment for its novel compounds for the treatment of diabetes to the
Danish drug major, Novo Nordisk, takes these compounds through
the further stages of development to commercialisation against mile-
stone payments and royalty on sales. This is unprecedented and is a
historic achievement. The group has already received the first instal-
ment of $ 4 million towards the milestone payments.
Cipla
Cipla has decided to aggressively pursue the international marketing
opportunities only recently. The company has proven technological
competence andproduct development capabilities. Italso has a versatile
portfolio of bulk actives and formulations covering a wide range of
therapeutic segments. Cipla also has manufacturing facilities that are
approved by international regulatory authorities like US FDA, UK MCA
and the Australian TGA. It has decided to exploit the marketing
opportunities that the liberalised business and economic environment
hastooffer.
Cipla haschosen thejoint ventureand strategicalliance routeto conquer
the international markets. The company’s strategy is to create a win-win
allianceinallthekeymarkets ofthe world.
Cipla will enter intoa strategicalliance or a jointventure witha local
partner in each of the key markets. Cipla will provide the products and
the technology.The allianceor thejoint venturepartner willprovide the
market knowledge, distribution and marketing support. The joint venture
company will initially source the finished dosage forms from Cipla’s
approved manufacturing facilities in India. As the alliance progresses,
the local company will manufacture the finished formulations, sourcing
bulkactivesfromCipla’sapprovedfacilitiesinIndia.Astheinternational
markets take shape, the joint venture company will integrate backwards
and manufacture even the bulk actives. Ciplawill providethe technology.
Cipla isplanning toset upat leastone manufacturing base ineach region
and then leverage these bases through technical tie-ups and franchising
arrangements in the long run. The company has set an ambitious
objective for its international operations of achieving a third of its
total turnover by the year 2000.
‘Internationalising’ the business 203
Lupin
Desh Bandhu Gupta, the founder chairman of Lupin, while talking about
the company’s future said that the globe is their market but the focus is
on the US, Europe, China, Russia and South East Asia. Exports have
multiplied five times from Rs. 400 million in 1992 to Rs. 2 billion in
1996–97. Lupin too has been aggressively pursuing the strategy of
globalisation by opening up formulation markets in a big way and
bringing synergies between their bulk drug and formulation
manufacturing. It is planning to achieve this through a combination of
joint ventures and the setting up of manufacturing and marketing bases
in key overseas markets. Consider these winning moves:
Lupin’s 60:40 joint venture with Quatromed of South Africa will
manufacture and market anti-TB products and cephalosporins. This,
apart from ensuring the preferential treatment rendered to local
companies inSouth Africa, will providea spring-board for penetrating
neighbouring markets in Namibia, Botswana, Mozambique and Malawi.
Established marketing offices in Kenya, Vietnam, Kazakhistan,
Ukraine, South China, Hong Kong, and Myanmar.
Planning to set up a joint manufacturing venture in the Russian
Federationwith theSt. PetersburgResearch Institute.
Investing about Rs. 520 million in two joint ventures with Herbie
Pharmaceuticals and Shanghai No. 3 in China.
Establisheda strategicalliancewithMerckGenericstoenterthegeneric
marketsin the US, Europeand Japanwith itsformulations of injectable
cephalosporins.
Currently exporting to about 60 countries.
Aims to achieve a turnover of $ 250 million from the North American
market and $ 150 million from the Europe and CIS countries by the
year 2002.
Wockhardt
Wockhardt has been progressing aggressively on the exports front and
believes that it will survive and grow only if it globalises. Presently,
exports account for about 22 per cent of its revenues. The company
204 Game plans for post-GATT era
Nicholas Piramal
Nicholas Piramal’s exports in 1998 took a dip of about 24 per cent to
Rs. 310 million from the previous years’ Rs. 421 million.
The company has chosen the ‘alliance route’ even in its strategy to
conquer the foreign shares. Nicholas Piramal is setting up a joint ven-
ture with Swiss-based Siegfried Pharma Ltd for entering the off-patent
generic markets in European Union – The JV will also identify a mar-
keting partner to penetrate the North American generic markets. The
Company’s alliance with La Porte, the leading European firm should
help Nicholas Piramal boost its exports of bulk actives and intermedi-
ates. The alliance with US-based Cytran too covers some international
markets in Asia and the Middle East.
While Nicholas Piramal has not made any significant headway in
exportssofar,allthesealliancesindicateitskeennessincreatingastrong
presence in overseas markets too.
Torrent
Torrent’s portfolio for export is made up mainly of formulations. Most
of its exports are to CIS and the developing markets. It has overseas
offices in Moscow and in Poland. In fiscal 1998, Torrent has achieved
an exports turnover of Rs. 1.05 billion. Torrent has registered its
formulations in Sri Lanka, Iraq, Iran, Africa and China. The sales from
these markets are not significant yet. Torrent is chalking out an
aggressiveexportstrategyincludingstrategictie-upsinallmajormarkets.
The company wants to consolidate its position in existing markets and
also penetrate the highly industrialised markets in Europe.
Zydus
Having consolidated its presence in domestic market, Zydus group is
actively preparing to step up its exports and international operations.
206 Game plans for post-GATT era
Sun Pharma
Exports are one of the major growth drivers at Sun Pharma. It has
been marketing its branded generic formulations in a number of
developing markets in Asia Pacific, Africa, Middle East and CIS. Sun
Pharma has a three-pronged strategy for accelerating its exports:
1.Toenhanceexportsofspecialitybulkdrugstothehighlyindustrialised
markets in Europe and US.
2. Market branded generics in those developing markets with relatively
weak protection for IPR.
3. Ridethefirstwave ofgenerics,asthedrugsgooff-patent,throughits
joint venture Sun–Caraco in the US.
Sun Pharma’s objective is to achieve 45 per cent of its revenues from
international markets (from the present 30 per cent), with in two years
from now.
Ipca
Export is the other leg of Ipca’s business strategy. The company has
been building its export base for the past few years and this gave the
company an advantage over the later entrants, since exports cannot be
builtovernight.Ipca’sexport strategy,hassofar been:
To export formulations to developing countries.
Bulk actives and intermediates to both developed and developing
countries.
‘Internationalising’ the business 207
Kopran
Kopran has emerged as one of the world’s leading manufacturers of
amoxycillin. It has two overseas subsidiaries in Hong Kong and UK
since 1995.It hasdistributors inall major markets ofthe worldlike the
US, Western Europe, South East Asia and the Middle East. Exports
accounted for over 43 per cent of its total turnover infiscal 1996.
The company is planning to accelerate growth by increasing exports of
bulk actives and drug intermediates and by sharpening the focus on value
added formulation exports. It is taking the strategic alliance route to
achieve thesetwin goals.
The company has formed a 50:50 joint venture in Uganda to penetrate
theAfricanmarket.Ithasalsotakena39 percentstakeinajointventure,
which is setting up a new pharmaceutical company in UAE, to gain access
to the Middle East markets. Kopran has also entered into two alliances
in Europe with DDSA and Synpac, to enter the fast expanding generic
markets for off-patent drugs in the European Union. The company is
actively lookingfor similaralliances inthe US.
Orchid
Orchid continues to maintain its status as a 100 per cent export-oriented
unit for its bulk drug operations. The company, within a short span of
fouryears, hasachieved anexport turnoverof Rs.2.4 billionby focusing
on a range of bulk actives of sterile and oral cephalosporins. It has
208 Game plans for post-GATT era
Common Thread
What are the common factors in the strategies for internationalisation
of allthese leadingIndian pharmaceuticalcompanies? Virtuallyall these
companies are keenly pursuing a strategy of progressing from export of
bulk actives and intermediates to exports of more value added
formulations. The strategic objective of each of these firms, which are
preparing themselves to effectively compete in the post-GATT era, is
to become an integrated, international generic firm.
On closer examination, it is clear that Ranbaxy has been the role model
for mostof thesecompanies,intermsofstrategy.Theevolutionary process
of some of the leading Indian drug firms in internationalising their
businesses seems to have a common pattern. The steps or the milestones
inthis evolutionaryprocessare:
A. Exports of bulk drugs to developing countries.
B. Exports of generic formulations to third world countries.
C. Exports of bulk drugs and intermediates to developed countries.
D. Marketing of branded generic formulations in developing countries
through agentsor distributors.
E. Marketing of generic formulations through company’s marketing
teams in developing countries.
F. Marketing of generic formulations of patent-expired drugs in
developed countries.
G. Marketing of branded generic formulations of patent-expired drugs
in developed countries.
H. Licensing of own NCEs to MNCs in developed countries.
I. Marketing own NCEs in developed countries through company’s
marketing teams.
J. Having a full-fledged joint venture with a local partner covering
product development, manufacturing and marketing in developed
countries.
‘Internationalising’ the business 209
Paradigm Shift
Sounds impossible? Companies like Dr. Reddy’s and Ranbaxy have
shown that it is a possible dream. There are at least seven companies
which haveentered intostrategic alliances,including jointventures, to
tapintotheoff-patentgenericsmarketsinthehighlyindustrialised West.
Dr. Reddy’s have already licensed their NCEs to an MNC in a path-
breakingalliance. This has indeed opened new vistas for other aspirants
among the Indian pharmaceutical companies. Ranbaxy, Wockhardt and
Torrent are also looking for partners to take their NCEs through further
development, registration and commercialisation on similar lines.
There is more to internationalisation of business than mere export
turnover. What is needed to make the real transition from exports to
internationalisation is a paradigmshift or a change in mindset. A change
inattitudefrompatentbustingtorespectingintellectualpropertyrights.
This can be seen from the recent licensing arrangements that some of
the Indian pharma companies like Ranbaxy, Wockhardt and Nicholas
Piramal have entered into for introducing the molecules of MNCs. If
you want to be a global player, you cannot have two sets of rules – one
for domestic market and another for overseas markets.
Acquisition of a true international character is more important than
the acquisition of manufacturing facilities or even brands in overseas
markets. Ranbaxy is the only Indian drug company to acquire an
international character. It has manufacturing bases in six regions and
has marketing operations in 26 countries. Fourteen per cent of its 7000
strong work force is non-Indian.
Whom do you benchmark against is another important aspect that
companies wanting to internationalise should consider seriously. You
cannot achieve global competitiveness if you benchmark your operations
against your domestic rivals. You need to benchmark against the global
players – the best in class. Ranbaxy has been benchmarking its
operational targets against global generics manufacturers like Ivax and
Mylan of the US, Tofa of Italy and Teva of Israel – to become cost
competitive. Small wonder then, that it has become the 9th generic
company inthe world.It had planted the seeds forinternational business
asearly as1968andithasworked relentlesslyat it.
210 Game plans for post-GATT era
13
ATTRACTING ALLIANCES
Executive Summary
13 ATTRACTING ALLIANCES
Why Ally?
