Game Plans For POst-GATT Era

List of abbrevations 383
List of Abbreviations
APEC Asia Pacific Economic Cooperation

ANDA Abbreviated New Drug Applications
ASEAN Association of South East Asian Nations
CCMB Centre for Cellular and Molecular Biology
CDRI Central Drug Research Institute
cGMP Current Good Manufacturing Practices
CSIR Council of Scientific and Industrial Research
DCI Drug Controller of India
DOE Design of Experiments
DPCO Drug Price Control Order
DRF Dr. Reddy’s Research Foundation
DRL Dr. Reddy’s Laboratories
EMR Exclusive Marketing Rights
ERP Enterprise Resource Planning
EVA Economic Value Added
FDA Federal Drug Administration
FDI Foreign Direct Investment
GATS General Agreement on Trade Related Services
GATT General Agreement on Trade and Tariffs
HMO Health Maintenance Organisation
HMR Holchst Marrion Roussel
HPB Health Protection Branch
ICMR Indian Council for Medical Research
IDMA Indian Drug Manfacturers’ Association
IICT Indian Institute of Chemical Technology
384 Game plans for post-GATT era
IND Investigative New Drug

INDA Investigative New Drug Application
IPR IntellectualPropertyRights
JV Joint Venture
MCA Medicine Control Agency
MCC Medicine Control Council
MCO Managed Care Organisation
MVA Market Value Added
NAFTA North American Free Trade Agreement
NCE New Chemical Entity
NCL National Chemical Laboratories
N DD S Novel Drug Delivery Systems
NME New Molecular Entity
NPIL Nicholas Piramal India Limited
OPPI Organisation of Pharmaceutical Producers of India
PBM Pharmacy Benefit Management
R&D Research and Development
ROCE Return on Capital Employed
TGA Therapeutic Goods Administration
TQM Total Quality Management
TRIMS Trade Related Investment Measures
TRIPS Trade Related Intellectual Property Rights
UNIDO United Nations Industrial Development Organisation
WHO World Health Organisation
WTO World Trade Organisation
GAME PLANS
for POST-GATT ERA
Action Agenda of Indian Pharmaceutical Industry
GAME PLANS
for POST-GATT ERA
Action Agenda of Indian Pharmaceutical Industry
S. V. R. SUBBA RAO
© 1999 Panther Publishers Private Limited
Panther Publishers Private Limited

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ISBN 81-87350-31-8
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.
Radically Altered Environment

The changeover from process patents to product patents will be quite radical. Like
dinosaurs threatened by cataclysmic changes, companies often find it impossible to
cope with aradically altered environment. Thetell-tale signs are alreadythere for the
discerning observer to see. As many as ten companies have been either merged or
acquired by predators on the prowl. In addition, many bread-winning brands of
companies like Gufic, Natco, SOL, Pfimex and Dolphin and others have changed
hands.
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
become contract manufacturers for the large, aggressive marketing companies.

4. New product introductions would be reduced to a trickle. New products under
patent can be introduced only under specific licensing arrangements.
Game Plans for post-GATT Era

Game plans for post-GATT Era: Action agenda of Indian pharmaceutical industry
aims to capture the essence of strategic intent and content of twelve leading Indian
companies which are preparing to stay competitive even in the coming product patent
regime of 2005 and beyond.
Multinational drug companies operating in India have not been considered for this
study even though they are a part of the Indian pharmaceutical industry. The product
patent regime will provide a level playingfield for the industry. Consequently it has
the potential to reward multinationals at the expense of Indianfirms. Multinationals
have theexperience, resources andcapabilitiestosucceed in theproduct patent regime.
They have to just make up their minds and adapt to the local markets. They do not
need the kind of rigorous work out which their Indian counterparts do just to survive
in the post-GATT scenario.
It is theoretically possible for MNCs to seize the opportunity afforded by increased
patent protection and to wipe out local competition. However, this is a grossly
exaggerated apprehension although their consolidation is inevitable.
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
1. Recognition of product patents

2. Exclusive marketing rights for new products from 2000 to 2005
3. 20 yearpatentlife from thedate offiling
4. Shifting of the burden of proof tothe alleged infringer
5. The extension of protection to include imported materials and products
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.
Action Agenda of Indian Pharma Industry

The captains of the Indian pharmaceutical industry, who have founded and are heading
some of these leading Indian pharma companies firmly believe that India can become,
under the product patent regime, a centre of global importance and prominence in
pharmaceutical production and research and thereby enhance its position in the world
economy.
The game plans of their companies reflect this spirit, optimism and confidence. The
tenessentialstrategicelementsofthesewinninggameplansarediscussedintenseparate
x
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
The world pharmaceutical industry is highly imbalanced.

Just three regions: North America, Western Europe and
Japan inhabited by less than 15 per cent of the world
population account for over 80 per cent of the global
pharmaceutical market in value terms.
This great divide – the ‘haves’ and the ‘have-nots’ of
the pharmaceutical markets can be classified into two
broad categories. Single-source and multi-source product
markets. Single-source markets are those where there is
strong protection for Intellectual Property Rights (IPRs).
These markets have the world’s largest fully integrated
drug companies that have contributed significantly to
the progress of modern medicine through huge R&D efforts.
During the patency of a product only the discoverer has
a right to produce it. Hence all new products patented
are available only from a single source.
Multi-source markets as the name indicates are those
where there is little or no protection for IPRs. These
markets have a number of ‘innovative and imitative’ drug
firms, which produce branded generic formulations, generic
formulations of patented drugs (through innovative process
technology skills) and off-patent imitative drugs for
domestic use as well as for export to developing markets,

which have very weak or no IPR protection.
The developed markets are not immune to cost pressures.
They have been under severe pressure, from their governments
and consuming public to contain health care costs. They
have reacted in different ways to cut costs like mergers;
downsizing and more focused research (leading to marginally
improved products rather than breakthrough products).
Increasingly many of these firms are switching to an out-
sourcing strategy in manufacturing, research and even
marketing effort. The developed countries have been
exerting considerable pressure on the developing nations
for introducing a stronger protection to IPRs and to put
an end to the copying culture.
1 PHARMACEUTICAL INDUSTRY:
A GLOBAL PERSPECTIVE
The health care industry worldwide is undergoing a radical change.

Under pressure from cost containment programs in virtually every
market, the pharmaceutical industry has been forced to act, or rather
react.
Companies in the West, which account for almost two-thirds of the
world pharma market have reacted to the new tougher times in a
variety of ways. Many have slashed costs by cutting staff. Some have
divested unrelated businesses outside their core competencies. The more
privileged blue chip companies have joined the scramble for merger
partners or take-over targets. The once gentlemanly industry, in which
hostile deals were virtually unknown, has turned vicious. What are the
main reasons for these cataclysmic changes? Consider these:
 The world’s leading pharmaceutical companies in the West had been
achieving 15 to 20 per cent increases in profits each year during much
of the 1980s. However, in the 1990s, their profits have been dwindling
due to the open revolt of the people over the high cost of medicines.
 In the US, health maintenance organisations (HMOs), which are
like private national health plans and pharmacy benefit managers
(PBMs), who buy drugs in bulk and distribute them mostly through
the mail to members of their programs have been driving hard
bargains. Result? Sharply reduced profit margins.
 In Europe too, state health plans have also demanded and received
price reductions. In 1993, after Germany passed health care reform,
the government spent 20 per cent less on drugs than in the year
before.
 Furthermore, many of the products that fueled the strong growth

of the 1980s are reaching the end of the patent protection. When
patents expire, generic brands rush in with low cost substitutes that
may cost a mere tenth of the original. For example Upjohn’s xanax,
an anxiolytic went off-patent in 1993 and sales dropped from $ 624
million to $ 343 million within a year.
In addition, pharmaceutical companies in recent years have not been

coming up with new drugs to replace the high profit drugs going off-
patent. Instead of producing breakthrough drugs to treat ailments such
as AIDs, cancer and alzheimer’s disease, they have been turning out
more drugs that copy products already on the market. These are mere
molecular manipulations and patentable innovations resulting in
products with no significant therapeutic advantages. How else can you
explain the development of so many fluro-quinolones, ace-inhibitors,
SSRI agents etc?
The panacea of the moment is merger – the hope that bigger can be
better. The new companies (post-merger), take the best of both firms
and slash costs, mainly by cutting staff. Until pharmaceutical companies
come up with breakthrough research products, they have to find other
means for earnings and growth. One method is through mergers and
acquisitions. In the past four years, drug companies put together over
$ 80 billion worth of major mergers or acquisitions (Table 1.1).
All these mergers will perhaps make pharmaceuticals the most
international amongst major industries. The top ten drug companies
in 1995 included five US, two British, one Swiss, one German, and
one Swedish–American.
The clear implication of all these mergers and acquisitions is that
consolidation within the industry has only just begun. The
internationally known consultancy firm, Baring Securities suggests that
within five years, the top ten pharmaceutical companies will control
over 60 per cent of the world’s pharmaceutical market. The underlying
motivation for this consolidation is not market share per se, but cost
reduction.
The key criteria to be successful and competitive in the pharmaceutical
industry are to have geographical reach, a strong product portfolio, a
critical mass for R&D and financial strength.
Table 1.1
Top pharmaceutical company deals
Company Year $ Billion
1. Glaxo acquires Wellcome 1995 14.3

2. Bristol Myers acquires Squibb 1989 12.1
3. American Home Products acquires
American Cyanamid 1994 9.6
4. Beecham merges with SmithKline 1989 7.9
5. Hoechst Acquires Marion Merrel Dow 1995 7.1
6. Merck acquires Medco 1993 6.6
7. Upjohn merges with Pharmacia 1995 6.8
8. Dow acquires 65% of Marion labs 1989 6.2
9. Roche acquires Syntex 1994 5.3
10. Eastman Kodak acquires Sterling Drugs 1988 5.3
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.
Pharmaceutical Market – A Global Map

Over 80 per cent of the world’s population lives in developing countries,
yet their share of the global output is a mere 18 per cent. As a group,
these countries still have a long way to go before they are fully integrated
with the world economy.
The three largest markets: North America, Europe and Japan represent
over 80 per cent of world pharmaceutical market while they account
for a mere 13 per cent of the world population (Table 1.2).
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
Country/Region Share of Share of

production population
North America 30.9 4

Europe 30.4 7
Japan 20.9 2
Total 82.2 13
Rest Of The World 17.8 87
Table 1.3
Top pharmaceutical companies — 1994 sales reflecting

1995 mergers
Company Country $ Billion
1. Glaxo Wellcome UK 12.0

2. Merck USA 9.0
3. Hoechst Marion Roussel Germany 8.1
4. American Home Products USA 7.5
5. Bristol Myers Squibb USA 7.2
6. Roche Holding Switzerland 6.0
7. Pfizer USA 5.9
8. Smith Kline Beecham UK 5.5
9. Pharmacia Upjohn Sweden/USA 5.0

