Case 6-3 – Eli Lilly in India: Rethinking the Joint Venture Strategy
Lilly and Ranbaxy had started a joint venture (JV) in India, Eli Lilly–Ranbaxy Private Limited (ELR),
that was incorporated in March 1993.
In 2001, Lilly was re-evaluating the directions for the JV.
The industry’s rapid growth was aided by increasing worldwide incomes and a universal
demand for better health care.
Drug discovery was an expensive process, with leading firms spending more than 20% of their sales
typically cost US$500 million to US$800 million (in 1992).
Few companies have the resources to achieve this; therefore collaboration is needed.
In most countries, all activities related to drug research and manufacturing were strictly controlled by
Patents were the essential means by which a firm protected its proprietary knowledge. The
‘product patent’ covered the chemical substance itself, while a ‘process patent’ covered the method of
processing or manufacture. Both patents guaranteed the inventor a 20-year monopoly on the
innovation, but the process patent offered much less protection, since it was fairly easy to modify a
As health-care costs soared in the 1990s, the pharmaceutical industry in developed
countries began coming under increased scrutiny. Although patent protection was strong
in developed countries, there were various types of price controls. Prices for the same
drugs varied between countries. Parallel trade or trade by independent firms taking
advantage of such differentials represented a serious threat to pharmaceutical suppliers.
Also, 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, were challenging the pricing
power of the pharmaceutical companies.
The Indian Pharmaceutical Industry in the 1990s
Developing countries, such as India, although large by population, were characterized by low per
capita gross domestic product (GDP). Typically, health-care expenditures accounted for a very small
share of GDP, and health insurance was not commonly available.
In 1947, India was dependent on imports. Post-independence, the first public sector drug company,
Hindustan Antibiotics Limited (HAL), was established in 1954, with the help of the World Health
Organization, and Indian Drugs and Pharmaceutical Limited (IDPL) was established in 1961 with the
help of the then Soviet Union.
The 1970s saw several changes that would dramatically change the intellectual property regime and