Almost all companies enter alliances out of need. A company may have
thetechnology, but lack an important piece of the puzzle, such as market
access. Alliances help the partner companies get a head start in tapping
new business opportunities and overcome obstacles. The key questions
to ask before deciding on analliance are:
Why do you need a partnership?
With whom you want to collaborate?
How are you going to combine your core competencies with your
partner-to-be?
How will you structure your relationship or alliance?
The international experience suggests that there are nine strategic
factorsthat drive alliance formation.
216 Game plans for post-GATT era
3. Sharing of knowledge
Companies that are focused can capture new developments through
alliances without reducing their focus. A number of drug firms, the
world over, are allying with highly specialised developmental firms in
areas like biotechnology, novel drug delivery systems etc. Alliances
between pharma companies and governmental research institutions
like IICT and CDRI to share assets and fill knowledge gaps are also
increasing.
countries like the US, UK, France, Germany, Japan etc. That is why
the number of alliances between some leading pharma companies and
the generic companies in the US and Europe is increasing. Consider
thefollowing alliancesin progress:
Lupin and Merck Generics
Cheminor Drugs (Dr. Reddy’s group) with Schein Pharma
Ranbaxy and Schein Pharma
Cipla with Geneva Pharma
Wockhardt and Sidmak
Sun and Caraco
All these alliances are trying to get an access to the very lucrative,
difficult-to-penetrate North American generic market. They are all
trying to get a foot in the door by creating a beach-head through these
alliances.
Ranbaxy
1. Alliance with Eli Lilly: Ranbaxy has entered into a major strategic
alliance in 1994, covering two 50:50 joint ventures with an
Attracting alliances 219
Cipla
1. With Nova Pharm, Canada: Cipla has entered into a strategic alliance
with one of Canada’s leading generic companies to gain market access
for its bulk drugs and formulations. Cipla will manufacture these
at its US FDA approved facilities and Nova Pharm will market these
in Canada.
2. With Geneva Pharma, US: In a move to gain access to the rapidly
expanding off-patent generics market, Cipla has tied up with
Geneva Pharma, one of the largest generic companies in North
America.
3. With Medpro Pharmaceutica, South Africa: This alliance is to gain
access to the South African market for its pharmaceutical bulk
actives and finished dosage forms.
4. Cipla is also planning to enter into a 50:50 joint venture with
Zhejiang Autokang Pharmaceutical Company in China. The joint
venture company will be set up with an initial investment of $ 2.1
million for manufacturing infusion based formulations. The joint
venture company will source bulk actives from Cipla and once the
volumes increase, the JVC will integrate backwards. Cipla will of
course provide the necessary technology.
5. Yet another joint venture in Cipla’s game plan is with Helio Pharma,
Egypt, to gain access to Egypt and other countries in Africa and the
Middle East. The main purpose of this JV is to overcome the entry
barrier (Egypt currently restricts imports of pharmaceuticals only
to bulk actives and breakthrough areas). Pharmaceutical companies
hitherto state-owned are likely to be privatised in Egypt. Also in
the offing is a Free Trade agreement with Europe. This JV, which
will manufacture and market a wide range of Cipla’s formulations
on a royalty basis, can also exploit the emerging opportunities in
the region.
6. Cipla has also entered into a marketing joint venture with
Genpharm of Australia, as a part of its strategy to consolidate its
global presence. The company is also planning to set up a state-of-
the-art formulations facility in Australia and the investment could
be in the range of $ 5 million.
Attracting alliances 223
Lupin
1. Lupin and Merck Generics: Lupin laboratories has entered into a
strategic alliance with Merck Generics for marketing generic
formulations of its injectable cephalorsporins in the developed
markets like the US, Canada, Germany and other European
countries. Lupin is already manufacturing three injectable
cephalosporins – cefazoline sodium, ceftriaxone and cefotaxime
sodium. Besides marketing in India, the company is also exporting
these products to China, South East Asian countries and the CIS.
Merck Generics is the fully owned subsidiary of Dramstdt based
E Merck, which is the fifth largest company in Germany and the
tenth largest in Europe. Merck Generics has become one of the
world’s biggest generic companies following the acquisition of the
Amerpharm group of companies and Dey Laboratories in the US
by E Merck.
Merck Generics has a strong marketing strength in the hospital
segment and therefore will be able to market the injectable range
of cephalosporins manufactured by Lupin in North America and
Europe. The alliance aims to capture around 10 percent of the $ 2
billion world market for these products.
Both the companies jointly undertake the responsibility for the
approval and registration formalities for these products worldwide.
Lupin has a strong manufacturing base for these products with a
facility approved by the US, FDA. As the market for these products
Attracting alliances 225
Wockhardt
1. Wockhardt and Ferrings: Wockhardt has entered into a marketing
alliance with Ferrings of Denmark through its recently acquired
Wallis Laboratories of UK. This move is a part of its strategy to gain
market access to the European Union.
The company wants to convert Wallis, primarily a UK company,
into a European firm. The new alliance will market Wallis’s as well
as Wockhardt’s products in Europe and the USA. Wallis specialises
in manufacturing generic and over-the-counter pharmaceuticals and
has almost all the major retail pharmaceutical chains such as Boots,
Sainsbury’s, APS, Booker and Unichem as its customers.
226 Game plans for post-GATT era
the New Jersey-based Sidmak Inc., a $ 100 million generic firm with
more than 100 products in its portfolio. The joint venture is not
based on equity participation but on sharing costs and profits. All
product labels will carry names and logos of both Wockhardt and
Sidmak. The venture will cover 15 products in various therapeutic
segments to be launched between February 1999 and 2003. The
first product to roll out in February 1999 under this alliance is the
generic version of ranitidine. The JV envisages an annual turnover
of $ 100 million by 2003.
ThisallianceisinlinewithWockhardt’sstatedpolicyofglobalisation
through strategic alliances and joint ventures. It also achieves
synergiesby exploiting Wockhardt’s strengthsin product and process
development and Sidmak’s distribution network and marketing
reach.
with two joint ventures. The first one is with Boots Health Care
International for marketing its OTC brands such as strepsils,
sweetex and icy. The company is also working on further
collaboration.
6. Reckitt–Piramal is the second joint venture for marketing the OTC
brands of Reckitt & Colman like dettol, disprin and the NPIL’s
OTC brands such as saridon, polycrol and rennie.
7. NPIL has started marketing ambisome, a life-saving liposomal
ampothericin-B for treating fungal infections through its alliance
with Nextar.
8. Stryker–Piramal is the new alliance of the group with Stryker
Corporation of the US. This alliance will explore research,
development and manufacture of the high technology orthopaedic
devices. Through the Stryker division, NPIL will be able to offer
totalsurgical solutionsfrom therapeutictreatment uptopostsurgical
care.
9. The group has entered into a marketing and distribution alliance
with the Connecticut-based US Surgicals as an exclusive distributor
ofitsproductsinIndia.
10. In the area of bulk drugs too, the group is planning a joint venture
with La Porte, a leading European company. The tie-up with a
European company would ensure better technology that would be
difficult to copy and give the joint venture company a distinct and
sustainable competitive advantage.
11. Nicholas Piramal, in a rather unconventional move, entered into a
50:50 joint venture with the Maharashtra-based 125 year old
ayurvedic and plant based product manufacturer – Shri
Dhootpapeshwar (S D) to form Solumix Piramal Limited. The joint
venture company will market a range of 16 products of the ethical
product division of S D. Annual turnover of these sixteen products
was around Rs. 70 million last year.
Theethicalproductsdivision isbeing transferredto thejoint venture
company along with its field force of 100.
This JV is targeted to bolster its recent initiatives in newdrug dis-
covery through the acquisition of the Hoechst research centre. The
Attracting alliances 229
Torrent
1. Torrent has entered into a 50:50 joint venture with the French
drug major, Sanofi to manufacture, market and export the latter’s
formulations to countries in South Asia and South East Asia. Sanofi
is apart ofthe $ 40 billion Elf group.
Besides manufacturing and marketing the Sanofi range of patented
formulations in India through a new marketing arm, Sanofi–
Torrent in India, the joint venture also will use Torrent’s R&D
facilitiesto developnew molecules.
This alliance would eventually extend to setting up manufacturing
facilities with the aim of making India as the export base.
This joint venture is a part of the Torrent group’s ambitious plans
to invest Rs. 3 billion in the next three to four years in the drug
industry to become a major player in the post-GATT scenario.
2. Torrent has joined the hepatitis-B bandwagon with its recent tie-up
with the US firm Scitech Inc to manufacture 20 million doses of
recombinanthepatitis-BvaccineinIndia. Thisallianceisequity based
with 48 per cent equity share held by the foreign partner. The total
investment would be around Rs. 250 million. The project Torrent
– Scitech will manufacture the vaccine in India and market the
product in India and select overseas markets. The foreign partner
will receive a royalty of 5 per cent on domestic sales and 8 percent
on exports.
11. The company has formed another marketing alliance with China
Science Resources for marketing artesunate, the anti-malarial under
the brandname falcigo, for treatingfalciparum and cerebral malaria.
12. Aqua Vet, the veterinary division of Zydus has forged an alliance
with Mallinckrodt of the US for marketing their veterinary anti-
rabies vaccines – butalex and rabdomun in India.
13. Asapartofitsglobalstrategiesforcompetingeffectivelyinthepost-
GATT era, Zydus is setting up a joint venture with BYK Gulden of
Germany to manufacture and market pantoprazole, the proton
pump inhibitor used in the treatment of gastric ulcers. To be set up
a cost of Rs. 250 million, the export oriented unit (EDU) is expected
to generate a business of over Rs. 1 billion in its third year of
operations from 1999.
Sun Pharma
Sun Pharma has entered into a equity based joint venture with the
Michigan-based Caraco Pharmaceuticals, a generic firm, to gain access
to the rapidly growing North American generic market. Under this
agreement, SunPharma willinitiallyinvest$ 4 million.It willalso sell
rights of 20 off-patent generic formulations. Sun Pharma will further
develop generic formulations for manufacturing and marketing in the
US by Caraco. Both the partners will share the development and
registration efforts. Sun Pharma would be acquiring about 68 per cent
equity in Caraco within three years.
Ipca
Ipca is one of the most eligible suitors for strategic alliances. It has
upgraded itstechnological infrastructureto internationalstandards. It
has US FDA approvals for nine of its bulk activities. The company
therefore, isbest prepared to exploit opportunities in custom synthesis
and contract manufacturing for multinational companies.
1. Ipca, for the past five years has been supplying PHPA, a drug
intermediate for atenolol and other drugs to Hoechst Celenase of
the US. This tie-up is generating around Rs. 60–70 million per
annum.