10. Eli Lilly USA 5.0
Total 71.2
The variety of products, which the industry produces, is another

important feature. About 20,000 products are sold in large markets
like the United States and Japan. The number of products marketed
in large developing countries like Brazil, India, China, South Korea
and Mexico are over 10,000. Such a degree of product proliferation
depends not only on product characteristics, but also on channels and
methods of distribution, aspects of national policy and the promotional
campaigns.
Not surprisingly, therefore, several products are available in each
country to treat a particular ailment. However, not all are of equal
importance. A single product may account for as much as a quarter of
total sales in that segment.
Usually, the five largest suppliers may account for two-thirds or more
of the domestic market. For certain diseases, the same products
dominate markets throughout the world.
These characteristics, though few, suffice to attest to the industry’s

diversity and to suggest generalisations about important issues like public
policy, corporate strategy and cost structures etc. The manufacturers in
the pharmaceutical industry can be broadly classified into three
categories:
1. Large, integrated corporations
2. Innovative companies
3. Imitative firms
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
constraints are becoming increasingly common. Consider for example

the recent agreement between Dr. Reddy’s Laboratories, an innovative
firm from India and the integrated Danish firm Novo Nordisk for
taking the NMEs developed by Dr. Reddy’s Laboratories through
clinical research to product registration and marketing in certain
developed markets.
Innovative firms typically produce and market branded versions of
patent-expired drugs in developing countries. The lack of significant
research or distribution facilities does not mean that the innovative
firms are excluded from foreign markets. Many are significant exporters,
either selling drugs through their own channels or through
international trading houses on the open markets. The logical
progression for an innovative firm in the corporate or industrial
evolution cycle is to become an integrated corporation. The more
progressive innovative firms particularly in developing countries are
increasingly advocating stronger protection for IPR.
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.
New Breed of Research Firms

There is a new group of firms emerging in the early 1990s consisting of
small and medium-sized companies engaged in research-intensive
activities. They are founded in order to exploit a single or smaller
number of patents for the development of unique drug.
The most important of these firms are engaged in genetic engineering.
The drugs they produce are not usually NMEs, since they are generally
identical, or very similar to substances, which occur naturally in the
body. The best known of these firms are Biogen, Biotech and Genetech.
All were founded at an early stage of product development as joint
ventures between academic centres, venture capital entrepreneurs and

integrated companies. Such firms typically incur operational losses at
the early stages of operations since their research expenditures exceed
revenues earned from royalties. A 1989 study of the ten leading medium
sized research companies indicated an average of $ 50 million in
operating revenues and research expenditure of 55 per cent.
These modern biotechnology firms may launch patented products at
home and conclude licensing arrangements for overseas markets. Most
become acquisition targets once their particular product is established
in major markets. As a result, many are now becoming more closely
integrated with the mainstream integrated pharmaceutical firms. Drug
manufacturers in 1994 alone invested $ 1.3 billion in 152 alliances.
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.
 Aging process will be the fastest in a number of developing countries.

While the share of the elderly and those over 45 will not rise
significantly, the absolute numbers will soon exceed the totals for
most industrialised nations. For example, by 2010 the number of
Chinese over 65 will be as large as that in Western Europe in the
year 2000.
 In some of the developing countries like Kenya, Nigeria and Zaire
the median age in 2010 will be less than half of the average in
industrialised countries; In some cases the average age would be below
20 years.
Implications of Changing Demographics

These demographic trends are altering important features of drug
markets. The frequency of drug consumption is rising most rapidly in
markets where the population is aging. At the same time the pattern
of consumption is changing. Chronic and degenerative diseases are
prevalent after the age of 50 and are dominant among those over 60
years. The markets for medicines to treat these diseases are therefore
growing.
The effects are different in the developing countries, where the
population is young and increasing. Young people are subject to acute
or infectious ailments. The need for drugs is particularly great among
those under five years of age, to sustain vaccination programs against
childhood diseases, prevention and treatment of vitamin and mineral
deficiencies and treatment of cough and cold associated with infections.
The unfavorable economic and social conditions, which prevail in many
developing countries in turn result in poor hygiene and sanitation,
increasing the need for such drugs in this age group.
These demographic shifts are already changing the way governments
influence the pattern of consumption. Over three-fourths of all drugs
purchased in most developing countries are obtained through private
rather than public channels. The increasing populations in these
countries are unlikely to reverse this trend of inadequate systems of
public support for health care in the foreseeable future. Regulators in
industrialised countries too, are searching for ways to contain the costs
of public health care and have chosen to focus on cost-effective
reimbursement programs. The reasons for this decision are political as

well as economic.
This regulatory regime in industrialised countries will definitely slow
the growth of consumption, though the long-term effects may not be
as severe as drug companies fear. Health authorities will have to search
for significant savings in other areas of their budgets because spending
on drugs accounts for only 5 to 15 per cent of the health care
expenditure in industrialised countries. Eventually, the industry could
even see its share of public health care spending rise, although the
total amounts allocated for reimbursement programs will decline. This
would be due to a stringent reduction in hospitalisation, with its
attendant high costs, and a preference for out-patient drug therapies,
which are far cheaper.
How will these demographic trends and changing policies affect global
markets? The general consensus is that the demand for drugs will grow
rapidly. The share of the developing countries in the world market
could also rise. This is due to the significant increases in populations of
the developing countries. The second reason is the possibility of
deceleration of sales in industrialised countries due to increasing generic
substitutions, as governments are scaling back the reimbursement
programs. While saying this, the graying of the population in
industrialised nations with higher buying capacities would be a
counterbalancing factor, tending to retain the market share of the
first world.
Demographics and Drug Consumption

The drug consumption among the elderly on the contrary is much
lower in developing countries as their income levels are much lower.
The frequency of drug consumption among the elderly, therefore, is
substantially lower in developing countries as compared to developed
countries.
Per capita sales of pharmaceuticals rose steadily from 1975 to 1984 in
both industrialised countries and developing countries alike. Since then,
however, the increment has been disproportionately higher in the
industrialised world. Developing countries accounted for about 20 to
23 per cent of world sales in each year during 1975–84. Their share,
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.
GATT and World Pharmaceutical Industry

Firms in industrialised countries, particularly in the US, increasingly
depend on exports of R&D intensive products. Arguably, they would
therefore benefit from strong IPR. Bringing intellectual property issues
into GATT also provides a potentially powerful enforcement
mechanism. Current enforcement practices like restriction of market
access for countries, which do not have strong IPR protection, could
be deemed to be ineffective.
In a study of the impact of pharmaceutical patent infringement in
Mexico, Argentina, Brazil and India, it was estimated that
pharmaceutical firms worldwide have lost perhaps $ 167 million to
$ 1.5 billion annually in royalty payments due to them, due to the
absence of product patents for drugs in those countries.
When you consider the ever strengthening imperatives for cost
containment by governments and the increasing competition due to
genericisation of drug production in industrialised countries, particularly
in the US, it is easier to understand why the research-based
pharmaceutical industry is mounting pressure constantly to see that
GATT comes into force. Consider these for example:
 According to US government estimates, the research-based
pharmaceutical industry loses about $ 5 billion each year to patent
pirates.
 180 of the top 200 pharmaceutical products had come out of patents
to face generic competition between 1983 and 1990.
 More than 40 billion worth of pharmaceuticals will come out of patent
by 2005. The impending generic competition will bring to bear

tremendous pressure on revenues and margins.
The research-based pharmaceutical industry in the US will be benefited
by implementation of GATT. The uniform patent life of 20 years from
the date of filing will ensure an additional patent protection to the 98
new drugs introduced between 1976–81. New drugs introduced in 1978
will have an additional patent protection of 2.2 years and 4.2 years in
the case of 1980 introductions. The average expected increase in patent
life as a result of GATT implementation would be around 3 years.
With this, the major adverse impacts on R&D returns would be
obviated.
Generic Explosion in the USA

The US market for generics is by far the largest. It was valued at
$ 6.5 billion in 1997 and accounted for over 35 per cent by volume
and 12 per cent by value.
A wide range of drugs is coming off-patent now and most of these
drugs are of interest to the generic manufacturers. The extent and
attraction of the generic market can be gauged when even the
discoverers of these products are showing eagerness to join the generics
bandwagon before generic manufacturers file their Abbreviated New
Drug Applications (ANDAs).
Health care cost-containment is another reason. The whole issue of
pricing has played a major role. HMOs, Managed Care Organisations
(MCOs) and PBMs are mainly responsible for this acceleration of the
already changing trends of prescription changes from branded to generic
drugs.
In the past, under the health care insurance system, the user paid the
fees and got the reimbursement from the insurer. There was no major
incentive for health care deliverers, such as physicians and hospitals, to
keep health care costs down.
Under the capitated system of health care, however, this is changing
rather rapidly. Managed Care Organisations (MCOs), under the present
system typically charge a flat fee, upfront, for each insured person.
With a low additional payment, they then provide all treatment. Thus
MCOs have a vital interest in keeping down the use of expensive

diagnostic and treatment procedures.
MCOs, in addition are showing a lot of interest in studying and adopting
strategies to prevent morbidity in the insured persons. Pharmaco-
economic studies too are increasingly being employed to examine the
cost-effectiveness of pharmaceutical usage vis-à-vis other forms of
treatment. Governments too are encouraging the usage of generics.
As cost pressures become more acute and more block buster products
come off-patent over the next few years, the size of the North American
generic market is set to expand sharply. Here is how some companies
are preparing to meet the challenges of the future:
 Novopharm, the leading generic company from Canada, is building
a $ 38 million manufacturing plant to meet the increased demands
expected from the growth in the US from generics business.
 Novopharm has also purchased Canadian over the counter (OTC)
company – Wampole, from Rhone Poulenc Rorer, in a further move
to broaden its operations base.
 Schering Plough’s generics subsidiary – Warwick, has extended its
deal with Novopharm for the non-exclusive distribution of the latter’s
existing lines of generic drugs.
 Geneva, the generic arm of Novartis has announced the formation
of a partnership with American Drug Stores Inc to address important
health care issues like improved access to high quality, low-cost
prescription pharmaceuticals and medical outcomes management.
The partnership, to be called ‘Prescription America’, is a PBM
company, created to exploit Geneva’s broad range of generic
pharmaceuticals and American Drug Stores’ 35,000 retail outlets
across the country.
 Schein Pharmaceutical, the generic wing of the German drug major
– Bayer is actively pursuing a policy of globalisation. It has acquired
manufacturer/distributor – Triomed in South Africa. Schein sells
to drug store chains, retail pharmacies, managed care organisations
and hospitals. It has an extensive line of products with the intention
to offer purchasers ‘one stop shop’ option. It has in total more than
400 ANDAs and a further 50 ANDAs at various stages of
development. Schein has in a recent move, allied with Solvay

Pharmaceuticals to form a mental health group alliance offering a
package of over 26 psychotherapeutic products and customised disease
management programs to managed care customers.
 Some of the leading Indian pharmaceutical companies like Ranbaxy,
Lupin, Wockhardt, Dr. Reddy’s Laboratories, Sun Pharma and Cipla
have entered into strategic alliances and are acquiring off-shore
manufacturing bases to exploit the big opportunities that the
American generics market has to offer.
The global health care industry is undergoing a period of radical change,
due to imposition of price control requirements. The major
pharmaceutical companies are consolidating in order to cut costs and
increase market share of ethical brands, whilst the generics market is
expanding. The recent spate of mergers, acquisitions and genericisation
moves testifies this.
Patent expiry of ethical products results in an extraordinarily rapid fall
in market share. Generic competition is both extremely rapid and
aggressive in price.
Generics in the European Union

The generics market in the UK is also commodity-based, characterised
by low prices and high volume turnover. The UK retail generics market
was valued at £ 700 million in 1997 accounting 15 per cent of the total
market.
Germany is the largest market for generics at present generics
accounting for 30 per cent of total market. The governments of Italy
and France are adopting a more proactive attitude towards increasing
generalisation.
According to the European Generics Association (EGA), the European
market for generics is valued at Ecu 4.5 billion which is equivalent to
$ 6 billion and accounts for 15 per cent of the market by volume and
10 per cent by value.
Generic Drug Industry Prospects

