Case 6 - Case 6-3 Eli Lilly in India Rethinking the joint...

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Case 6-3 Eli Lilly in India: Rethinking the joint venture strategy Current situation (according to text): Lily is re-evaluating the directions for the JV. with Ranbaxy signaling an intention to sell its stake The Global Pharmaceutical Industry in the 1990s Pharmaceutical industry’s growth was aided by increasing worldwide incomes and a universal demand for better health care (concentrated in North America, Europe and Japan) Drug discovery was an expensive process, with leading firms spending more than 20% Bulk production of active ingredients was the norm along with ability to decentralize manufacturing and packaging to adapt to particular market needs, marketing was usually equally targeted to physicians and target customers Industry was heavily influenced and controlled by the respective government Patents were the essential means by which a firm protected its proprietary knowledge- therefore they could price their products appropriately in order to accumulate funds for future research o ‘Product patent’ covered the chemical substance itself, while a ‘process patent’ covered the method of processing or manufacture- both patents ensured the inventor a 20-year monopoly on the innovation While companies were using the global market to amortize the huge investments required to produce a new drug, they were hesitant to invest in countries where the intellectual property regime was weak Increased scrutiny- price controls and the rise of generics (unbranded drugs of comparable efficacy in treating the disease but available at a fraction of the cost of the branded drugs) The Indian Pharmaceutical Industry in the 1990s Developing countries, such as India were characterized by low per capita gross domestic product (GDP) 1947- India did not have the capabilities to produce pharmaceuticals and was dependent on imports 1970s- give rise to the emergence of local manufacturing companies: (1) Patents Act 1970- abolished product patents for all pharmaceutical and agricultural products and permitted process patents for 5-7 years and (2) Drug Price Control Order (DPCO)- instituted price controls by which a government body stipulated prices for all drugs Indian drug prices were estimated to be 5-20% of the US prices and among the lowest in the world, with the changes in the 1970s, drugs become available even more cheaply and local firms were encouraged to make copies of drugs by developing their own processes, leading to bulk drug production Profitability was highly reduced for multinational companies through the encouraged
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This note was uploaded on 11/11/2011 for the course ECON 202 taught by Professor Sneijder during the Fall '10 term at Erusmus University Rotterdam .

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Case 6 - Case 6-3 Eli Lilly in India Rethinking the joint...

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