234 Game plans for post-GATT era
Kopran
1. Kopran and Industrial Promotion Services (IPS), a subsidiary of the
Aga Khan Fund for Economic Development (AKFED) have formed
a joint venture to take over Kampala Pharmaceutical Industries (KPI),
the bigger of Uganda’s two pharmaceutical companies. Kopran will
supply the bulk drugs to KPI for manufacturing formulations locally
at its facility in Kenya. Kopran will also license some of its
formulations to KPI on a royalty basis.
2. Kopran is forming a marketing alliance with Glaxo India for selling
its own respiratory brands. Kopran is forming Kresp, a new strategic
business unit to market respiratory products of the alliance. Glaxo
will manufacture a whole range of inhalers including Bevent and
vent and kresp will market them.
3. The second alliance is with DDSA in the UK. This will be a 50:50
joint venture under the name K D Pharma. Kopran will invest in
this venture through its 100 percent subsidiaryKopran International
Limited. The Joint Venture Company will market generic formulations
of off-patented drugs in the UK and other European countries.
4. Kopran has forged another alliance for the supply and manufacture
of pencillin-G with the UK based Synpac. Kopran will source
penicillin from Synpac to make pencillin based products, which
Synpac will in turn buy back from Kopran for the international
markets. If the alliance is successful, the two companies will work
towards a 50:50 joint venture. This alliance will make Kopran one
of thelargest playersin thepencillin market.Kopran willalso extend
Attracting alliances 235
Orchid
Orchid Chemicals has entered into an informal manufacturing alliance
for its non-cephalosporin bulk drugs and formulations with the
Chennai-based American Remedies. Orchid, as a part of its forward
integration strategy, is entering into marketing of cephalosporin and
non-cephalosporin formulations. American Remedies will be utilising
their surplus bulk-active and formulation capacities for manufacturing
these till Orchid setsup itsown plants.
Orchid recently entered into subcontracting agreements for sourcing
formulations with Nashik-based Liva pharmaceuticals and Hyderabad-
based Armour Pharmaceuticals.
Eight ‘I’s
Indeed,thebestorganisationalrelationshipsare,likethebestmarriages,
true partnerships that tend to meet certain criteria. These are
relationships, where both partners are strong and have something of
value to contribute to the relationship. The eight ‘I’s of an enduring,
fruitfulrelationshipare:
1. Individual excellence 5. Information
2. Importance 6. Integration
3. Interdependence 7.Institutionalisation
4. Investment 8.Integrity
Intellectual capital 237
14
INTELLECTUAL CAPITAL
Executive Summary
14 INTELLECTUAL CAPITAL
One of the greatest challenges facing any business today is the gap
between its balance sheet and market valuation. This gap, representing
the bulk of a company’s true value, consists of indirect assets –
organisational knowledge, customer satisfaction, product innovation,
employee morale, patents and trademarks – that never appear in its
financial reports.
It has increasingly become obvious that the real value of the companies
cannot be determined by only traditional accounting measures. The
worth of any knowledge-based and information-intensive organisation
lies not in bricks and mortar, or even in inventories and receivables,
but in another intangible kind of asset: intellectual capital.
Walter Wriston in his highly influential book, “The Twilight of
Sovereignty”, writes: “Indeed, the new source of wealth is not material
– it is information, knowledge applied to work to create wealth”.
Welcome to the new age of intellectual capital. Rick Karlgaard, editor
of Forbes ASAP, identified the importance of intellectual capital and
wrote almost prophetically in a 1993 editorial:
“As an index, book value is dead as a doornail, an artefact of the
Industrial Age. We live in the Information Age. Of course, though
remarkably few people have come to terms with the fact. Failure to
understand the declining relevance of book value – and the hard
assets that form the ratio’s numerator – is the proof of this. Human
intelligence and intellectual resources are any company’s most
valuable assets”.
240 Game plans for post-GATT era
Do it Now!
Leif Edvinsson and Michael S. Malone in their pioneering book on
‘Intellectual Capital’, write about its future very convincingly:
“The rise of intellectual capital is inevitable, given the irresistible
historical and technological forces not to mention the investment
flows, that are sweeping across the modern world and driving us to
the knowledge economy. Intellectual capital will dominate the way
we value our institutions because it alone, captures the dynamics of
an organisation’s sustainability and value creation. It alone recognises
that a modern enterprise changes so fast that all it has left to depend
Table 14.1
on, are the talents and dedication of its people and the quality of the
tools they use. But most of all, intellectual capital is inevitable because
it alone, of any model for measuring corporate performance, pierces
the surface and uncovers true value. In doing so, it restores both
common sense and fairness to economics”.
Make no mistake, whatever the path you choose, intellectual capital is
our future. Invest in it. Build it. If you are investing in and building the
intellectual capital base of your organisation, you are in fact building
your own future. Do it Now!
248 Game plans for post-GATT era
Operational excellence 249
15
OPERATIONAL EXCELLENCE
Executive Summary
15 OPERATIONAL EXCELLENCE
D. Performance measurement
E. Strategic benchmarking
F. Performance management through positive reinforcement
G. Speed
H. Empowerment
A. Productivity Improvement
Productivity improvement is possible only through continuous
rationalisation of processes and existing activities. It helps the
organisation eliminate redundancies in resources and processes. It thus
helps to cut down avoidable costs and frees people and money needed
for growth.
B. Revitalisation of strategies
Revitalisation of growth strategies across the organisation is also
necessary to generate the energy and enthusiasm to sustain the grueling
challenge of relentless productivity improvement.
Winning Combination
Professor Sumantra Ghoshal wrote very emphatically in his thought-
provoking article on ‘Radical Performance Management: The sweet
‘n’ sour’ in ‘The Economic Times’ sometime ago that:
“The process of rationalisation and revitalisation are not mutually
exclusive as most managers think. It is their ‘either – or’ mind-set
that causes this misperception. What is needed is a clear
understanding that these two processes are symbiotic and mutually
reinforcing. They are the winning combination to open the gates of
sustained superior corporate performance. Growth without
productivity is like building castles in the sand – inevitably they
collapse under their own weight. An exclusive focus on productivity
alone with no attention for growth proves to be corrosive, ultimately
sapping all the energy and creativity of the organisation. Sustained
superior corporate performance, therefore, requires both– continuous
254 Game plans for post-GATT era
Table 15.1
Strategic cost management approach
D. Performance Measurement
Successful organisations achieve superior performance with greater ef-
ficiency and effectiveness than their competitors. Effectiveness here
refers to the extent to which customer requirements are met. Effi-
ciency is a measure of how economically the organisation’s resources
are utilised when providing a given level of customer satisfaction.
The level of performance a business attains is a function of the effi-
ciency and effectivenessof theactions and activities ithas undertaken.
Enter performance measurement. Performance measurement is both
a process and metric of quantifying the efficiency and effectiveness of
past actions. It enables informed decisions to be made and actions to
be undertaken.
To achieve sustainable business success in the demanding world
markets, a company must use relevant performance measures. World
class manufacturers recognise the importance of metrics in helping to
define goals and performance expectations of the organisation. All
successful companies in the world constantly track performance under
various dimensions like:
Customer satisfaction
Employee satisfaction
Intellectualcapital
Supplier performance
Financial performance
Market performance
Manufacturing performance
Operational excellence 257
Balanced Scorecard
The most popular and widely known balanced measurement frame-
work is the ‘Balanced Business Scorecard.’ Developed by Robert Kaplan,
professor of accounting at Harvard Business School and David Norton,
president of Renaissance Strategy Group, the balanced scorecard has
taken the business and consulting worlds by storm. The basis of the
balanced score card is simple. If an organisation has a good, well-bal-
anced measurement system, information should be available which
allows people within the business to answer four questions:
258 Game plans for post-GATT era
E. Strategic Benchmarking
Benchmarking is the process of identifying, understanding and adapt-
ing the best and outstanding practices from within the same organisation
or from other businesses to improve performance.
This involves a process of comparing practices and procedures to those
of the best to identify ways in which an organisation can make
improvements. Thus new standards and goals can be set which, in turn
willhelp tobettersatisfycustomers’requirementsforquality,cost,product
andservice.
Organisations in this way can add value to their customers and distin-
guish themselves from competitors.
The benchmarking process pioneered by Xerox Corporation in the
United States consists of four phases (Table 15.2).
Operational excellence 259
Table 15.2
F. Positive Reinforcement
The only way in which you can achieve sustainable superior performance
and minimise discrepancies between varying performance levels within
your organisation is through modification of your employees’ behaviour
on the job. You can achieve this by demonstrating to the concerned
persons that it is going to make a difference to them, if they change
their behaviour on the job. In other words, you can achieve this through
positive reinforcement.
Joseph H. Boyett and Henry P. Conn highlight the power of positive
reinforcement in their book on ‘Maximum Performance Management:
How to manage and compensate people to meet world competition.’
260 Game plans for post-GATT era
G. Speed
“It isnot thebig companiesthat eat the small;it’s thefast thateat the
slow”, wrote ‘The Wall Street Journal’ sometime ago.
Jack Welch, one of the most successful and highly respected CEOs in
the United States, is well known for his communications on the need
for ‘speed’ throughout GE (General Electric) one of the largest corpo-
rationsinthe world.Taste this:“Faster, inalmost everycase isbetter –
262 Game plans for post-GATT era
H. Empowerment
Empowerment literally means power to people. In the organisational
context it means that people are involved in decision making and take
responsibility and control their destiny and make a difference to the
organisation. Empowerment is a goal that organisations approximate
but never quite reach.
Employee Satisfaction
A 1997 study by researchers from the Institute of Work Psychology at
the University of Sheffield found a strong correlation between em-
Operational excellence 263
Table 15.3
Quovadis? (Whither goes thou?)
2. Policy and strategy Partial business plans exist Strategic direction visibly
concentrating onlyon financial achieved. Peoples’ success
targets. Plans are not widely recognisedbyleadersatalllevels.
communicated or visibly Innovation and continuous im-
championed by the top team. provement is the culture and
business philosophy. Environ-
ment and climate are charged
withpositivereinforcement.
16
WINNERS AND SPECTATORS
Executive Summary
5. Research focus
6. Strategic integration
7. Internationalisation of business
8. Alliance attractiveness
9. Intellectual capital
10. Operational excellence
For each of these strategic elements, a set of evaluation criteria is
developed. All these companies are assessed on a ten-point scale
qualitatively where a rating of ‘high’ means ‘ten’ points, a ‘medium’
rating ‘five’ points and a ‘low’ rating ‘one’ point. The assessment,
although qualitative in nature, is backed by quantifiable evidence
wherever possible. Here is the rationale for the ratings:
High: significant evidence that the company has made substantial
progress towards its strategic objectives and has reached the
predetermined milestones. Clearly the leader of the pack.
Medium:adequate evidence that the company is making progress on
its strategic objectives. There are also clear indicators that the
company is investing its efforts and money in critical areas to
stay competitive in the future. Not a leader, but a competent
and competitive follower.