According to a report by S.C. Warburg, the generic drug industry will
continue to have a strong growth. The forecast says that growth between
1996 and 2005 will be 10 per cent annually reaching $ 21 billion by
2005 from the present $ 14.5 billion. At present generics account for
half of all new prescriptions and over the next ten years, on an average,
over $ 35 billion per year in branded drugs will be open to competition
from generics.
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.”
A Look into the Crystal Ball

While it is extremely difficult to predict the exact future of the world
pharmaceutical industry, a careful study of the past fifteen years reveals
a clear enough picture of what is most likely to happen in the foreseeable
future. Consider these nine trends:
1. The frenetic pace of change in the pharmaceutical industry worldwide
will continue. The governments in industrialised countries will
maintain the pressure to contain the health care costs. The
pharmaceutical industries in these countries therefore will remain
under severe pressure for margins.
2. The use of generics will increase in these countries, resulting in
lower growth rates for pharmaceutical industry. The increasing use
of generics will keep the pharmaceutical cake at a reasonably constant
size.
3. The pharmaceutical industry, consequently, will continue to be in a
consolidation mode. There will be more mergers and acquisitions.
Pressures on margins, the large number of blockbuster drugs going
off-patent and inadequate new product pipelines will drive industry
towards even more acquisitions and mergers. The last fourteen years
have seen as many as 25 mergers and acquisitions worth more than
$ 200 billion. Three more are on the cards:
A. German drug major Hoechst Marion and Roussel and Rhone
Poulene Rorer are likely to merge to create ‘Aventis’, the world’s
second largest pharmaceutical firm after Merck.
B. Britain’s Zeneca and Sweden’s Astra are likely to unite to become
the seventh largest pharmaceutical company in the world.
C. Sanofi and Synthelabo-both French drug firms are likely to join
hands to be among the top twenty drug firms in the world.
4. The world pharmaceutical industry is likely to defrag itself consequent
to all these mergers and acquisitions. Analysts predict that about
twelve to fifteen drug firms are likely to control close to two-thirds
of the world pharmaceutical market in the next five to ten years.
5. The present imbalance of 80:20 rule – the control of eighty per cent
of pharmaceutical market by the industrialised triad is likely tilt in
favour of the developing countries. Developing markets, which
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.
as a leader in the region. The initial successes of Indian pharma

companies like Dr. Reddy’s and Ranbaxy should provide both
inspiration and confidence to other Indian companies and to the
government as to what a strong IPR can do for India.
GATT – A third world perspective 35
3
GATT – A THIRD WORLD
PERSPECTIVE
Executive Summary
Two major reasons why developing countries join GATT: One

is the hope and belief that improved market access would
spur the economic growth. The other is that they really
do not have a choice.
The gains to developing countries as a result of GATT
indeed relates to export market prospects in terms of
improved access and the provision of an ‘insurance policy’
to future barriers. Most of these gains, however, will be
felt in the long term as many of the WTO reforms have
gradual phase - in periods and economies need time to
adjust.
Developing countries are fast becoming a major force in
the world trade for manufactured goods. The share of
developing countries in the world manufacturing exports
rose from less than 10 per cent in 1970 to around 26 per
cent in 1992. As compared to this, their imports of
manufactured goods rose from 5.5 per cent to 17.2 per
cent during the same period.
The positive impact of GATT in pharmaceutical industries
will be felt in very few developing countries like China,
India, South Korea and Brazil. Pharmaceutical industry
is virtually non-existent in more than 60 third world
countries. About 90 developing countries have very limited

manufacturing infrastructure to produce off-patent generic
formulations.
Many of the third world countries will have to contend
even in the new millenium, with off-patent generic
formulations and alternative medicines. The fruits of
the new drug revolution in the fields of biotechnology,
genomics and highly sophisticated target-specific drug
delivery systems will be out of reach for the third world
countries.
But then, there is more to GATT than pharmaceuticals. The
third world countries need to improve their overall economic
growth. Improving market access for their produce is
crucial. There is also a warning or caution for those who
do not integrate themselves with the world economy. The
danger of marginalisation.
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.
3 GATT – A THIRD WORLD

PERSPECTIVE
The seven-year Uruguay round of GATT world trade talks was

concluded in April 1994 with the signing of an agreement at Marrakech.
Developing countries – 118 of them have played a very important role
in trying to establish a common fame work for global free trade. They
have agreed to reverse their preferences for protectionism. They seem
to have overcome their distrust in new areas such as trade in services
and intellectual property rights.
The key reason for the interest of developing countries was the realisation
that liberalisation would spur economic growth. Improved foreign
market access for their exports is the major reason for deciding on
further liberalisation of their economies. It is almost a Hobson’s choice!
Developing countries are fast becoming a major force in world trade for
manufactured goods. Their share in the world manufacturing exports
rose from less than 10 per cent in 1970 to around 26 per cent in 1992.
At the same time, developing countries also increased their imports of
manufactured goods from 5.5 per cent in 1970 to 17.2 per cent in 1991.
The main results of the Uruguay round negotiations are:
1. Reduced tariff and non-tariff barriers and expanded GATT discipline
to cover agriculture, textiles and clothing.
2. Reform of existing GATT rules, most notably those on safeguards
and on subsidies.
3. Countervailing duties.
4. Extension of multilateral rules to the “new” areas of trade in services
within the frame-work of the General Agreement of Trade in Services

(GATS) and Agreement on Trade-Related Investment Measures
(TRIMS) and Trade-Related Intellectual Property Rights (TRIPS).
5. Institutional reforms relating to the settlement of trade disputes
(understanding on rules and procedures governing the settlement
of disputes) and the functioning of the GATT system (trade policy
review mechanism).
For the most part, the new rules take effect immediately. However,
there are important transition periods for developing countries.
Liberalised market access will generally be phased out over a 10-year
period.
Effects of GATT on Developing Countries

The GATT 1994 agreement and the new WTO will serve to help
developing countries seeking to move in the direction of more open
markets and less government intervention. Assistance will come in the
form of:
 Lower tariff rates
 Removal of non-tariff barriers
 Fewer subsidies
 Better investment practices
 Stronger protection for intellectual property rights
One measure of the gains to developing countries relates export market
prospects, which are: first, further improvement in their access to
markets of developed countries, and secondly, the provision of an
“insurance policy” against future barriers to those markets.
Elimination of Non-tariff Barriers

Non-tariff barriers encompass a whole array of measures, including
voluntary export restraints, orderly market arrangements, tariff quotas,
surcharges, variable levies, prohibitions, licensing, import monitoring,
anti-dumping and countervailing actions, price controls and the measures
invoked under the multi-fiber agreements.
Voluntary Export Restraints

When imports affect local producers, GATT members, especially
developed countries, looked for protection by enforcing voluntary
exports’ restraints. The exporting country, would, in turn generally waive
its GATT rights by consenting, under duress to limit its exports to the
distressed market. The GATT 1994 agreement stipulates that government
negotiated voluntary export restraints should be eliminated within four
years of the establishment of WTO.
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.
Gains for Developing Countries

Most of the gains from the GATT agreement to developing countries
will only be felt in the long term. There are two reasons for this.
A. Many of the WTO reforms have gradual phase-in periods.
B. Economies need time to adjust.
The new WTO, however, will bring both static and dynamic gains in
the near future as well.
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.
Regional Trade Agreements – Blocs or Blockades?

Despite increasing efforts to liberalise the global trading system, the
world is seeing the emergence of a number of trading blocs centreed
on Europe, North America, South America and the Asia-Pacific regions.
An increasing number of regional arrangements have been concluded
in recent years, with 33 arrangements notified to GATT between 1990
and 1994. Prominent among these are:
1. NAFTA: North American Free Trade Agreement between USA,

Canada and Mexico. A major beneficiary of NAFTA is the
developing country Mexico. The potential benefits to Mexico of
joining are many, including stable and secure access to the United
States market.
2. MERCOSUR: Mercado Common Del Sur. Established in 1991,
this agreement involving Argentina, Brazil, Paraguay and Uruguay
is now perceived as the most important customs union in the Latin
American region. This is free trade zone affecting 90 per cent of
commodities among the member countries. A common external
tariff applies to trade with countries outside MERCOSUR.
3. European Union: The integration agreement of European countries
cover a wider area and go much deeper, beyond the promotion of
intra-region trade and the erection of common trade barriers through
a customs union, moving towards the complete integration of
regional markets through the free flow of factors of production and
harmonisation of monetary, fiscal, industrial, trade and competition
policies.
4. ANDEAN: This agreement involves Bolivia, Colombia, Ecuador,
Peru and Venezuela.
5. ASEAN: Formed on 8th August 1967, the Association of South
East Asian Nations comprises of Singapore, Malaysia, Taiwan,
Philippines, Indonesia, and Thailand. Brunei joined in 1884 and
Vietnam in 1995. Cambodia, Laos and Papua New Guinea have an
observer status. The purpose of this association is to accelerate
economic growth and social progress. AFTA (ASEAN Free Trade
Area) was set up in 1991 with the aim of creating a common market
in 15 years.
6. APEC: Asia Pacific Economic Cooperation group was founded in
November 1989, with an aim of establishing a free trade zone by
2020. The member countries are Australia, Brunei, Canada,
Indonesia, Malaysia, Chile, China, Hong Kong, Mexico, Japan,
New Zealand, Papua New Guinea, South Korea, Singapore,
Philippines, Taiwan, Thailand, USA.
GATT and Pharmaceutical Industry in the Third World

The pharmaceutical industry in developing countries accounts for less
than a fifth of world production. The size of firms and pattern of product
specialisation, therefore, differ significantly from those in industrialised
countries. Most firms are small in size and produce branded generic or
generic formulations of patent-expired drugs. Many of these firms depend
on imports for bulk drugs. Only a few firms in countries like Argentina,
Brazil, Mexico, Puerto Rico, Republic of Korea, China, Turkey, India
produce bulk drugs and intermediates.
More than sixty countries in the third world do not have any
pharmaceutical industry. About ninety countries produce only generic
formulations mostly of drugs mentioned in WHO’s list of essential
drugs.
Many of the third world countries depend upon various types of aid
and foreign assistance for their medical supplies. More often, the aid
takes the form of credit lines which are a direct gift of pharmaceuticals
or tied to purchases from suppliers in the donor country. Essential
drugs are usually obtained by competition through open tenders.
IPR and Pharmaceutical Industry

