Case Chapter 6, Eli Lilly in India

Case Chapter 6, Eli Lilly in India - Case 6-3 Eli Lilly in...

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Case 6-3: Eli Lilly in India: Rethinking the Joint Venture Strategy Eli Lilly a leading pharmaceutical firm based in the United States had started a joint venture with Ranbaxy in India. Eli Lilly-Ranbaxy Private Limited (1993) which had steady growth The Global Pharmaceutical Industry in the 1990s 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 on R&D. In most countries, all activities related to drug research and manufacturing were strictly controlled by government agencies. 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 and manufacturing. Both patents guaranteed the inventor a 20-year monopoly on the innovation. As health-care costs soared in the 1990s, the pharmaceutical industry in developed countries began coming under increased scrutiny, also because there were various types of price controls. Prices for the same drugs varied widely between countries. Parallel trade or trade by independent firms taking advantage of thus 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 costs of the branded drugs, were challenging the pricing power of the pharmaceutical companies. The generic companies made their money by copying what other pharmaceutical companies discovered, developed and created a market for it. The Indian Pharmaceutical Industry in the 1990s In India health-care expenditures accounted for a very small share of GDP, and health insurance was not commonly available. In 1947 India was dependent of imports in this sector. The 1970s saw several changes that would dramatically change the intellectual property regime and give rise to the emergence on local manufacturing companies. The Patents Act in essence abolished the product patents for all pharmaceutical and agricultural products, and permitted process patents for five to seven years. The DPCO (Drug Price Control Order) instituted price controls, by which a government body stipulated prices for all drugs. Indian drug prices were the lowest in the world. With the institution of both the DPCO and the Patent Act, drugs became available more
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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 Chapter 6, Eli Lilly in India - Case 6-3 Eli Lilly in...

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