Low: evidence to suggest that the company is on its way to reach
the critical mass in all key areas. Growth rate usually higher
than the industry average. The company has started investing
its effort or is yet to invest significantly in critical areas to
effectively compete in the post-GATT era.
Strategic Vision
A. Industry foresight and strategic focus
B. Ability to spot, anticipate changes
C.Translating strategic vision into detailed action plans and ability to
implement
Technology Upgradation
A. Manufacturing infrastructure.
B. State of quality – conforming to WHO, GMP, cGMP guidelines?
C.Approvals from international regulatory authorities like US FDA,
UK MCA, Canadian HPB and South African MCC etc.
Winners and spectators 293
Research Focus
A. R&D infrastructure
B. Number of scientists and their qualifications
298 Game plans for post-GATT era
Strategic Integration
A. Nature and extent of integration
B. Level of integration
C. Bulk drug portfolio
dextropropoxyphene, an anal-
gesic drug, dextromethorphan
with the merger of Mermid it
has also become one of the
major producers of Vitamin
B12 in the world.
6. NPIL Low Has yet to become an inte-
grated player. The strategic
route to achieve vertical inte-
gration is acquisitions. With
the spate of acquisitions like
Sumitra Pharma, Roche and
Boerhinger Mannheim and
strategic alliance with La Porte,
Nicholas Piramal is on its way
to becoming a vertically inte-
grated player.
7. Torrent Medium Planning to become a fully
integrated international ge-
neric company. Backward inte-
gration is aimed at controlling
input costs and forward integra-
tion is aimed at moving up the
value chain. Has achieved ver-
tical integration in semisyn-
thetic antibiotics.
8. Zydus Low Level of strategic integration
not very high at the moment.
The company has developed
cost-effective alternative
processes for some important
bulk drugs. Formed a joint
venture for manufacture of
Pantoprazole with BYK
Gulden.
9. Sun Pharma Low Sun Pharma has moved into
the top league of highly inte-
306 Game plans for post-GATT era
Attracting Alliances
A. Alliance attractiveness
B. Number and nature of strategic alliances – marketing, manufactur-
ing tie-ups, technical collaborations, joint ventures with equity
participation finalised
Internationalisation of Business
A. Exports turnover and their contribution to total sales.
B. Quality of exports.
C. Number of product registrations in overseas markets.
D. Number of marketing offices abroad.
E. Number of off-shore manufacturing bases.
F. Number of employees overseas.
G. Investment in international operations.
H. Number and nature of strategic alliances abroad.
I. Number and nature of acquisitions in overseas markets.
conforms to US FDA
standards. The company plans
to enter the off patent generic
markets in the US and
European Union once it gets
the approval.
9. Sun Pharma Low Sun Pharma had started inter-
nationalising its operations ever
since its early days. The com-
pany has been marketing
branded generic formulations,
right from the beginning, in a
number of markets where
there was little or no intellec-
tual property protection. It
started bulk drug exports much
later. Sun’s revenues from ex-
ports were Rs.640 million in
1997. The company has an off-
shore manufacturing base in
the US for facilitating an early
entry into the lucrative gener-
ics market in North America
through its equity-based joint
venture with Michigan-based
Caraco Pharmaceuticals. The
company has a marketing office
in Moscow. Sun has a number
of product registrations in 27
countries and many more are
at various stages of develop-
ment.
10. Ipca Medium Ipca has a strong bulk drug ex-
port base mainly to the world’s
highly regulated markets, with
as many as 11 drug master files
under its belt. The company
320 Game plans for post-GATT era
Intellectual Capital
A. Market capitalisation
B. Intangible assets
C. Investment in R&D
D. Investment in training and development
E. Investment in information technology
F. Profitability
G. Investor attractiveness
H. Making assets sweat
I. Status on cost leadership
Operational Excellence
A. Degree of professionalisation
B. Strength of top line and second line management
C. Acquisition of talent in all functions and in all markets
D. Performance measurement and reward systems
E. Investment in training, development and succession planning
Winners and spectators 329
Table 16.1
Ranbaxy
Cipla
Lupin Labs
Wockhardt
Nicholas Piramal
Torrent
Zydus
Sun Pharma
Ipca
Kopran
Orchid
Table 16.2 presents the details of sales turnover and exports of these
twelve companies for fiscal’ 97.
Winners and spectators 335
Table 16.2
Note:
A. Dr. Reddy’s Group includes Cheminor Drugs
B. Kopran’s figures are for fiscal’ 96 – the year ending March, 1997
C. Zydus group includes Indon
mass in all key areas but they have started investing in all critical success
factors to build sustainable competitive advantage into their game plans.
1. Alembic
Alembic has been among the top ten companies in terms of sales
turnover for almost two decades. Its prime therapeutic areas are
antibiotics in general and macrolides in particular. Cough and cold is
another segment where the company has a strong presence.
Alembic has recorded a sales turnover of Rs.3.1 billion in fiscal’ 97.
Bulk drugs contribute to about 14.7 per cent. Almost half of bulk drug
sales are of penicillin-G. Exports account for close to 17 per cent of
total sales.
Alembic has over the years developed ver y good process development
capabilities. I t is strategically integrated f or all its key products. T he
company is also planning to start the manuf acture of third generation
cephalosporins.
Alembic has strong brand building capabilities. Seven brands, namely
althrocin, roxid, azithral, zeet, bistrepin, glycodin and nimegesic f eature
among the industr y’s top 250. T hese brands contribute to almost 60
per cent of company’s total sales.
T he company is planning to invest in inf ormation technology to achieve
op er at i onal ex cel l ence i n t he hi ghl y com p et i t i ve m ar k et i ng
environment.
T he company’s prof itability too has started looking up. T he company
has recorded an increase in net prof it in calendar year 1998 to Rs. 165
million f rom Rs 74 million in calendar year 1997.
2. Aurobindo Pharma
Aurobindo Pharma although started as yet another bulk drug company
in 1986, was not to remain at that level. It has in just thirteen years
become the country’s largest producer of semi-synthetic penicillin
products. The company has achieved a sales turnover of Rs.2.95 billion
in fiscal’ 97 and a whopping Rs.5.4 billion in fiscal’ 98. The company is
seriously pursuing a strategy to defend its leadership position through
productivity enhancement and Total Quality Management (TQM).
Winners and spectators 337
3. Cadila Pharmaceuticals
Cadila Laboratories, one of the top three domestic drug companies in
the early nineties has split into two companies in 1995 – Cadila Health
Care (Zydus) and Cadila Pharmaceuticals. Rajiv Mody, the managing
director of Cadila Pharmaceuticals has formulated a vision of becoming
a leading pharmaceutical company and aims to become a significant
global player by 2005.
In the year of the split (1995–96), the company had achieved a sales
turnover of Rs.2.05 billion. In the following years (1996 &1997) Cadila
Pharma has registered a turnover of Rs. 3.57 billion for the eighteen-
month period.
The company’s game plan is similar to that of the winning companies.
Focusing on key therapeutic segments. Aggressive new product
introductions (as many as forty new product formulations are in the
pipeline) to reach the critical mass. Upgrading technologically to
international standards. Integrating strategically to achieve control on
costs and quality. Forging alliances with internationally renowned
companies to gain access to new products, technologies and markets.
The company has already entered into two-way strategic alliances with
the US-based Mallinckrodt, specialising in diagnostic and radio-imaging
agents and medical devices, and with Murdock Maudus Schwabe for
manufacturing and marketing herbal products. More collaborations
with companies in France, Germany, Australia and Africa are on the
anvil.
Cadila Pharma has also created a strong marketing infrastructure with
three marketing divisions comprising a 1000–strong medical detailing
force and 1800 stockists covering 130,000 pharmacies.
338 Game plans for post-GATT era
5. Unichem Laboratories
Unichem has merged its smaller group companies like Unisearch and
Unichem Exports to consolidate its position in the industry. It has
completed a major restructuring program to enhance productivity. It
has closed down its plant at Jogeshwari in Mumbai by offering Voluntary
Retirement Scheme (VRS) to about 720 employees and undertook
modernisation and upgradation of its facilities at Ghaziabad
(formulations) in Uttar Pradesh, Roha (bulk drugs), Baddi (antibiotic
formulations) in Himachal Pradesh and Goa (non-antibiotic
formulations). The company is also planning to offer its excess capacities
for toll manufacturing to some leading multinational companies.
The company is also aggressively planning to increase its market share
by focusing on fast growing therapeutic segments like cardiac care,
psychiatry, gastro-enterology and gynaecological disorders. The company
has created separate marketing divisions to stay competitive in these
segments. Three of its brands – ampoxin, trika and unienzyme are
among the industry’s top 250.
Winners and spectators 339
6. Morepen Laboratories
Morepen Laboratories too, like Kopran, concentrated on the bulk
drug segment. The company today is a major manufacturer of semi-
synthetic penicillins like amoxycillin, ampicillin and also of the key
intermediate – 6 APA. To improve margins the company is integrating
backwards into a 300 tpa Dane salt (an amoxycillin intermediate) project
with Japanese collaboration.
Morepen has strong in-house process development capabilities. It has
reverse engineered some of the latest drugs like paclitaxel (anti-cancer),
loratidine (anti-histamine) and cisapride (gastro-intestinal), which are
still under patent. The company exports its products to a number of
countries in Europe, Latin America, Middle East, Africa and South
East Asia.
The company is planning to acquire a manufacturing facility in the US
for manufacturing off-patent generic formulations and over-the-counter
drugs. It has a bulk drug plant at Solan in Himachal Pradesh and a
plant for herbal drugs (paclitaxel) at Gurgoan in Haryana.
Morepen has achieved a sales turnover of Rs.1.85 billion for fiscal’ 97.
Exports contributed to about 31 per cent of total sales. Bulk drugs
account for two-thirds of the total turnover and formulations for the
remaining one-third.
340 Game plans for post-GATT era
Table 16.3
The top twelve Indian pharma companies account for half of the
Indian sector’s turnover
When you take the next ‘six’ companies, these eighteen companies
account for almost two thirds of the Indian sector’s total sales
If you take twelve other Indian companies (Alkem, Aristo, ASE,
USV, Micro Labs, Lyka, Elder, FDC, Biological E, American
Remedies, Intas, Panacea Biotec) - these thirty companies account
for close to three-fourths of the Indian sector’s total turnover.
During the last few years a number of companies like Roche India,
Boerhinger Mannheim, Biddle Sawyer, M J Pharma, Gujarat Lyka,
Sumitra Pharma, Merind, TDPL, Natco’s entire prescription drug
portfolio, Milmet, Crosland Research Labs, Gufic’s leading brands,
SOL’s leading brands, Dolphin’s leading brands and many others
have been acquired by or merged with predator companies. Very
recently two more companies – Dee Pharma and pharmaceutical
companies have been declared ‘sick’ and referred to BIFR.