While many industries rely on patents to earn returns on their research
and development programs, Patents are especially important in
pharmaceuticals, chemicals and machinery. Huge resources are put at
risk in the pharmaceutical industry to discover or invent a new drug.
Over 90 per cent of all new drugs have been invented in countries
where there are strong patent protection for products as well as processes.
There is much evidence to suggest that weak intellectual property
protection act as a disincentive to innovation. Brazilian survey clearly
suggests that lack of intellectual property protection discourages
Innovation. US survey evidence (Mansfield, 1986), suggests that
protection stimulates innovation.
The opportunity horizon for the progressive drug companies in some
developing countries like India, China and Brazil is indeed very wide.
Indian and Chinese companies are low cost producers. A number of
leading companies in both countries have steadily upgraded their
technological competence and developed the science of process

innovation into a fine art. India along with China among the
developing nations has reached a stage where they can be globally
competitive in the bulk drug and intermediate business. Intellectual
property protection in Brazil too has been very weak. It is only recently
that the country has started work on amending its patent laws.
As soon as China has amended its patent laws and accepted the pipeline
protection from 1986 retrospectively, it has been able to attract
substantial Foreign Direct Investment (FDI). India has yet to amend its
patent laws, but promised that it would recognize product patents
effective 2005, after the completion of the transition period.
Brazil has not been able to develop its process development skills anywhere
comparable to China and India, even though, the country has been
rapidly industrialising. The industry’s cost structure in Brazil is higher
than that of India and China and therefore less competitive. There is a
lot of international pressure on Brazil to recognise the product patents
earlier.
The benefits of the new revolution that is sweeping the world
pharmaceutical industry in general and particulary in the areas of
biotechnology and genomics will not be available to the third world
countries in the foreseeable future. They will be unaffordable. The third
world countries should make a determined move towards overall
economic, social and tehnological progress. They can achieve this only
when they integrate with the rest of the world . They cannot achieve
this in isolation.
Dr. Gamani Corea, the former Director General of UNCTAD, while
stressing the role of science and technology in the international
development strategy had expressed a note of warning:
“It is being said that although the world is getting more integrated
and inter-dependence is spreading, although financial markets are
converging, there is also a possible trend in the other direction. A
possible danger is that these very processes can lead to marginalisation
of the countries of the South. The developing countries instead of
being drawn into the vortex of the world economy could remain,
and continue to remain, increasingly on the periphery. In fact, people
are already saying that in the world of tomorrow, the division would
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
What will be the impact of introduction of product patents

on Indian pharmaceutical industry, which has grown
dramatically in the ‘process-patent Raj?’ Will it be a
doomsday or sunset scenario as painted by the Indian Drug
Manufacturers Association (IDMA)? Or will it be a sunrise
scenario with a wide opportunity horizon as projected by
Organisation of Pharmaceutical Producers of India (OPPI),
industry experts and some of the Indian drug majors?
Some leading Indian pharmaceutical companies share the
optimism of the Sunrise scenario and they have been
agressively planning to meet the challenges of the post-
GATT scenario. They see a wide opportunity horizon for
the Indian pharmaceutical industry as India integrates
with the world economy by introducing product patents.
There are at least seven big opportunities to be exploited
in the coming product patent era. Here is the rainbow on
the opportunity horizon:
1.Marketing of branded generics in the domestic market.
2.Marketing of bulk actives and drug intermediates in
the highly industrialised and regulated markets.
3. Marketing of branded generics in countries with little

or no IPR protection
4. Marketing of generic formulations of off-patent drugs
in regulated markets with strong IPR protection
5. Opportunities for custom synthesis of newly patented
molecules
6. Branded generic formulations of off-patent,yet single
source drugs that are difficult to copy
7. Contract research opportunities
And then in the not so distant future, there could even
be opportunities to licence out the molecules developed
by Indian pharmaceutical companies. Dr.Reddy’s have
already shown the way. Ranbaxy is about to do it. Wockhardt
has developed the lead compounds and is scouting for
international partners for further development and
commercialisation. While it may take five to seven years
or more for all these things to materialise, these early
successes should instil confidence and the ‘Can Do’ spirit
among other Indian drug companies.
4 LIFE AFTER GATT IN INDIAN

PHARMACEUTICAL INDUSTRY
The Indian pharmaceutical industry is one of the most closely

regulated industrial sectors in India. The government not only controls
prices of formulations and bulk drugs but even controls the profitability
of pharmaceutical companies.
The industry is characterised by a high degree of proliferation. Over
16,000 pharma units produce bulk drugs, intermediates and
formulations. Many of these units are low-cost single product firms
servicing regional markets with low technology bulk drugs and generic
formulations. They have very small market shares. The top 250
companies account for over 80 per cent of pharmaceutical production.
The industry produces over 456 bulk drugs, 525 intermediates and 60,000
formulations and has been a net exporter for over seven years now.
Life Before GATT

The Indian pharmaceutical industry has developed significantly since
the early 1970s. Prior to this, multinational companies dominated the
industry with their superior technological base (mostly import-
dependent) and marketing strengths. They had a strong control on
the availability and prices of drugs, with the result that drug prices in
India were considerably higher than they are now and in fact were
comparable to prices in the developed world.
DPCO 1969 (Drug Price Control Order) was the first step taken by the
government towards encouraging self-reliance in drug technology and
availability. DPCO established retail ceiling prices for certain drugs.
Indian companies that manufactured these drugs were, however,

exempted from price control for as long as five years.
The second major step towards increasing self-reliance in the drug
industry was the introduction of the Indian Patents Act of 1970. This
has resulted in fundamental structural changes within the industry.
The act recognised only process patents and not product patents. This
allowed companies to copy a drug using different process routes without
payment of royalty or license fees to originators.
Indian pharma companies with lower labour and operational costs were
able, for the first time, to manufacture international drugs (discovered
elsewhere in the world) and sell them cheaper than the MNCs could.
Multinationals had to adhere to international patent regulations and
were restricted to their own proprietary drugs.
Multinationals, for almost 25 years, have largely steered clear of the
Indian market (with the exception of a few companies like Glaxo,
Hoechst etc.,). As drug prices were fixed at levels that were at times
about 4 per cent of prices in developed markets, multinationals stopped
introducing their new products and stopped selling products that were
priced too low. As a result, MNCs accounted for 30 per cent of the
market in 1998, down from 80 per cent in 1970. At the top ten level,
the shares of MNCs and Indian sector are more are less evenly balanced
(Table 4.1).
Life after GATT – Two Scenarios

What will life after GATT be for the Indian pharmaceutical industry?
Will it be better or worse off? Can Indian companies continue their
growth path, the way they did during the “process patent only” period
of the 1970s and after? Or will the multinationals rule the roost in the
new product patent regime after 2005? How many companies are going
to survive the advent of GATT?
Dr. Heinz Redwood, in his study on ‘New Horizons in India – The
consequences of Product Patents in India’ presents the expectations,
predictions and predilections of life after GATT in the Indian
pharmaceutical industry in two mutually contradictory scenarios of the
future – ‘Sunset and Sunrise’:
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
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
advocates of the ‘Sunrise scenario’ on the contrary plead that the

government can ensure a bright future for the Indian pharmaceutical
industry only by implementing TRIPS with dedication and
determination.
Whether a strong IPR for pharmaceutical industry results in a ‘Sunset’
or a ‘Sunrise’ is not pre-ordained. It is largely in the hands of those
who shape events – namely, the Indian pharmaceutical companies,
multinational groups and the Indian regulatory authorities.
If the government decides to promote a strong and research-based
pharmaceutical industry in India, then water- tight patent protection
is a must. The second pre-requisite is some degree of relaxation of its
severe controls and introduction of new measures for raising the
profitability levels to encourage risk-taking research.
Taking the sum of pre-tax profit and R&D expenditure as an indicator
of ‘available revenue’, the level in Indian drug firms (as a percentage
of sales) is about one-third of that in Japan, and one-fifth that of the
global pharmaceutical level. The Indian figure is not adequate for
investment in innovative R&D.
Not a Knockout Bout!

Indian companies will not be knocked out by patent protection, if they
adapt their corporate strategy to it. Multinational companies too, on
their part will not find bonanza conditions on their Indian doorstep.
At the same time, reasonable opportunities are arising in India at a
time when a severe squeeze in profits is being suffered due to cost
containment strategies and policy reviews in Europe and North
America. Collaboration, rather than confrontation, will ensure success
for both. A number of strategic alliances are already taking place between
the more progressive Indian companies and multinationals to exploit
the market opportunities in a mutually beneficial manner.
India already possesses the necessary technological infrastructure and
scientific talent for original pharmaceutical R&D. It is not scientific
genius that is in short supply, but cash flow. The Indian government,
therefore, can encourage both Indian and foreign industry by changing
the ground rules sufficiently to provide the necessary incentive for
investment in pharmaceutical innovation and research under patent
protection. Only then, it can convert the barriers of inadequate cash

flow for research and innovation and create gateways.
Generics – The Big Opportunity in the post–GATT Era

The market for off-patented generic formulations in the US alone is
expected to be more than $ 30 billion by the year 2005. That is roughly
about ten times the present size of the Indian pharmaceutical market.
Table 4.2 presents the details of as many as 64 major drugs that would
go off-patent between now and 2005. Typically, the US imports nearly
80 per cent of its generic drugs. Given the proven track record of the
Indian pharmaceutical industry in bulk actives and drug intermediates,
it is reasonable to assume that at least ten per cent of the emerging
business could be served by Indian pharma companies. That would
mean a whopping $ 3 billion. The European Union too would offer
similar opportunities for generic formulations in the near future, as
more and more governments in Europe are encouraging the use of
generic drugs in order to contain health care costs.
Large Window of Opportunity

The US generics market, which has so far been catered to largely by
Italian and Spanish companies, is set to open even further after
tightening of European Patent laws with the adoption of Supplementary
Protection Certificate (SPC). In the past, companies were allowed to
produce patented drugs on a small or pilot scale, in order to generate
samples for the regulatory authorities. The samples now have to be
submitted four years before the drgus go off-patent, and so the adoption
of the SPC in effect chokes the US market for the new generics off,
for Erupean producers. Italy will have to stop production of these bulk
generics by 1997, and Spain, a smaller producer, by 2002. Europe
accounts for 80 per cent of US bulk generic sale of and Italy alone
accounts for 80 per cent of this. There are only two major independent
US producers of bulk generics, Gaines Inc. and Wyckoff Chemical
Company Inc. They account for only 10 per cent of US generic sales.
Once the European supplies dry up, there is a large window of
opportunity available for Indian drug companies to enter. The Indian
companies have many advantages over their counterparts in other
Table 4.2
Patent expiration on leading global drugs, 1996–2005

Brand name Category Marketer 1994 Year of
worldwide patent expiration
sales
$ mil
1. Sandimmune Immunosuppressive Sandoz 1,038 1996

2. Lupron Anti-cancer Tap Pharma 393 1996
3. Diprivan Anaesthetic Zeneca 382 1996
4. Claforan Anti-infective HMR 363 1996
5. Zovirax Anti-viral Glaxo 1,729 1997
WellCome
6. Paxil Anti-depressant SKB 511 1997
7. Timoptic Glaucoma treatment Merck&Co 395 1997
8. Trental Peripheral vasodilator HMR 361 1997
9. Taxol Anti-cancer BMS 340 1997
10. Toradol Analgesic Roche 335 1997
11. Zoladex Anti-cancer Zeneca 311 1997
12. Lodine Anti-arthritic Wyeth-Ayerest 261 1997
13. Claritin Anti-histaminic Schering Plc 505 1998
14. Lovenox Anti-thrombotic RPR 214 1998
15. Mevacor Cholesterol reducer Merck&Co 1,345 1999
16. Prvachol Cholesterol reducer BMS 645 1999
17. Beclovent Anti-asthmatic Glaxo 552 1999
Wellcome
18. Fortaz Anti-infective Glaxo 473 1999
Wellcome
19. Versed Anaesthetic Roche 380 1999
20. Cardura Anti-hypertensive Pfizer 313 1999
21. Unasyn Anti-infective Pfizer 290 1999
22. Buspar Anxiolytic BMS 285 1999