Why do some companies survive and grow while others stagnate and
perish? It is the balanced power of both brain and brawn. The power
of strategic thinking and the ability to execute the action plans. In
other words, it is intellectual capital that has always been a decisive
factor in the rise of civilisations, organisations and people. Rich
Karlgaard, editor of Forbes ASAP, puts it so succinctly in his foreword
to Leif Edvinsson and Michael S. Malone’s book on intellectual capital:
“For at least 60,000 years our ancestors, the Cro-Magnons, lived side
by side with the Neanderthals. Then, about 30,000 years ago, the
Neanderthals disappeared.
Why did one species survive and the other perish? Both used tools
and language, but the Cro-Magnons had a lunar calendar. Soon they
correlated the passing days with the migratory patterns of bison, elk
and red deer. This insight was dutifully recorded on cave-wall paintings
and in sets of 28 notches on reindeer antlers.
Hungry for meat, the Cro-Magnon was taught all that he had to do
was wait at a river crossing on certain days, spear in hand. In the
meantime the Neanderthals appear to have unwisely scattered their
men and their scarce resources in search of random encounters. They
allocated their resources poorly. They perished”.
342 Game plans for post-GATT era
17
TOP OF THE HEAP
Executive Summary
Dominant Player
Ranbaxy has achieved a consistently high growth rate since 1988. Its
sales have grown from Rs. 18 billion in 1988–89 to over Rs. 13.3 billion
in fiscal 1998, a compounded annual growth of around 25 per cent
over a ten-year period.
Ranbaxy has also become, during this period, India’s leading
pharmaceutical exporter, accounting for about 15 per cent of the
country’s exports of pharmaceutical substances and finished dosage
forms. Exports, which accounted for less than 20 per cent of company’s
total sales in 1998–99, currently account for over one-half of the
company’s total sales.
346 Game plans for post-GATT era
Strategic Vision
How did Ranbaxy achieve all this? The company has a clear vision. It
has clearly defined its goals, milestones and inflexion points in its journey
to the top. The company reformulated the goals once it reached the
milestones. Consider for example the vision of its chairman Dr.
Parvinder Singh, when he reformulated the company’s goal to be
among the top three generic drug companies in the world almost
immediately on making it to the prestigious list of the world’s top
hundred pharmaceutical companies. He had clearly seen the future
before it arrived. On becoming an international generic drug company,
he has reset and articulated the mission for his company that it should
become a research based international pharmaceutical company. And
it did become a research based international pharmaceutical company
with its recent discovery of a new molecule for the treatment of BPH
and its licensing arrangement with an international drug major.
Ranbaxy has realised the importance of achieving cost leadership in
order to be globally competitive and has achieved this through a
combination of planned technological upgradation and backward
integration. The company’s manufacturing plants for bulk actives as
well as formulations have the approvals of international regulatory
authorities like US FDA, UK MCA etc. The company has an enviable
portfolio of bulk actives and intermediates making it a vertically
integrated drug firm. This dual strategy has helped the company in
achieving a competitive position internationally. It has helped the
company in achieving world class quality and predictable control on its
costs, quality and timely delivery of inputs. Barring Teva, the rapidly
Top of the heap 347
growing generic drug firm from Israel, there are not many international
generic drug firms that are as vertically integrated as Ranbaxy.
Important Initiatives
1. Ranbaxy has been building on its core competencies over the years.
The company has been investing on both acquisition and nurturing
of talent. It has a more competent and better informed management
team in place, compared to most other Indian drug companies.
2. Ranbaxy is the first Indian drug firm to have invested in sophisticated
enterprise resource planning (ERP) systems. Ranbaxy is planning
to implement five modules of ERP: sales and distribution, materials
management, production planning, finance and costing. The
company is investing about one per cent of its turnover on
information technology. The company is planning to digitalise its
operations across all its markets in the next three to four years by
creating an ubiquitous digital net work to be competitive externally.
3. Another significant strategic differential that Ranbaxy has chosen
is creating value through communication. The company is planning
to achieve this through e-mail, intranet and web site. It is planning
to use intranet extensively. The company regularly puts up the
chairman’s messages on the intranet. All employees can down load
corporate presentations made anywhere in the company from the
intranet. The company is also planning to target potential employees
using infotech.
4. Ranbaxy is implementing this project to bring in a perceptible culture
change in its management team. To implement this project called
‘Project Diamond’ , the company has put up a team of 30 young
people with diverse backgrounds from within Ranbaxy and from
its consultancy firm – Price Water House Coopers. This team, aptly
called ‘Team Diamond’, acts as a change agent to usher in an era
of digital culture.
5. Ranbaxy is planning to build communities of physicians, medical
students, consultants and final users from different therapeutic
segments around its web site. The company is also building a database
of doctors to create an eclectic club. It has already set up various
centres across the country in hospitals and medical colleges that
have access to Medline International.
6. Ranbaxy is also planning to use information technology for electronic
Top of the heap 349
dossiers. The company has more than 900 different dossiers for
clearance of different products in different countries with different
regulatory regimes. This will facilitate faster clearance and take the
products quicker to the market.
7. Further the company is planning to use infotech in combinatorial
chemistry and high-throughput screening in the area of new drug
discovery research. The companies which are using information
technology in research area are talking about screening thousand
compounds a month as compared to one hundred a year in the past.
Winning Combination
Ranbaxy has clearly emerged as a winner in Pharma industry not just
from the subcontinent but from the entire Asian Continent. Apart
from all its winning moves and strategic initiatives, what seperates
Ranbaxy from others is its winning combination of strategic vision
and executional capabilities. A leading international strategic consultant
observed that he found in Dr. Parvinder Singh, the Chairman and
D.S. Brar, the president of Ranbaxy a world-beating combination. Dr.
Singh is a visionary and Brar is impeccable in execution.
Research Focus
Now that DRL has reached the critical mass and GATT is becoming a
reality, Dr. Anji Reddy has another dream. This time it is to put India
on the drug discovery map of the world. He founded Dr. Reddy’s
Research Foundation, a world class research and development centre
in 1994 and started the drug discovery program. And he did put India
on the drug discovery map of the world with the historical agreement
350 Game plans for post-GATT era
between DRF and the Danish drug major Novo Nordisk for taking
the new insulin sensitizing molecules through further stages of
development to commercialisation.
DRF has already filed for as many as 20 patents. This is what puts the
DRL group in the forefront of the Indian pharmaceutical industry –
not its present size or performance but its future potential. Its present
performance too is nothing short of spectacular, with a growth rate
that is three times faster than the average for the domestic industry.
The company is confident that it would be able to grow at least twice as
fast as the industry in the coming three to four years – at 25 per cent.
Critical Mass
The company has been on a brand acquisition spree to maintain a high
growth rate. The company has acquired two brands – riflux and clamp
from SOL Pharma and Becelac brand from Pfimex in 1996. Recently
it has acquired five brands – styptovit, styptomet, styptochrome, doxt
and trichodol from the Calcutta based Dolphin Laboratories.
These brand acquisitions are aimed at consolidating the company’s
position in the therapeutic segments of focus and also in extending the
therapeutic coverage.
Marketing Focus
DRL has changed its focus to the value-added formulations business
four years ago and has aggressively pursued a brand building strategy.
This has paid off handsomely. It has achieved the highest growth rate
among the top 30 Indian pharma companies over the last two years.
In addition, three of the company’s brands have become leaders in
their respective categories. Four of the company’s brands are among
the industry’s top 250 and these contribute to 54 per cent of the
company’s total formulations’ sales.
Technology Bias
Dr. Reddy’s Labs has built an impressive manufacturing infrastructure
that is comparable to the best in the world. All its plants either conform
to international regulatory standards or they have been approved. The
Top of the heap 351
International Operations
Dr. Reddy’s Labs is one of the leading exporters of bulk drugs from
India. The company has 204 product registrations in various countries
at the last count and many more are under process. DRL has a strong
presence in CIS markets, including a joint venture.
The company is actively processing joint ventures for penetrating
important international markets in Latin America and China. In Brazil,
it has entered into a marketing alliance with Biochemico. DRL has
achieved the distinction of becoming the first Indian pharma company
to enter Venezuela. It launched six products in Venezuela.
Marketing Focus
The company’s product portfolio of bulk actives as well as formulations
has both width and depth. They cover a very wide range of therapeutic
segments and disease areas virtually from A to Z – from Asthma to
352 Game plans for post-GATT era
Technological Capabilities
Cipla’s technological capabilities in process development are exemplary.
This explains as to why the company is among the top three Indian
companies which have successfully copied or reverse engineered a
number of newer molecules and brought these to the market. The
company has also demonstrated its product developmental capabilities
when it introduced the world’s first oral drug for treating ‘thalassaemia’.
Its technological capabilities can also be gauged from the fact that in
almost all of its alliances with overseas partners Cipla provides the
technology and products.
The company over the years has built a world-class manufacturing
infrastructure. Three out of five of its plants are approved by
international regulatory authorities like US FDA, UK MCA, Australian
TGA and the South African medicine control council (MCC).
Top of the heap 353
Internationalisation
It is only recently that the company has begun exploring the foreign
shores. During the last two to three years the company has made rapid
progress. It has already achieved an export turnover of Rs. 730 million
in fiscal 1998 and is aiming for an ambitious two-fold increase to
Rs. 150 million by the turn of the century. What is the secret of Cipla’s
rapid progress in such a short time? The company has successfully
harnessed the power of win-win strategic alliances in all its overseas
forays. The company has sealed as many as nine alliances that include
marketing arrangements, technical collaborations and even equity-based
joint ventures. The structure of these alliances is clearly defined and is
aimed at achieving synergies. In all these alliances Cipla provides the
products, technology and the overseas alliance partner will provide the
marketing, market knowledge and the distribution support. As the
alliance progresses, the joint venture company may set up a
manufacturing base to produce formulations sourcing the bulk actives and
intermediates from its Indian partner – Cipla. If the joint venture company
reaches the critical mass it may, in certain key markets, start manufacturing
the bulk actives with technical support from Cipla. The company aims to
set up at least one manufacturing base in each of the key regions.
Operational Excellence
Cipla is strong on systems. Considering the high turnover of employees
during the last few years, one tends to think that it is more task-oriented
rather than people oriented. Even the high turnover did not effect the
company performance, which only proves its relentless focus on tasks
and objectives. The company’s move to de-layer the management
structure may have caused some amount of insecurity and reduced
motivation levels among its ranks, but it does not reflect in its
performance. Overall, the company is very well managed. It is systems-
driven. Decision-making is swift. There is empowerment and
accountability and strict budgetary control. Processes are well defined.
Cipla’s performance indicators over the years have been among the best
in the industry. In fiscal 97, the company’s operating margins were
23.2 per cent, net margin 19.8 per cent, ROI 36.2 per cent.
Cipla has built up an enviable customer franchise, as a result of which
it is among the top 3 companies in all key therapeutic segments. At
Cipla, achievement truly has become a way of life!
Strategic Vision
Lupin has entered the market with a clear focus on the anti-tubercular
segment. The segment was perceived by multinationals and other
leading Indian drug companies to be unattractive as margins were very
low. Lupin has found an opportunity in this segment as India accounts
for about fifty per cent of the tuberculosis patients in the world. The
company has rightly chased volumes, integrated backwards to achieve
cost efficiencies and has become a leading player in the world anti-TB
market.
Having tasted the success of a focused strategy, Lupin has once again
followed a focused strategy – this time on the high-margin cephalosporin
segment. Lupin’s expansion strategy literally pivots around
cephalosporins. The reasons are not difficult to understand. Consider
these for example:
The world cephalosporin market is estimated to be around $ 10
billion.
Top of the heap 355
Alliance Power
Lupin has spotted a big opportunity and has become a fully integrated
player in this segment. It is also using strategic alliances to gain access to
the difficult-to-penetrate generic markets for off-patent formulations in
the industrialised West. The company has acquired Eli Lilly’s
cephalosporin plant in Puerto Rico and has entered into a joint venture
with the US-based MOVA for marketing these generic formulations.
It has also entered into a strategic alliance with Merck Generics, which
has a strong hospital presence in Europe for marketing the same.
Winning Moves
Lupin is determined to become a $ 1 billion company by 2003. The
company has been aggressively planning to sharpen its focus. Here are
some of its recent winning moves.
1. Lupin is working out a blue print to merge its group company – the
Rs. 1.1 billion Lupin Chemicals with itself. The merger will make
Lupin Labs India’s second largest pharma company behind
Ranbaxy.
2. To fuel its growth plans, Lupin has stepped up its acquisition fund
of $ 10 million to $ 30 million to acquire companies internationally.
3. Lupin is also scouting for a multinational partner to take minority
stake in Lupin Labs.
4. The company has very recently finalised a deal to take over a pharma
company in Ireland.
5. Lupin is planning to acquire a pharma facility in China.
Lupin has what it takes to be competitive and more importantly to stay
competitive even in the coming product patent regime.
356 Game plans for post-GATT era
Technology Upgradation
Wockhardt has invested consistently in upgrading its technology over
the years. As a result it has both its bulk drug and formulations
manufacturing facilities approved by US FDA and other international
regulatory authorities. It has also created manufacturing bases overseas
through acquisitions in the US and the UK.
Focused Research
Wockhardt has prioritised biotechnology research and plans to
introduce atleast eight biotechnology based products in the next three
years. These include insulin and erythropoietin (the second
recombinant product from the company, the first being hepatitis-B
vaccine). Erythropoietin is now in phase III clinical trials and will be
launched as soon as these are completed. The company also plans to
market erythropoietin in the emerging markets.
Top of the heap 357
Integration Power
Bulk drugs are mainly for captive consumption and the balance is
exported. It is amongst the world’s largest manufacturers of the analgesic
– dextropropoxyphene and one of the few global manufacturers of the
anti-hypertensive captopril, which went off-patent in February 1996.
The recent acquisition of Merind has made Wockhardt one of the
major producers of vitamin B12 in the world. Overall, the company
has an impressive bulk drug portfolio, paving the way to become one
of the vertically integrated generic manufacturers who are
internationally competitive.
Internationalisation Strategies
Bulk drugs have been providing the thrust for exports all these years
for Wockhardt. The company’s manufacturing facilities are approved
by international regulatory authorities like US FDA and UK MCA.
Forty seven per cent of its bulk drug exports are to industrialised markets
in the West.
Wockhardt has spread its global network with subsidiaries in the US,
UK and joint ventures in China, Saudi Arabia and Egypt. It has one of
the early entrants in the captropril generic market in the US.
Year Acquisitions
1987 Nicholas Laboratories
1993 Roche India
1995 Sumitra Pharmaceuticals and Chemicals
1996 Boerhinger Mannheim India
1998 R&D Centre of Hoechst in India
With this spate of acquisitions, Nicholas Piramal has reached the critical
mass of Rs. 5.42 billion in the fiscal 1997 from a mere Rs. 250 million
in 1988. The company has also reached the critical mass in terms of
manufacturing infrastructure for bulk actives as well as formulations
and has an R&D infrastructure that is among the best in the country.
Powered by Alliances
Strategic alliances is another approach Nicholas has been banking on.
In a short span of three to four years, the company has forged as many
as fifteen alliances with leading players in the world. Alliances are the
quickest way to gain access to world class products, technology, know-
how and even markets. Most of these alliances, however, are marketing
alliances. The company would like to pursue the alliance and the
licensing route with MNCs for manufacturing and marketing their
products in India. The strategy seems to be working well for them.
Consider these facts:
Top of the heap 359
First half results of fiscal 1998 indicate that over one-third of its
turnover has come from these alliances. The company aims to achieve 50
per cent of its total turnover from alliances within the next two years.
The company has introduced as many as 12 new products of Roche
in India since the acquisition.
Boots Plc and Reckitt & Colman, who are competitors internationally
have both chosen Nicholas Piramal as their partner in India.
The key differential in Nicholas Piramal’s strategy is its alliance-bias. It
is based on sound logic. The first premise is that when multinational
drug companies are excited about the future prospects of the Indian
pharmaceutical market, why can’t Indian companies exploit it? In the
coming product patent regime, alliances and licensing arrangements
are necessary to gain access to new products. The second premise is
that even in the post-GATT era, there will be a number of
multinationals which would not like to set up a full-fledged
manufacturing and marketing infrastructure in India. Nicholas Piramal
wants to tap that segment of the market.
The company has clearly understood that to be an attractive suitor for
all the alliance partners-to-be, you need to have certain qualities and
qualifications. The company has been preparing to create:
Marketing infrastructure comprising one of India’s largest sales forces.
Penetrating the distribution network of C&F agents, stockists and
retailers.
Manufacturing infrastructure for bulk actives and formulations that
meet international standards.
World class R&D facilities.
All the acquisitions have extended the therapeutic coverage of the
company to about 60 per cent.
Marketing Focus
Torrent Pharma is focused on formulations with a bias for speciality
therapeutic segments such as cardiovascular (23%), neuropsychiatry
(19%), gastrointestinal (12.5%) and antibiotics (11%). Five of its brands
(dilzem, alprax, quintor, domstal and listril) are among the industry’s
top 250. Torrent has been experimenting in structuring its marketing
operations for the past three years and recently carved out three strategic
business units.
Top of the heap 361
Focus on Research
Torrent is working out plans to make R&D a profitable proposition.
It has signed up research collaboration agreements with international
research institutes like William Harvey Research Institute in the UK.
The company is confident that it can generate at least one-third of R&D
revenues from collaborative research.
The company has set up a state-of-the-art R&D centre with an investment
of Rs. 750 million, where more than a hundred scientists are working
on various product and product development projects including a drug
discovery program.
Strategic Integration
The quest for greater economies of scale is the driving force at Torrent.
Torrent Gujarath Biotech Limited (TGBL), the joint venture company
of the group has invested Rs. 750 million to double the capacity of
penicillin-G. Doubling the capacities cost only Rs. 750 million whereas
a green field project may have cost around Rs. 2 billion. The company
plans to bring down the fixed cost per unit of penicillin to an extent
where it can be internationally competitive with this capacity expansion.
In addition, Torrent has developed an impressive bulk drug portfolio,
which reflects its process development process.
International Operations
Torrent is one of the country’s leading exporters of pharmaceutical
formulations. Exports account for close to 40 per cent of the company’s
total turnover. Torrent has 668 product registrations in 70 countries
at the last count. The company is planning to create manufacturing
bases as a part of its programme for internationalising its business in
certain key geographical regions like Africa, East Asia and Eastern
Europe either through acquisitions or green-field ventures.
Strategic Vision
Pankaj Patel and his team got their act together immediately after the
division and outlined a clear strategy to be competitive in the post-
GATT era:
1. Achieve an organic growth of at least 20 per cent every year.
2. Acquire businesses and brands to reach the critical mass of Rs. 10
billion by 2002.
3. Harness the power of alliances. Enter into strategic alliances and
joint ventures with leading international companies to gain access
to new products, technologies and markets.
4. Step up R&D effort and conduct focused research on niche segments.
Top of the heap 363
Marketing Thrust
Zydus is changing and sharpening its focus on the fast growing
therapeutic segments such as cardiovascular, gastrointestinal, bio-
pharmaceuticals and anti-infectives. The company has restructured its
marketing divisions into independent strategic business units (SBUs)
to remain focused on different therapeutic segments and manage its
diverse product portfolio effectively.
Technology Upgradation
Zydus is creating a world class manufacturing facility with an investment
of Rs. 1 billion at Moriaya in Ahmedabad. This probably is one of the
largest investments at a single-location in the Indian pharmaceutical
industry. It will conform to international regulatory standards and
follow cGMP.
Stepping up R&D
The company is setting up a swanky R&D centre adjacent to its new
plant with an investment of Rs. 300 million. The mission of this centre
is to create intellectual property rights for the group in select therapeutic
364 Game plans for post-GATT era
areas. The company is planning to launch its own drug discovery in the
near future. R&D will be a major driving factor determining the bottom
line. Zydus is planning to scale up their R&D spend to about 5 per cent
of their turnover in the next two to three years, from the present 2
per cent.
Performing Organisation
The Zydus group is determined to build a performing organisation.
The company wants to create the performance on the foundation of
three solid building blocks – the 3 E’s which are Enrich, Empower and
Excel. The company has chosen five key result areas where it would
like to benchmark the best practices and excel at. These are market
share improvement, exports, technology (upgradation and transfer),
human resources development and cost leadership.
Focus on Performance
Zydus is both clear-headed and level-headed as an organisation. Clear
about its goals. Level-headed because it knows where it stand, what it
needs to do and knows that it cannot be complacent.
The company is confident of achieving a turnover of Rs. 4.34 billion
and a post-tax profit of Rs. 314 million in the year ending March 1999.
It is aware that its current operating margins at 12 per cent are poor
compared to Cipla’s 23.5, Dr. Reddy’s 23.2 per cent and Ranbaxy’s
14.8 per cent. Its net margins too are low at 5.6 per cent compared to
Cipla’s 19.8 per cent, Dr. Reddy’s 14.7 per cent and Ranbaxy’s 15 per
cent. The high incidence of finance changes at 4.5 per cent (of turnover)
is the major reason for this low net margins. But its return on investment
(ROI) is reasonably good at 23.1 per cent compared to Cipla’s 36.2 per
cent, Dr. Reddy’s 15.9 per cent and Ranbaxy’s 11.6 per cent.