23. Vanceril Corticosteroid Schering Plough 271 1999
24. Klonopin Anti-convulsant Roche 250 1999
25. Accupril Anti-hypertensive Warner Lambert 228 1999
26. Vasotec Anti-Hypertensive Merck & Co 2,185 2000
27. Augumentin Anti-infective SKB 1,126 2000
28. Rocephin Anti-infective Roche 930 2000
29. Pepcid Anti-ulcerant Merck & Co 820 2000
30. Humulin Anti-diabetic Eli Lilly 665 2000
31. Ceftin Anti-infective Glaxo Wellcome 546 2000
32. Relafen Anti-arthritic SKB 392 2000
33. Hytrin Anti-hypertensive Abbott 350 2000
34. Estraderm Estrogen replacement Novartis 314 2000
35. Intal Anti-asthmatic Fisions 308 2000
36. Prozac Anti-depressant Eli Lilly 1,665 2001
37. Zocor Cholesterol reducer Merck &Co 1,255 2001
38. Zestril Anti-hypertensive Zeneca 765 2001
39. Prinvil Anti-hypertensive Merck &Co 340 2001
40. Eulexin Anti-cancer Schering Plough 231 2001
41. Zantac Anti-ulcerant Glaxo Wellcome 3,663 2002
42. Zoloft Anti-depressant Pfizer 718 2002
43. Novadex Anti-cancer Zeneca 540 2002
44. Primaxin Anti-infective Merck &Co 515 2002
45. Axid Anti-ulcerant Eli Lilly 487 2002
46. Intron BRM Schering Plough 426 2002
47. Accutane Anti-acne Roche 310 2002
48. Duricef Anti-infective BMS 280 2002
49. Norvasc Anti-hypertensive Pfizer 768 2003
50. Diflucan Anti-fungal Pfizer 721 2003
51. Biaxin Anti-infective Abbott 600 2003
52. Ortho-Novum Oral contraceptive Ortho-McNeil 500 2003

53. Cipro Anti-infective Miles Inc. 1,300 2004
54. Epogen Hematopoietic Amgen 721 2004
55. Procrit Hematopoietic Ortho Biotec 600 2004
56. Engerix-B Hepatitis-B vaccine SKB 583 2004
57. Paraplatin Anti-cancer BMS 270 2004
58. Prilosec Anti-cancer Merck &Co 850 2005
59. Zofran Anti-emetic Glaxo Wellcome 506 2005
60. Retrovir Anti-viral Glaxo Wellcome 474 2005
61. Transderm-Nitro Anti-anginal Novartis 357 2005
62. Activase Clot dissoving agent Genetech 281 2005
63. Lamisil Anti-fungal Novartis 236 2005
64. Zithromax Anti-infective Pfizer 206 2005
Source: ORG – MARG’s ‘ Milestones – Book of Papers’, Client conference, Mumbai, 1998 and
Orange Book
developing countries. They have a proven track record in process

development skills and a number of manufacturing facilities that are
approved by US FDA. The game plans of some of the Indian drug
companies like Ranbaxy, DR. Reddy’s Labs, Lupin, Wockhardt, Sun
Pharma and Cipla clearly indicate their focused approach to exploit
the generic opportunities in North America and Europe.
The strategies adopted by these companies to exploit opportunities in
the rapidly expanding markets for off-patent generics in North America
and Europe are twofold. Firstly, some companies are creating beach-
heads in these difficult-to-enter markets through acquisitions of small
generic and over-the-counter companies and US FDA approved
manufacturing facilities. Ranbaxy, Wockhardt, Lupin and Sun Pharma
have already entered these markets this way, with Ranbaxy leading the
pack.
The second strategic approach of Indian companies to enter and
conquer foreign shores is by teaming with local partners to gain faster
access to markets and to share the high costs of product development,

registration and marketing. Cipla has formed a strategic alliance with
Geneva Pharma of the US and Novapharm of Canada for marketing
its generic formulations in North America. Lupin has chosen Merck
Generics as its partner for marketing its generic versions of sterile dosage
forms of cephalosporin molecules that would go off-patent soon.
Nicholas Piramal too has formed a joint venture with Swiss-based
Siegfried Pharma to penetrate the generics markets in European Union
and North America.
Four Opportunities for MNCs

Having signed GATT, India will have to conform to worldwide patent
standards by 2005. During the phase-in period, it will have to provide
MNCs with exclusive marketing rights and provide a ‘mail box’
provision that allows them to file patent applications now for
consideration once the product patents come into force.
The Indian pharmaceutical market is likely to grow rapidly. Volumes
will increase as healthcare spending rises and health coverage improves
from the current 33 per cent of the population. Prices too will continue
to rise although the government will be reluctant to let them soar.
The industry has been lobbying for gradual but complete decontrol so
that it can be internationally competitive.
The rate of growth, however, will depend on the extent of decontrol,
health care coverage, overall economic growth and opening of the
health care insurance sector.
Mckinsey, one of the top international management consultancy
firms specialising in strategic issues, identified four opportunity areas
for MNCs to exploit in India in the post-GATT era. Its main
recommendations are:
1. The domestic market: MNCs operating in India need to be aggressive
in tapping into the rapidly growing Indian drug industry. They may
have to make some strategic and operational changes to expand
market share rapidly. They have to be marketing oriented. They
need to reconsider the product mix strategies depending on what
the market needs rather than offering just what their parent company
produces. Glaxo is already following an India-specific strategy. Its

acquisition of Biddle Sawyer is a market-specific one. Pfizer has been
adopting a different pricing strategy for some of its new molecules.
MNCs need to consolidate their presence in key therapeutic segments
that are rapidly growing and expand market share.
2. Sourcing of bulk actives and intermediates: Indian bulk drug industry
has progressed very rapidly over the years with over 800
manufacturers, some of whom have world class developmental and
manufacturing skills in organic synthesis and process re-engineering
technology. Furthermore, low infrastructural and manufacturing
costs make it an attractive sourcing base for bulk actives and
intermediates. MNCs can source all their requirements of their
mature, off-patent bulk actives and intermediates, which are under
cost pressure in their home countries.
3. Sourcing of formulations for export to developing countries: MNCs
can use India as a sourcing base and export off-patent generic
formulations to developing nations cost-effectively.
4. Out-sourcing research: India has the largest English speaking scientific
talent in the world with over 200 universities and 2000 research
institutes. MNCs which can tap into the rich scientific base of India
can out-source part of their research and collaborate with Indian
institutes. The low cost-structure of research in India can help MNCs
to meet the challenges of ever increasing cost containment pressures
in their home markets. HMR for example, with in months of selling
its established research centre in India to Nicholas Piramal has gone
into a collaborative arrangement in the research area with Nicholas
Piramal itself.
McKinsey’s Prescription to Indian Drug Firms

McKinsey has a prescription for growth to its clients in the Indian
pharmaceutical industry too:
A. Consolidate market penetration.
B. Achieve higher levels of productivity.
C. Stick to the knitting – stay more focused on core businesses.
D. Expand related businesses by making separate subsidies to ensure

operational freedom.
E. Enter into strategic alliances or collaborations to create international
and global presence.
That may sound like a generic prescription to companies operating in
a “branded generic market” that will evolve into a “branded market”
in the coming product patent regime. Very often, the broad strategy
or ‘what to do’ is known. The Business Press accelerates the process of
this knowledge and insights of strategic moves by publishing the success
stories of leading players in all industries. Success, however, increasingly
depends on knowing ‘how to do it’ and ‘on how effective one is in
doing it’.
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.
9. Contract research arrangements with multinational companies, who

are on the look out for outsourcing some steps of research.
10. Developing New Chemical Entities (NCEs) through indigenous
drug discovery programs.
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.
 The process of change in the coming product patent regime in India

will be a gradual one. It will start in 2005 and strech beyond 2015.
Only by 2015, will we have a patent regime that is in conformity with
the industrialised world.
 The market for off-patent branded generics will remain far bigger
than for patented drugs even in 2015. Even in the highly
industrialised world, where almost the entire patentable research is
taking place currently, more prescriptions are written for off-patent
products than for patented drugs. In the UK for example,
prescriptions for off-patent drugs are around 60 per cent. In Germany
they are around 53 per cent and even in the US, as many as 45 per
cent of the prescriptions are written for off-patent drugs. In India, it
is estimated that prescriptions for off-patent drugs would account
for over 80 per cent even in 2015. The growth in value terms, however
will be higher, because even if ten per cent of the prescription business
is switched over to research based products (which are usually priced
ten times more than the current alternative treatment norms), it
would mean higher growth in value terms over the ten year period.
The industry, therefore, would witness faster growth rates because
of increased consumption and because some higher-priced drugs will
enter the prescription market.
 The transition time or preparation time in real terms for adopting,
adapting and adjusting to the changing marketing environment is
considerable. The beginning, of course has to be made now. It is not
too late. There is no more room for complacency and the complacent.
 The MNCs will not have a field day either, though their growth
rates would start climbing from 2002 onwards as some of the leading
multinational pharmaceutical companies have already started an
India-specific strategy. They will also introduce new products to defend
their therapeutic segments aggressively. Some of them would
introduce new molecules through their newly formed 100 per cent
subsidiaries to realize higher prices. However, since patented drugs
will not have more than 20 per cent share even in the next ten to
fifteen years, the market need not necessarily be tilted in favor of
multinationals. Companies, whether Indian or multinational, have
to compete aggressively for improving their slice of the cake. No
automatic advantage for any sector.
 In the coming product patent regime, the market place will be a

level playing field. A level playing field on which only players of a
certain level will be successful. There are qualifying criteria for entry
as well as for victory. For those who are well prepared to compete it
would be a level playing field. And for the Rip Van Winkles of the
Indian pharmaceutical industry, who are just out of their long deep
slumber, it could be a minefield.
Game plans for post-GATT era: The Indian example 63
5
GAME PLANS FOR POST-GATT ERA:
THE INDIAN EXAMPLE
Executive Summary
As the D-Day for shedding the most protective armour of

‘process-only’ patents (Indian Patents Act 1970), the
Indian pharmaceutical industry has been reacting in a
number of ways. Mergers, acquisitions of companies, brands,
manufacturing facilities and even R&D centers, strategic
alliances, stepping up R&D, restructuring and downsizing
are the ways in which some of the leading Indian drug
companies are responding to the impending change that
product patents introduction would bring in.
A careful analysis would reveal a common thread, a
carefully crafted strategy behind the actions and responses
of some twelve to fifteen leading Indian pharmaceutical
companies. One can identify ten essential elements that
are common from the game plans of these determined players.
The ten essential elements of their winning strategies
are:
1. Strategic vision

3. Marketing mindset
4. Upgrading technology
5. Focusing on research
6. Integrating strategically
7. Internationalising the business
8. Attracting alliances
9. Intellectual capital
5 GAME PLANS FOR POST-GATT ERA:

THE INDIAN EXAMPLE
The Indian pharmaceutical industry today is probably in its most

challenging phase ever. On the one hand it is poised for massive growth
from the present Rs. 150 billion to a whopping Rs. 270 billion in the
next three to four years. On the other hand, it is about to shed its most
protective armor (Indian Patents Act, 1970) due to the impending
application of GATT provisions and the consequent product patent
protection and stronger IPR regime. Although there is provision for
transitionperiod,itall dependson howcompanies caneffectively utilise
this ‘breathing period’ to energise themselves and prepare for meeting
the future challenges that the changing pharma market in India has in
store.
Change – rapid change – can be seen in the Indian pharma market, be
itin industry structure, strategicapproaches or tactical moves.In fact
changeis alreadyquite palpable.
Yesterday’s mighty companies are yielding their hard earned market
shares to theonce-fledging companies which showinitiative inthe emerg-
ingspecialitysegments.
A careful look into the high profile initiatives that have been launched
by some of the more aggressive companies reveals a shrewd strategy of
organisingtheirmarketingoperationsaroundspecifictherapeuticsegments.
The marketing-mix too, has been undergoing rapid changes. Some of
the fastest growing companies are those who have reinvented the
marketing-mix through fresh tactical approaches like reaching a large
customer base through scientific seminars, symposia, sponsorship of
medical conferences and scientific information services that are not

essentially product-relatedetc.
Competition in the Indian pharmaceutical industry has always been
severe. Consider this equation of competition – 16,000 companies,
each fighting for a share of Rs. 165 billion pie by the year 2000. The
going for the Indian drug industry can only be tougher in the post-
GATT era.
Itis difficultto predictat thispoint oftime theprecise impactof GATT
on the Indian pharma industry. Based on the experiences of other
developed countries that have accorded product patent protection over
the past two decades, experts opine that:
 Proliferation of companies would be checked. The number of
companies would dwindle.
 Some of the more efficiently run smaller companies would be
acquisition targets for the newly entering MNCs or large Indian
companies on an expansion spree.
 Smaller companies with good manufacturing facilities would do
contract manufacturing for the more aggressive, larger marketing
companies.
 New product introductions would be reduced and restricted to new
products under licensing arrangements.
Like dinosaurs threatened by cataclysmic changes, companies often
find it impossible to cope with a radically altered environment. It is
only the fittest that survive. To seize the opportunity in any changing
scenario, four broad principles are important:
1. An understanding of how competition for the future is different.
2. A process for finding and gaining insight into tomorrow’s
competition.
3. An ability to energise the company top-to-bottom for what may be a
long and arduous journey towards the future.
4. The capacity to outrun competitors and get to the future without
taking undue risks.
Companies, therefore, need to raise their antennae higher to spot,
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
the Harvard Business Review on competing for the future:
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.
2. It creates meaning in employees’ lives.

3.It establishesa standardof excellence.
4. It bridges the present and future.
2. Reaching the Critical Mass

It isessential forany companyto reachacriticalmass interms ofsize to
effectively generate and leverage resources. In the new economic order,
where entry barriers are slowly dissolving, the level and intensity of
competition are bound to increase significantly. Unless a company
achieves a critical mass in terms of sales and profits, a dominant posi-
tion in select key markets, it would not be able to compete effectively
and make strategic investments required for future growth.
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
companies abroad. As the product patent protection era is ushered in,

the introduction of newer drugs by Indian industry will be reduced to a
trickle.
While basic research (considering the cost of developing a new mol-
ecule is over US $ 250 million) is unaffordable in India, increased R&D
effort is a must even to assimilate transfer of technology and to pursue
applied research. Some of the more progressive Indian pharma compa-
nies have taken the initiative and are stepping up their R&D effort.
Companies like Ranbaxy, Dr. Reddy’s, Wockhardt, Lupin, Cipla and
Sun have started allocating significant resources to research effort.
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.
7. Internationalising the Business

The importance of earning valuable foreign exchange in today’s busi-
ness can never be over emphasised. Large markets and remunerative
prices are the major motivating factors that drive companies towards
export performance. Leading Indian drug companies, which have gained
a strong foothold in international markets for their bulk actives, are
slowly shifting their emphasis to more value added formulation exports.
Some others like Ranbaxy, Sun, Dr. Reddy’s, Wockhardt, Lupin, Tor-
rent etc., have started registering their branded generic formulations
and are marketing them in South East Asia, Africa, CIS and other
countries.
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
resources andto competecost effectivelyby optimisation,alliances are

important. They are also powerful sources of synergy. Ranbaxy for
example,has enteredinto multilevelstrategic alliancewithEliLilly and
Lupin with Merck Generics. Access to markets, products and technology
are some of the important advantages of strategic alliances. Nicholas
Piramal has entered into as many as 17 strategic alliances with various
MNCs at the last count. Zydus has formed 13 alliances including joint
ventures.
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!
10. Operational Excellence

Since a core competence is most decidedly a source of competitive ad-
vantage, a company must invest considerable amount of time, effort
and resources in building a portfolio of core competencies. There are
five important steps involved in building core competencies:
1.Identifying existingcore competencies.
2. Establishing a core competence acquisition agenda.
3. Building core competencies.
4. Deploying core competencies.

5. Protecting and defending core competence leadership.
These are the essential elements of the winning game plans diligently
crafted by those Indian pharma companies which have understood the
full implications of the post-GATT scenario.
All of them are gearing up to meet the challenges which will emerge
and will have to be faced. While the game plans are easily understood
and appear deceptively simple (since themodel is available), transform-
ingand translatingthese intoan actionplans isvery difficult.It takes
one hundred per cent commitment, determination and total support
from the top management to make it happen!
Strategic vision 73
6
STRATEGIC VISION
Executive Summary
Strategic vision, simply stated, is the ability to visualise

the future before it arrives. There is no more powerful
engine driving an organisation towards excellence and
long range success than an attractive, worthwhile and
achievable vision of the future widely shared. C.K. Prahlad
and Gary Hamel, in their highly influential book on
‘Competing for the Future’ suggest that one needs to
build the best possible assumption base about the future
and develop prescience to proactively shape the industry
evolution.
Ranbaxy certainly has developed this ‘prescience’ to see
the future before it arrives. Its strategic vision today
could become a role model for many aspiring pharmaceutical
companies not only in India but in many developing countries
as well. Consider for example the evolution of its strategic
vision over the years. From a branded generic manufacturer
and marketer in the domestic market to become a vertically
integrated international generic company and onwards to
a research based international pharmaceutical company.
Dr. Parvinder Singh, the chairman of the company
communicates the direction of the company and the progress
it is making every month to all the employees. The company’s

vision therefore is widely shared across the organisation.
Dr. K. Anji Reddy, the chairman of DRL is another visionary.
He dreamt of putting India on the bulk drug map of the
world in the late eighties. Having achieved that, he has
again dreamt in the nineties of placing India on the drug
discovery map of the world. He has done it again and
entered into a historical agreement for licencing the
NCEs developed by his research foundation DRF to the
Danish drug major Novo Nordisk.
Deshbandhu Gupta, the chairman of Lupin is determined to
make his Lupin a billion-dollar company by 2003. Ajay
Piramal wants Nicholas Piramal to move up to be among the
top three in the Indian drug industry. Dilip Shanghvi
plans to make his Sun Pharma one of the three most
respected pharma companies from India.
It is the vision that drives every one of their game plans
and tactical maneuvers. To paraphrase a time-tested adage:
Have vision, will succeed!
Strategic vision 75
6 STRATEGIC VISION
There is no more powerful engine driving an organisation towards

excellence and long-range success than an attractive, worthwhile and
achievable vision of the future widely shared.
An international study of twenty five “important tools” such as customer
surveys, pay-for-performance, total quality management and re-
engineering showed that managers used mission statements more than
any other tool!
Vision plays an important role not only in the start-up phase but also
in an organisation’s entire life. Vision is a sign-post pointing the way
for all who need to understand what the organisation is and where it
intends to go. Sooner or later, the time will come where an organisation
needs re-direction or perhaps a complete transformation, and then
the first step should always be a new vision, a wake up call to everyone
involved with the organisation that fundamental change is needed and is
on the way.
More and more top executives seek strategic input from the lower rungs
of the corporate ladder, and find that broader participation helps translate
vision into reality. Participation is important in strategic setting, because
unless the strategy is ‘owned’, vision will not become ‘action’. The key
to strategic success, therefore, is to gain broad commitment through
participation in the strategic process. This does not mean that strategy
should be an exercise in Athenian democracy. It does not mean
management by consensus.
Whatever model for formulating and implementing strategy your
organisation employs, the strategic process offers great opportunities
for participation. Strategic process provides a common road map for
participation, which becomes increasingly important as the organisation

grows bigger and more complex with a number of strategic business
units spread across a number of locations.
Strategic process is essentially a sequence of logical steps for collecting
and analysing information and drawing inferences. It is very important
to have a clear idea of the various roles people play in the strategic
process right from managing director on down the line.
Organisations that are successful in implementing strategy have
redefined the role of middle managers to include significant strategic
responsibility. Although middle managers have different responsibilities
and roles in implementing strategy, one connecting thread is the shared
responsibility for effectively communicating strategy to subordinates.
Furthermore, it is essential that people feel they are contributing to
the vision. Another important strategic role for middle management
involves them in setting the vision for their own units. Ideally, strategy
should cascade down through the organisational hierarchy.
No doubt, broadening involvement adds complexity to the strategic
process. But creating and living by a vision is a social act. A vision that
does not touch every employee’s head, heart and hands remains an idea
in waiting. For vision to come alive, participation is needed.
Five Elements for Success

Companies that have achieved uncommon success in creating and
transforming vision into a reality posess five common elements, which
are crucial for success.
1. A common strategic language: Strategic language means a common
vocabulary of expression that every one across the organisation
understands. One way to achieve this is to have an agreed upon
strategic process.
2. A simple and specific strategy: Strategy should be simple and specific
enough to be carried around in everyone’s head and not in a three
ring binder. Any strategy entombed in a thick, three ring binder will
never rise from the dead.
3. Managed participation: Managed participation involves clearly defining
roles and creating opportunities for managers and other key
Strategic vision 77
contributors opportunities to participate in the strategic process.

That is why many companies are creating cross-functional taskforces to
stimulate creativity and commitment to resolve key strategic concerns.
4. Motivated work force: Motivated work force keeps vision an ongoing
vital, vibrant influence. The management has to provide enthusiasm
and motivational climate so that, managers across the organisation
want to get involved. Participation should not come as a command
performance.
5. Chief Executive’s role: The involvement of chief executive is the
most crucial success factor. Without his personal involvement and
encouragement in every step along the strategic continuum from
the creation of strategic vision to action planning, vision will not
become a reality.
When all these five key elements for success, are present, participation
energises vision. It tests and refines strategic inferences and conclusions
and is essential for translating and transforming vision into action.
Corporate mission statements – sometimes called value statements,
vision statements, credos or principles – are the operational, ethical and
financial guiding lights of companies. They are not simply mottos or
slogans; they articulate goals, aspirations, dreams, behaviour, culture
and strategies of companies more than any other document.
The mission or vision statements of successful, exciting and powerful
companies, are not just concepts or philosophies or mere intentions
that are nice to have. They have true values and clear, well thought
out ideas that help them meet, exceed the corporate financial, social
and emotional goals. They also stake out a ‘right way to do’, in case
of any dilemma or crisis. They are truly the road maps for the high road.
That is perhaps why managers, in an international study conducted
sometime ago, covering twenty-five “corporate tools” such as customer
surveys, pay-for-performance, total quality management and re-
engineering ,used mission statements more than any other tool.
Managers like mission statements because they make a difference
between success and failure.
A mission or vision statement is to a company what the constitution is
to a nation. It is an excellent, much revered and often imitated set of
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.
Dr. Reddy’s Labs

Dr. K. Anji Reddy is a visionary. He dreamt of putting India on the
bulk drug map of the world in the early eighties by reverse engineering
patented molecules. Having achieved that, in the early nineties he dreamt
once again. This time it is about putting India on the drug discovery
map of the world. He succeeded again when Dr. Reddy’s Laboratories
became the first-ever Indian drug company to license a NCE to a
multinational. The company has changed its focus at the right time to
formulations and never looked back ever since. The company’s mission
clearly indicates its research bias:
1. To be a research-based international drug company.
2. To bring new molecules into the country at a price the common
man could afford.
3. To put India on the drug discovery map of the world.
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
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
2. To build process and product development capabilities that are

internationally competitive.
3. To globalise the business and become a major player in the generics
market.
Lupin has a three-tier plan to achieve this:
A. In the first stage the company identifies drugs with difficult
chemistry and high technological barriers that are shortly going
off-patent.
B. The strategy is to pre-empt competition in catching the generic
‘first wave’.
C. It then uses its research and technological strength to develop
non-infringing processes for those drugs.
D. The second stage is to build large capacities so as to achieve cost
competitiveness.
E. The third is to attack the global market with the product and add
value through strategic alliances.
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.
C. To progressively increase investment in R&D, build infrastructure

and create a competent research team that is capable of entering
drug discovery program. The immediate focus areas for research
are:
 Novel drug delivery systems
 Biotechnology products
 New drug discovery
 Investing 4–5 per cent of sales on R&D
D. To give a new thrust to globalisation of business by:
 Setting up joint ventures
 Entering generic markets in the US and Europe through
acquisitions
E. To pursue brand building aggressively in the home market to achieve
the coveted 5th position in the industry.
F. To pursue a low cost and command a high premium strategy for
products.
G. To introduce hepatitis-B vaccine by 1999.
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
2. To achieve this through strategic acquisitions and take-overs.