The Company’s cash flows are reasonably well managed with inventories at
56 days and receivables at 61 days putting the total at 117 days compared to
an industry average of about 150 days. The company plans to benchmark
the best performers and is not complacent with better than industry averages.
Zydus understands that success is not only the vision and the strategy
to achieve the goal but it is also about who is in a better position to
Top of the heap 365
implement it.
At Zydus, the focus is clearly and sharply on performance.
Sun Pharma, as a result of its very sharp speciality focus, has been able to
achieve leadership position in neuro-psychiatry, a second place in cardiology.
The company aims to be among the top two companies inits focus segments.
Critical Mass
Sun Pharma has chosen the aquisition route to reach the critical mass
faster. The company was ranked 34th in the Indian pharmaceutical
industry in 1994. It has moved into the top ten with (monthly rank of
8 in 1998) at breakneck speed since then. It has merged TDPL (annual
sales of Rs. 600 million) and has taken over the entire prescription
brand portfolio of NATCO (annual sales of Rs. 520 million)
Acquisitions have fuelled growth and helped Sun Pharma reach the
critical mass even in manufacturing infrastructure, process technology
and strategic integration.
Technology Upgradation
Although Sun Pharma has created a huge manufacturing infrastructure
through greenfield ventures and acquisitions, it is yet to receive any
approvals from international regulatory authorities.
Export Thrust
To tap the North American generics market, Sun Pharma has acquired
a controlling interest in Michigan based Caraco Pharmaceuticals, with
an investment of $ 7.5 million and a transfer of technology for 20
generic drugs.
Expansion Strategy
Ipca has been expanding its product portfolio of formulations as well
as bulk drugs from anti-malarials to anti-emetics, cardiovascular,
antibiotics and bronchodilators. Its top 4 brands contribute to two-
thirds of its domestic formulations’ sales. It has significantly increased
its new product introduction over the last two years. The company has
created a separate marketing division to reinforce its position in the
difficult-to-penetrate and highly competitive cardiovascular segment.
The company has a marketing team of 660 medical representatives
who cover approximately 120,000 medical practitioners in the country.
Manufacturing Infrastructure
Ipca has created an enviable manufacturing infrastructure over the
years through a steady stream of investments. The US FDA has
368 Game plans for post-GATT era
Power of Integration
Ipca enjoys considerable scale of economies and is more integrated than
many other firms. In volume terms Ipca consumes close to 40 per
cent of its total bulk drugs and intermediate production for its
own use.
Exports
Exports drive the growth at Ipca. The company’s exports have notched
40 per cent growth in fiscal 97. Formulations account for almost 45
per cent of exports. The product mix for exports is extremely diverse.
Ipca manufactures some formulations exclusively for exports to suit
the requirements of buyers and agents in 65 countries in addition to
its popular domestic brands. Formulation exports of products under
patent are mainly to developing countries. Ipca also carries out contract
manufacturing for SmithKline Beecham, UK. The company is stepping
up its efforts to increase exports to US, China, Japan and Australia. It is
also actively pursuing contract-manufacturing alliances with overseas
Pharma MNCs.
the value chain. Ipca has a long way to establish in formulations business
which is a different ball game altogether. If the company can demonstrate
the same degree of determination which it has shown in upgrading
technology and manufacturing, Ipca can move up the value chain. And
to stay competitive in the post-GATT era it has to!
Technology Upgradation
Kopran has set up two plants (one dedicated to penicillin-G based
products) at Khopoli and got them approved by US FDA and UK MCA.
Changing Focus
Kopran with economies of scale and backward integration has been
competitive in international markets for its main product amoxycillin.
However, due to the recent down trend in pen-G and amoxycillin
prices, the company’s profitability has been adversely affected. As the
cephalosporin and quinolone antibiotics start going off-patent and their
prices fall, it might lead to a fall in off-take of the older generation
antibiotics like amoxycillin.
Kopran has been expanding its bulk drug portfolio with some of the
blockbuster molecules like atenolol, omeprazole, roxythromycin,
fluroquinolones and cephalosporins etc.
With rising competition and consequent lower margins in the price-
370 Game plans for post-GATT era
Changing Gears
To stay competitive over the long haul and to reduce dependence on a
single bulk drug segment like cephalosporins, the company is following
a two-pronged strategy. Firstly, the company is expanding its bulk drug
portfolio to other major block buster drugs in anti-virals, macrolides
and anti-ulcerant segments. Secondly, the company is following a
forward integration strategy of manufacturing and marketing
formulations of the bulk drugs in these segments.
The company’s strategy is to select products with good potential which
are currently under patent, but would go off-patent by 2005, so that it
can continue to manufacture and market these even in the ensuing
product patent regime. The company would reverse engineer these
drugs with a high technology content which creates an entry barrier
into the segment.
To maintain a technological edge and international competitiveness,
the company has already taken initiatives for getting US FDA approvals
and ISO 14000 certification for its plants.
Strategic Integration
The company is integrating forward into formulations. It is setting up a
marketing team of 250 medical representatives. The company is
introducing six formulations during the launch phase and will add
another ten products in the antibiotic, anti-viral and anti-ulcerant
segments within a year. Orchid is also planning to tie up with
multinational pharma companies for possible licensing or manufacturing
arrangements, once the marketing team is in place.
The Financials
Orchid has recorded a sales turnover of Rs. 2.42 billion and a net
profit of Rs. 340 million in fiscal 97. Will Orchid achieve the same
degree of success as it has in cephalosporin bulk actives? It is difficult
for any late entrant in the branded generic markets. Much depends
on the company’s ability to create the much-needed differentiation in
its products and services. On its abilities to create and communicate
372 Game plans for post-GATT era
18
WINNER’S CHECKLIST
Executive Summary
18 WINNER’S CHECKLIST
The key question to ask is – how does your organisation use the past –
as a sofa or as a springboard?
Here are twenty such questions, which act as a checklist for arriving at
the big steps that are needed to move forward in this era of cataclysmic
change. All the successful companies have found answers to these and
planned their strategies accordingly. Here is the winners’ checklist:
1. Do we have a well-defined Mission (not just statement) that is
understood by all team members? Do our senior management team
members see themselves as revolutionaries or evolutionaries in our
industry? Are they contented with the status quo? Or do they want
to re-write the rules for the industry? What is our leadership
quotient? What is our industry foresight?
2. Do we have a clear vision and a detailed blue print for action as to
how we are going to achieve what we want to achieve? How detailed
are our action plans? Do they indicate responsibility centres and
time lines for each key objective?
3. Do all our employees share the organisational optimism
and aspirations? Do they have a clear sense of urgency for
accomplishment? Do they have a sense of ownership of our
organisational goals and objectives?
4. Is our top management allocating as much time for pre-market
competition as to market competition? How much of their time
goes into running and managing current business as compared to
that spent to visualise, anticipate changes and plan for future
business opportunities? How much time do they spend in
maintenance as opposed to building our business?
5. Do we have a clear and collective agenda for building core
competencies in all key areas and key markets?
6. What is the stretch involved in our aspirations? What is our current
level of performance? Where do we stand right now? Where do we
want to go? What do we need to reach where we want to reach?
How do we bridge the gap? What is our action agenda for acquiring
the resources we need and for building the infrastructure that our
growth plans require?