3. To stay focused on main stream products and diversify into niche
markets through strategic alliances and joint ventures with people
who are leaders in their fields.
4. To increase exports by entering the market for generic formulations
for off-patented products abroad.
5. To upgrade manufacturing facilities to international standards.
6. To be a major player in the domestic market for OTC pharmaceuticals.
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.
Zydus–Cadila Health Care

Pankaj Patel, the managing director of the Zydus–Cadila Health Care
has clearly articulated the goal of his company in his vision statement:
“Our goal is to become one of the top three Indian pharma companies,
become a regional player in five to seven years and a global player
by 2020.”
The strategic vision of the Zydus group is to create a Performing
Organisation through:
A. Increasing market share
B. Internationalisation of business
C. Technology transfer and upgradation
D. Human resource development and
E. Cost leadership
The building blocks for these are the 3 E’s, namely – Enrich, Empower
and Excel.
The salient features of Zydus’s action plan are:
A. Focus on drugs which are growing fast.
B. Strengthen the product portfolio with niche products.
C. Enter into strategic alliances to co-market new molecules in India.
D. Enhance research capabilities by entering into joint ventures with
international and national research institutes and companies engaged
in research.
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
Here are the highlights of Sun’s strategic vision:

1. To be among the top 5 pharmaceutical companies in India by 2005.
2. Focus on low volume, high value speciality drugs.
3. Use a dedicated field force for each speciality segment.
4. Maintain a first-mover advantage by quickly introducing new
formulations by reverse engineering new drug molecules.
5. Accelerate growth through mergers and acquisitions.
6. Look for small pharma outfits that have expertise in high value
speciality drugs.
7. Focus on exports.
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.
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
Impact of Vision Statements

Vision or mission statements describing what a company is doing and
what it stands for can have a stabilising and reassuring effect on
employees and investors. Mission statements usually have two parts.
The first part is declaration of the company’s strategic intent. The
second part describes the enablers. They tell everyone how the mission
or vision will be accomplished, and what values and principles the
company and its employees will use to guide them day to day into the
future.
Five Basic Rules

There are five basic rules for writing an effective vision and mission
statement:
1. Keep the mission statement simple. Not necessarily short, but simple.
2. Involve all the key contributors in preparing the mission statement
Involvement helps to get people on board. It gets them excited as
they have a stake in its fulfilment. Allow companywide involvement.
3. Always ensure that the wording and tone reflect the company’s
personality or what the company would like to be.
4. Exposure and reach are vital. Share the mission statement in as
many creative ways as possible. Keep it in front of people constantly.
5. Above all, live by the mission statement. Use it as guiding light.
Judge employees by how well they adhere to its tenets. Management
must say it and live it.
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
20 to 25 years provided one works towards this goal with unflinching

determination. It can take a minimum period of ten years for a generic
manufacturer to graduate into a branded generic company and to an
international generic company with the right investment and the right
capabilities. From an international generic company to a research-based
international pharmaceutical company it could take anywhere between
ten to fifteen years provided the right combination of competencies,
capabilities, strategies and investments is there.
The strategic vision of all these companies indicate that they are pursuing
the strategic path of transforming their organisations from their current
branded generic or international generic company stages to ultimately
Table 6.1
Evolution of a research-based pharmaceutical company
Stage Evolution Focus
1 Generic manufacturer Investment in brand building

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
becoming research based pharmaceutical companies. Ranbaxy,

Dr. Reddy’s Labs, Lupin, Wockhardt, Nicholas Piramal, Torrent, Sun
Pharma and Zydus are chasing this goal. Ranbaxy is way ahead of the
pack. It has already become the ninth generic company in the world.
Its international presence too is significantly higher than that of any
other drug company in India. The key elements of the strategic vision
of all these companies are:
A. Reaching a critical mass to generate investible surplus.
B. Upgrading technology to a world class level.
C. To become a vertically integrated player to achieve control on costs,
quality and strategy.
D. Export thrust and international marketing capabilities.
E. Stepping up of investment in R&D.
When the strategic approaches are similar, what seperates the winners
and the “also-rans” is superior levels of competence, sheer will to win
the race, stamina to sustain and, above all, executional capabilites to
translate vision into reality!
Reaching the critical mass 91
7
REACHING THE CRITICAL MASS
Executive Summary
Critical mass is the market share, which a firm must

obtain in order to become fully competitive on price and
cost. To be fully competitive, a firm must achieve critical
mass in all key functional areas like marketing and
manufacturing infrastructures, technology base, research
and developmental capabilities. It is also important to
attain the critical mass within a reasonable span of
time, the faster the better. Time overruns lead to cost
overruns and create strong pressures, resulting even in
the abandonment of the venture itself.
What is critical to the whole business of critical mass
is making a realistic estimate of the critical mass
itself. The critical mass, for example, for an
international generic company is a sales turnover of
$300 million. This explains probably why some of the
leading Indian pharmaceutical companies are chasing an
objective of Rs. 10 billion in sales by the turn of the
century. The critical mass for a research based
pharmaceutical company is over $ 1 billion. Ranbaxy and
Lupin are aiming to achieve $ 1 billion by 2003.
At the same time, a number of firms sought to enter the
Indian pharma industry, apparently without having
anticipated the very high start-up costs and the very

large development and marketing service costs. Natco’s
failure to anticipate these and reach the critical mass
quickly has forced it to put its most profitable
formulations business on the block. Orchid, on the other
hand, reached the critical mass in real quick time and is
planning to integrate vertically to become even more
competitive. Its success depends on whether it can attain
the critical mass quickly enough in the fiercely competitive
formulations business as it had in the cephalosporins
bulk actives.
Companies who are hell-bent on reaching the critical
mass in time are turning themselves into predators. They
are pursuing a very aggressive strategy of acquiring
companies, manufacturing facilities, brands and even
research centers. The new rule to reach the critical mass
is simply this: If it takes time to create and you have
no time, buy it!
7 REACHING THE CRITICAL MASS
First, for acompany to be successful in the pharmaceutical industry,

it has to reach or acquire a critical mass and scale in those core thera-
peutic areas whereit intends to focus.
Secondly, it has to have a broad production line that includes a range
of products and services that can reallydeliver health care solutions.
Thirdly, to be successful, firms must effectively access and serve
customers.
Fourthly, cost competitiveness is going to be very critical in today’s
environment of cost-containment.
The next is to have highly customer-driven processes, so that they are
structured to succeed. Decision-making must be market driven, so that
you can make decisions much more quickly and you can make those
decisions in the context of a strategy and knowing where you are go-
ing.
What is Critical Mass?

Simply stated,critical mass is anamount necessary or sufficientto have
asignificanteffectortoachievearesult.
While it is difficultto determineprecisely the critical massfor Indian
drug companies, based on international experience, it is possible to
arrive at a ball park figure. The critical mass, for example, to become
an integrated international generic company would be around $ 300
million in annual sales. It is only at this volume that the company can
sustain the costs and investments required for being competitive and
competent in international generic markets. The critical mass for a

research-based international pharmaceutical company would be much
higher – over $ 1 billion in annual sales, since the costs and invest-
ments needed would be significantly more.
That is why the more determined Indian drug companies have been
chasing a turnover of Rs. 10 billion by the year 2003. Ranbaxy and
Lupin have made their intentions clear. They are chasing an objective
ofreaching $1 billionin annualsales by2003. Itis difficultto achieve
these objectives through organic growth alone. Companies like Nicolas
Piramal, Wockhardt, Ranbaxy, Sun and Lupin, therefore, have been
pursuing the acquisition route rather aggressively.
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.
2. Infrastructure for growth. The acquired company’s plant, tech-

nology, reputation and employee base provide the buyer with a
readymade infrastructure. The potential for growth is significantly
enhanced if the buyer uses this infrastructure more effectively than
the original owner.
3. Conservation of capital investment. Most extensions of existing
productlines requiresignificant operatingcapital beyondan initial
investment. In contrast, as a stand-alone investment, many
acquisitions produce income and positive cash flow immediately.
Financing corporate growth can be easier via acquisition itself as
predictably, contributing funds to pay debt service and to provide
shareholderreturns,respectively.
4. Control. Alternatives to an acquisition – joint ventures, passive
equity investments in third parties and marketing/distribution
alliances – require less capital, but offer reduced control. The
potential acquirer’s return on its investment would depend on
someone outside its own corporate organisation.
Reaching the Critical Mass

Companies, in order to achieve success, have to reach critical mass in
all key areas of their business. A pharmaceutical company, for example,
has toachieve thecritical mass in marketshare, sales turnover, techno-
logical and manufacturing infrastructure, research and developmental
capabilities etc. Some of the leading Indian pharma companies like
Ranbaxy, Dr. Reddy’s Laboratories, Nicholas Piramal, Lupin, Wockhardt
and Sun Pharma are pullingout allstops toreach the critical mass.
The basic strategic approaches which are being adopted by all these
companies to reach critical mass are somewhat similar in nature. These
are:
1. Extending therapeutic coverage: Companies need to extend the
slice of their served markets. They need to enter the new therapeutic
areas and new customer segments to increase market share.
2. Aggressive new product planning and introduction: The rate and
success ofnewproductintroduction iscrucial toimprove,consolidate
and defend one’s market position in a given therapeutic segment.
3. Market coverage: Entry and penetration of new geographical

markets is vital for improving the overall sales of the company.
Many of these successful companies very ambitiously chase export
targets.
4. Building and upgrading technological and manufacturing
infrastructure: If you want to compete in international markets or
with international players in your own market, you need to deliver
world class products and services. Upgradation of technology is a
must.
5. Research and Developmental capabilities: It is also important to
create and upgrade research and developmental capabilities for
transforming from an imitative culture to an innovative one.
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
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
control on these bulk drugs,which arevery important to Ranbaxyas it

enjoys theleadershippositioninthesetwo molecules.
Ranbaxy needed something more to boost its market share in the
domestic market and consolidate its position. It therefore acquired
Gufic’s prescription business comprising the leading amoxycillin
brand ‘Mox’ (sales over Rs. 300 million) and other anti-bacterial
anddermatological brands in 1997.This acquisitionhas consolidated
Ranbaxy’s leadership position in the largest therapeutic segment
of antibiotics in the Indian pharma industry and has reinforced its
dermatological portfolio with the ‘Zole’ range from Gufic.
In September 1996, Ranbaxy acquired Ohm Laboratories, the New
Jersey-based manufacturer of OTC formulations. This has given
the companya fasteraccess tothe rapidlygrowing andlucrative North
American generics market, which is a very important priority for
Ranbaxy.
The market for off-patent generic formulations is also growing
in Europe. Ranbaxy acquired Rima Pharmaceuticals of Ireland, in
November, 1996 to exploit marketing opportunities in the
European Union, the second largest market for pharmaceuticals
inthe world.
Not satiated with these acquisitions, Ranbaxy is looking for
more. This time it is looking for brand acquisitions. It is not keen
on plants and labour as it has got them in plenty. The company has
set up an internal M&A cell, which has identified 15–20 brands for
acquisition worldwide. The company has also set aside a whopping
$ 150 million to fund these acquisitions.
Ranbaxy is also planning to enter Brazil and France through the
acquisitionroute.
B. Strategic Alliances: The NorthAmerican genericmarket is the highest
priority for Ranbaxy. It is next only to the Indian market in terms
of importance. To gain a faster access to this rather tough-to-enter
market, Ranbaxy has chosen the alliance route. The company has
already entered into two marketing alliances in North America. To
consolidate its position in the domestic market, the company is
planning to tie-up with some small domestic companies for marketing
some of its low volume products.
C. New Product introductions: Ranbaxy has introduced as many

as eighteen new products during 1998, which have contributed about
Rs. 100 million. These new introductions extend the therapeutic
coverage in cardiology, neuropsychiatry andanti-infective segments.
D. Expansion strategies: Ranbaxy has always been highly strategic
in restructuring its operations and re-engineering its business
processes. Its management structure is quite unique – with the world
divided into four geographical regions, each headed by a regional
director. In the domestic market it has created six independent
marketing divisions to achieve a marketing focus even as it is
undertaking a major product diversification strategy to extend its
therapeutic coverage.
Dr. Reddy’s Laboratories