7. What is our manufacturing infrastructure? Do our plants conform
Winner’s checklist 379
Notes
Chapter Five Game Plans for Post-GATT Era: The Indian Example
1. Gary Hamel, C.K. Prahlad, Competing for the Future, Harvard Business
Review, July–August, 1994
2. Dr. Heinz Redwood, ‘New Horizons in India – The consequences of
Pharmaceutical patent protection’, Old Wicks Press, CBS – Suffolk, UK
3. India’s Pharmaceutical Market: Extract of the study by Oppenheimer & co,
Express Pharma Pulse, May 11, 1995
Notes 387
1. Gary Hamel, C.K. Prahlad, ‘Competing for the future’, Harvard Business
School Press, Boston, Massachusetts, 1994
2. Igor Ansoff, ‘Corporate Strategy’, Sidgwick & Jackson, London, 1986
3. Marcel Corstjens, ‘Marketing strategy in the pharmaceutical industry’,
Chapman & Hall, London,1991
4. Burt Nanus, ‘Visionary Leadership’, Jossey–Bass Publishers, San Francisco,
California
5. Vinay Kamat, Ranbaxy: Moving into Top Gear, Global, September, 1994
6. Indranil Ghosh, Namrata Datt, The making of a Multinational, Business
India, June15–28,1998
7. Rajeev Dubey, Can Ranbaxy Survive, India’s Business Houses: The
Ranbaxy Group, Business Today, 1998
8. Derek F. Abel, ‘Managing with Dual Strategies: Mastering the present.
Preempting the Future’, The Free Press, A Division of Macmillan Inc., 1993
1. David A. Aker, ‘Managing Brand Equity’, The Free Press, A division of Macmillan
Publishing Company, 1991
2. Marcel Corstjens ‘Marketing strategy in the pharmaceutical industry’,
Chapman & Hall, London, 1991
3. Al Ries, Laura Ries, ‘The 22 Immutable Laws of Branding’, Harper Business,
A division of Harper Collins Publishers, New York, 1988
4. Rahul Joshi, Till Brandom Comes, Corporate Dossier, The Economic Times,
25 September– 10 October 1998
388 Game plans for post-GATT era
1. P. Hari, This time it’s the real thing, Business World, 1–14 , June, 1995
2. Samar Halarnkar, Reaching for new frontiers, Business World, 4–17,
October, 1995
3. Shobha Ramaswamy, Lupin raises the stakes, Business Barons, April 30, 1997
1. Shivanand Kanavi, The Know Business, Business India, 9–22, October, 1995
2. The Business of New Drug Discovery, 15–28, June, 1998
3. Dibyendu Ganguly, Torrential growth, Corporate Dossier, The Economic
Times, 3–9, May,1996
4. Devina Dutt, Brave New World, Business India, November 17–30, 1997
5. Anne Darbourne, Top Ten companies in R&D, Scrip Magazine, January, 1995
6. Kopran Limited – Backward Integration in the offing, Express Pharma
Pulse, May 4, 1994
7. Rachna Burman, Prescribing the right pill, Q&A: Interview with Dr. Parvinder
Singh,BusinessIndia
8. B. K. Sudhakar Reddy, Mega mergers will cut down healthcare costs: Interview with
Dr. K. Anji Reddy, The Economic Times, 20 October 1998
2. JamesC.CollinsandJerryI.Porras,‘BuilttoLast:Successful Habitsof
Visionary Companies’, Century Business Books, Random House UK Limited
3. T. Surendar, Shopping for Bargains, Business World, 7–21 December,
1998
4. Meera Shenoy, The Changing Face of DRL, Corporate Reports, Business
India, 14 – 27 December, 1998
5. P.S. Anantharaman, High on Pep, Low on Pills, The Economic Times, 4–10
September, 1998
6. Nitin Srivastava and R.Sriram, He Can Conquer, But Can He Rule? The
Strategist, Business Standard, November 17, 1998
7. T. Surendar, Piramal Patents a Pharma Formula, Business World, 7–21 July,
1998
1. Sarah Abraham, A star Performer, Business India, July 31–August 13, 1995
2. P. Hari, The race for new drugs hots up, Business World, 7–21 July, 1998
3. P.S. Anantharaman, Strategies: Let’s get those molecules in, Coporate
Dossier, The Economic Times, 20–26, November,1998
4. Nitin Shrivastava, R. Sriram, He can conquer, but can he rule? The
Strategist, Business Standard, November, 1998
5. Roy Pinto, Tonic for Growth: Corporate Reports, Business India, October
19–November 1,1998
6. Palakunnathu G. Mathai and T. Surender, Pharma Drama, Business World
7– 21 April, 1999
7. The idea is to build digital ubiquity: Interview with R. Vasant Kumar by
Vidya Viswanathan of Business Standard, January 15, 1999
8. K. Suresh, Be as local as possible: Interview with K. Satish Reddy, A&M, 15
February, 1998
9. Cover story: Ranbaxy: The Truly Indian Multinational and interviews with
D.S. Brar and Sanjeev Kaul, Pharma Trendz Today, November–December, 1997
1. Jerry Yoram Wind, Jeremy Main, ‘Driving Change: How the best companies
are preparing for the 21st Century – The Wharton School’s ground
breaking research on the future of management’, The Free Press, A division
of Simon and Schuster Inc., New York, 1998
2. Lawrence A.Bossidy, Reality-based Leadership,Lecture delivered
at The Economic Club of Washington, Washington D.C., June 19, 1996
3. Gary Hamel, C.K. Prahlad, ‘Competing for the future’, Harvard Business
School Press, Boston, Massachusetts, 1994
4. Theodore Levitt, Marketing myopia, Harvard Business Review, July–August,
1960
Index 391
Index
A APEC 41
Aqua Vet 233
Abbott 54, 232 Aristo 341
Acquisition Route ASE 311, 341
94, 98, 99, 104, 119, 141, 277, 358 ASEAN 41
Action Agenda 67, 68, 378 Asthalin 121
Acumed 204, 295, 317 Asthalin Inhaler 121
Aerocort 121 Astra Merck 17
Ajay Piramal 74, 123, 358, 359 Aten 128
Alembic 49, 336, 340 Aurobindo Pharma 336, 337
Alfred P. Sloan 238 Azithral 336
Alkem 341
Allegra 219
Allergan 227 B
Alprax 125, 360
Althrocin 336 Bactrim 124
Altiva 219 Barriers
Alza 10 52, 69, 81, 134, 136, 137, 177, 194,
Alzheimer 19 217, 292, 302
Alzolam 127 Bayer 15, 107, 126, 155, 200, 206, 232
Amaryl 229 Bevent 234
American Drug Stores 15 Bharat Biotech Int. 151
American Home Products 5, 7 Biddle Sawyer 57, 341
American Remedies 235, 341 Bio Sidus 231
Ampoxin 338 Bio-pharmaceutical Industry 19
Analogue 156 Biochemie 184
Analogue 156, 157, 170, 244, 373 Biochimico 221
Analytical R&D 165 Biological E 341
ANDA 137 Biological Leads 164
ANDEAN 41 Biotech 151, 186
Andrew S. Grove 381 Biotech 19, 150
Andy Neely 257, 265 Biotechnology
Anji Reddy K. 74, 79, 99, 145, 165, 349 Biotechnology 10, 19, 82, 140–142,
Anti-dumping 181 217, 226, 231, 244, 311, 356
Antibiotics 223, 235 Bistrepin 336
392 Game plans for post-GATT era
IntellectualCapital 240 L
International Generic Company
73, 80, 88, 91, 93, 176, 192, 305 La Porte 185, 205, 228, 305, 318
International Regulatory Authorities Lariago 128, 189, 290
85, 101, 144, 197, 202, 206, 270, Lawrence A. Bossidy 380, 382
292–294, 313, 339, 346, 352, 356, Lehman Brothers 137, 381
357, 366, 379 Leif Edvinsson 245, 341
Ipca 85, 110, 127, 128, 130, 131, 142, 143, Lupin 16, 31, 32, 49, 55, 56, 59,
172, 176, 177, 189, 191, 206, 207, 68, 70, 71, 74, 80, 81, 89, 91,
233, 234, 246, 267, 277, 283, 290, 94, 95, 101, 102, 121, 122, 130, 131,
296, 301, 302, 306, 313, 319, 320, 146, 154, 156, 157, 166, 167, 176,
327, 332, 334, 335, 367–369 177, 184, 191, 194, 203, 216–218,
IPR 1, 2, 9, 13, 21–28, 32–34, 46, 224, 225, 236, 266, 274, 278,
51, 58, 59, 65, 144, 156, 280, 287, 294, 297, 299, 302,
204, 206, 269, 297, 373, 379 304, 310, 317, 324, 330, 334, 335,
Ivax 209, 266 354, 355
Lupin Chemicals 324, 354, 355
Lyka 108, 109, 188, 296, 341
J
J B Chemicals & Pharmaceuticals 338 M
J.M. Khanna 138
Jack Welch 261, 267 M J Pharma 108, 109, 296, 341
John O’ Keefee 377 Mallinckrodt 233, 337
John Wyeth 49 Mark Brown 258
Joseph H. Boyett 259 Market Access
13, 194, 197, 204, 214, 215, 216, 217
Marketing Mindset 64, 69, 113–116, 120,
K 126, 127, 131, 271, 284, 291, 333,
347, 356, 365
K D Pharma 234
Marketing Orientation
Kaizen 252, 266
113, 115, 118, 119, 284, 289
Keflor 118
KGCC 107, 109, 142, 232, 312, 313 Max 184
Knoll 49, 108, 109, 187 Max-GB 184
Kopran MCA 108, 140, 136
86, 110, 128, 130, 131, 133, 143, Mckinsey 56, 57, 81
172, 173, 176, 177, 189–191, 207, MCO 14, 15
234, 235, 246, 267, 277, 284, Medpro Pharmaceutica 222
291, 296, 302, 306, 313, 320, 327, Merck Generics
332–335, 339, 369–370 56, 71, 102, 140, 184, 203,
Kresp 234 216–218, 224, 225, 275, 310, 355
Kyorin 174 MERCOSUR 41
Merind 103, 185, 281, 288, 325, 341, 357
396 Game plans for post-GATT era
Metrogyl 338 O
Michael Porter 179
Michael S. Malone 245, 341 Ocid 125
Micro Labs 341 Odaxil 122
Milmet 108, 109, 341 Ohm Laboratories 98, 198, 200
Mission 75, 77–79, 80, 87, 255, Omez 119, 120
273, 346, 363, 378 Operational Excellence 64, 67, 71, 249– 252,
MNC 48, 49, 56, 57, 60, 66, 71, 159, 257, 265, 266, 272, 328, 333, 336,
208, 209, 215, 216 374, 353
Monotrate 127 OPPI 45, 50
Morepen 339, 340 Optineuron 122
Mother & Child Care Division 226 Orchid 86, 92, 111, 128, 130, 143, 173,
Mova 102, 225, 236, 355 177, 178, 190, 207, 235, 246,
Mylan 209, 266 267, 278, 279, 284, 291, 297,
302, 307, 314, 320, 328, 333,
334, 335, 370, 371
N Oriprim 125
Orthogonal Arrays 158
NAFTA 41 OTC 15, 83, 98, 106, 117, 226, 228, 360
NCE 79, 83, 100, 145–146, 157, 164– Oxalgin-DP 125
165, 170, 172, 220, 298
NCL 140, 167
NDDS 157, 158, 244 P
Nextar 228
Nicholas Piramal Panacea Biotec 341
56, 57, 71, 74, 82, 95, 104–106, Pankaj Patel 84, 362
117, 130, 133, 141, 157, 168, 169, Paraxin 124
185, 186, 205, 209, 211, 227–230, Parkinsons 19
235, 244, 305, 334, 358, 359, 379 Parvinder Singh 73, 78, 173, 192, 346, 349
NME 8 PBM 3, 14, 15, 137
Norflox 121 Peptide Synthesis 172
Norflox-TZ 121 Perinorm 128
Novaclox 121 Perinorm 189
Novamox 121 Peter Drucker 113
Novartis 15, 49, 54, 55, 213, 240 Pfimex 100, 117, 119, 280, 350
Novo Nordisk Pharmacia Upjohn 7
9, 59, 74, 100, 202, 216, 220, 221, Pharmaco-economic Studies 15
274, 299, 308, 316, 322 Positive Reinforcement 250, 253, 259–261,
NPIL 68, 123, 135, 169, 216, 227, 228, 264
230, 275, 276, 281–288, 295, 300, Post-GATT Era 56, 81, 96, 131, 142, 208,
305, 311, 317, 325, 331, 335, 358 245, 249, 270–273, 279, 292, 316,
333, 340, 342, 344, 357, 359, 362,
369, 372–374
Index 397
W Z
Wallis 103, 204, 225, 295, 317 Zanocin 118, 219
Whisper 226 Zedex 123
Wockhardt 16, 31, 32, 46, 55, 59, 68, Zhejiang Autokang Pharmaceutical Company
70, 81, 89, 94, 95, 102–104, 122, 222
123, 130, 131, 133, 135, 140, 146, Zydus 49, 59, 71, 84, 89, 106, 107,
154, 156–158, 167, 168, 176, 177, 125, 126, 130, 135, 142, 171, 187,
184, 185, 191, 194, 203–205, 209, 205, 206, 211, 231– 235, 246, 276,
216–218, 225–227, 236, 246, 266, 282, 289, 295, 301, 305, 312, 318,
267, 275, 281, 287, 294, 297, 299, 326, 331, 335, 337, 362, 365, 379
302, 304, 310, 317, 324, 325, 330, Zyrop 231
334, 335, 356, 357, 379
Wokadine 123
Wyckoff 52
Contents
Introduction vii
1. Pharmaceutical Industry – A Global Perspective 1
2. IPR: Folklore and Facts 21
3. GATT – A Third World Perspective 35
4. Life after GATT in Indian Pharmaceutical Industry 45
5. Game Plans for Post-GATT Era: The Indian Example 63
6. StrategicVision 73
7. Reaching the Critical Mass 91
8. The Marketing Mindset 113
9. Upgrading the Technology 133
10. Focusing on Research 145
11. Integrating Strategically 175
12. Internationalising the Business 193
13. Attracting Alliances 211
14. IntellectualCapital 237
15. Operational Excellence 249
16. Winners and Spectators 269
17. Top of the Heap 343
18. Winner’s Check List 375