The metamorphosis of Dr. Reddy’s Labs from a bulk drug company,
known for its copying skills, to an innovative drug firm is a result of
clear thinking, strategic vision, unflinching determination and careful
business planning. The company has been dextrously planning to
achieve a sustained growth to generate the investible surplus necessary
for building world class research and developmental capabilities.
Dr. Anji Reddy is emphatic when he says that future growth will rest
on the foundation of research, which will be fueled by the formula-
tions business. The bulk drug business will play an important supportive
role.
A. Mergers and acquisitions: The company chose the brand acquisition
route ratherthan that of acquiring companies. Itslogic is that when
you acquire companies, you are likely to inherit the field force and
distribution net work, with a different value system and work
culture. The integration of these may create problems for companies
with adequate manufacturing and marketing infrastructure, leading
to redundancies and mismatches. Hence the focus is on brand
acquisitions.
DRL’s first brand acquisitions were the Hyderabad-based
SOL Pharma’s Riflux and Clamp in 1996. These acquisitions fill
the gap in the company’s product portfolio and reinforce the
company’sposition ingastro-intestinal andanti-infective segments.
Close on the heels of this is the acquisition of Becelac from Pfimex

Laboratories, which is an essential co-prescription brand. More
recently in 1998, the company acquired five brands from the
Calcutta-based Dolphin Laboratories. The company expects to
achieve a turnover of Rs. 200 million from these acquisitions in
fiscal1999.
B.Strategic alliances:Themostimportantstrategicalliancesofthecom-
panyareresearch-basedandthereforeare significantlydifferentfrom
the rest of the industry. Its alliance with the Danish drug major –
Novo Nordisk is at once pathbreaking and torchbearing.
Pathbreaking, because it is the first of its kind, wherein an
Indian drug company has licenced its NCE to a multinational for
consideration of upfront milestone payments, undertaking further
development through the clinical phases of research and product
registration and marketing after the drug is approved in interna-
tional markets. Torchbearing, because it has already become a sort
of role model in the effort to contain the huge and almost
unaffordable costs of drug discovery to other aspirants in the
Indian drug industry, who have launched their own drug discovery
programs.
In addition, DRL group has formed strategic alliances of the nor-
mal kind, to gain access to the North American generic market
through its group company – Cheminor Drugs. Cheminor Drugs
has formed an alliance with Schein Pharma and PRI in the US.
DRL has also formed an equity-based marketing joint venture in
Brazil with a local company to access the Latin American market. It
is about to finalise a joint venture in China with a local partner,
involving manufacturing and marketing. The company has already
a joint venture – Reddy-Biomed in Moscow – covering the CIS
markets.
C. New Product introductions: DRL has introduced five new products
during 1998, which have contributed Rs.12.3 million in sales.
D. Expansion strategies: While the trend in the industry is to create
therapeutic and prescriber segment-specific marketing divisions,
DRL has followed a different strategy. It has merged two existing
marketing divisions – Stangen and Genesis to achieve greater
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
Europe. All its moves in domestic as well as international markets are

centered round gaining as quick an access as possible to new markets,
products, facilitiesandtechnologies.
A. Mergers and Acquisitions: The acquisition bug has bitten Lupin
rather recently. It has acquired Eli Lilly’s cephalosporin plant in
Puerto Rico, essentially to cut short the time-to-market and gain a
first-mover advantage in the soon-to-go off-patent cephalosporins
inthe US. As apart of its internationalisationof business,Lupin is
looking for some more acquisitions in the US, Europe and China.
It has setaside $ 10 million to fund these acquisitions.
B. Strategic alliances: Lupin is determined, rather hell-bent onmaking
it big in the generic markets in North America and Europe. All its
alliances – with Merck Generics, PRI, Fujisawa and the more recent
joint venture with MOVA – are aimed at achieving synergies between
Lupin’s integrated manufacturing capabilities and the marketing
savvy ofoverseas partners.
C. New Product introductions: Lupin has been planning to extend its
therapeutic coverage from anti-TB drugs and cephalosporins to other
segments. The company has introduced eight new products in 1998,
which have contributed Rs. 22.5 million in sales. It is planning to
introduce 25 new molecules in the next three years.
D. Expansion strategies: Lupin has one of the largest medical detail-
ing forces in the country – over 840 people – to promote the
company’s products. It has two marketing divisions and one speci-
ality division to increase the strength and flexibility of product
promotion.Currently thefocus isoncardiologyand criticalcare. The
general divisionfocuses onanti-TB drugsand antibacterialsand other
products. The company hasalso starteda naturalproducts division.
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.
A. Mergers and acquisitions: Wockhardt acquired in December 1995,

the Chennai-based R R Medi Pharma, a manufacturer of intrave-
nous fluids. This strategic acquisition has helped Wockhardt in more
ways than one. Firstly, it helped the company cut its cost of trans-
portation of intravenous fluids in the southern region. Secondly, it
has given the company an instant access to the market in the South.
Thirdly, it has expanded its manufacturing capacities. This is now
rechristened as Wockhardt Health Care. Wockhardt acquired
Merind through a merger in 1997. This has pushed Wockhardt
into the top ten of the Indian pharmaceutical industry by adding
0.8 per cent market share. It has also helped consolidate its posi-
tion as a vertically integrated player. Wockhardt, with this merger,
has become one of the major manufacturers of vitamin B12 in the
world. This merger has also given the company an immediate mar-
ket access to the rapidly growing Diagnostics business.
In addition, Wockhardt has made two strategic acquisitions abroad.
It has acquired two generic companies – Accumed in the US and
Wallis Laboratories in the UK. With these, Wockhardt has created
beachheads in the two most important regions North America and
Europe – to exploit opportunities in the fastest growing and most
lucrative generic markets in the world.
Wockhardt hasset asideRs. 2billion tofund itsacquisitions. Nearly
half of it has been used to acquire Merind.
B. Strategic alliances: The strategic alliances that Wockhardt formed
aresynergistic withits acquisitions. The basicpurpose of all these
alliances andacquisitions isto mutuallyreinforce itsstrategies of
increasing market share, extending therapeutic coverage and
gaining access to new products, new markets and new technologies.
The alliances, whether they are formed in the domestic or overseas
markets,shouldmeet theseobjectives. Itstwo allianceswithJapanese
companies strengthen its product portfolio in two of its important
segments – wound care and pain management. Its alliance with
Rhein Biotech involves technical know-how in the emerging field
of biopharmaceuticals. Or consider for instance, its two strategic
alliances with Ferrings in Europe and the more recent one with the
North American generic firm, Sidmak Inc. Both these alliances are
to gain access tothe genericmarkets inthe highlyindustrialised and

highly regulated markets in the West.
C. New Product introductions: Wockhardt launched nineteen new
products during 1998, which have contributed about Rs. 79.5
million in sales during the launch year. Wockhardt is planning to
launch five novel drug delivery formulations in fiscal 1999. It also
has a pipeline of 15 new drugs and several line extensions for
launching between 1999–2002. Furthermore, it has developed
processes for three new bulk drugs with six more are in the pipeline
for 1999–2002.
D. Expansion strategies: Wockhardt has three marketing divisions to
retain focus on customer and therapeutic segments as it has a very
large product portfolio: Wockhardt Pharmaceutical division, Mother
and Child-Care and Critical Care. In addition, it has a veterinary
division for marketing its products for animal health care.
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
been missing in its strategy till now – a research and development

facility – from Hoechst India in 1998. This acquisition takes Nicho-
las Piramal one more step towards becoming a fully integrated phar-
maceutical company. Nicholas Piramal’s acquisition log-book would
readlikethis:
Company Year of acquisition
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
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.

Zydus–Cadila Health Care has set its sights high right from day one,
when the Cadila split, or restructuring as they would like to call it,
became inevitable in 1995. The company set itself the objective of con-
solidating its position in the domestic market first and to go global by
setting up joint ventures abroad. The company has set itself a formi-
dable goal of reaching Rs. 10 billion by 2000, which means a four-fold
growth infiveyears.
A. Mergers and acquisitions: The first step that the Zydus group took
in consolidating the domestic business has been the acquisition of
the ailing Indon Pharmaceutical Works Limited and turning it

around into a performing, speciality- focused company. This has
been the only acquisition that the company has made. It believes
more in harnessing alliance power.
B.Strategicalliances: AtZydus,strategicalliancesaretheprimarydrivers
of growth. It has formed as many as thirteen strategic alliances to
gain access to new products, markets, technology, research and
development. Three of these have been joint ventures, whose scope
involves manufacturing, marketing and product development. The
joint venture partners are KGCC of Republic of Korea (recombinant
vaccine for hepatitis-B), BYK Gulden of West Germany (manufacture
and marketing of bulk active-Pantoprazole and its formulations),
and the German drug major Bayer AG (a separate joint venture to
market the products of Bayer and Zydus in India).
C. New Product introducions: Zydus has introduced fifteen new
products in 1998, which have contributed to about Rs. 46.2 million
in sales. The company is planning many more new products in
various speciality segments like cardiology, gastroenterology and
criticalcare.
D. Expansion strategies: Zydus has re-engineered its management
structure and business processes to become a performing
organisation. They have introduced the SBU concept to achieve a
relentless focus on bottom line. Domestic marketing of
formulations is divided into four teams focusing on different
segments including generics. They have, in addition, created an
agrovet division and a cosmetic division. International marketing,
Manufacturing and Bulk drugs have been made into three strategic
businessunits.
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
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.
Sun has also picked up a controlling stake in the Michigan-

based Caraco Pharmaceuticals to gain a faster access to the
North American generic market. Sun-Caraco has already got two
generic approvals in the US and four more are in the pipeline. Here
are the details of Sun Pharma’s acquisition spree:
Gujarat Lyka 1996
Knoll’s bulkdrugfacility 1996
M J Pharma 1997
Caraco 1997
TDPL 1997
Natco’s brands 1998
Milmet 1998
B. Strategic alliances: Sun has not yet chosen the alliance-route. The
company has only marketing and sourcing arrangement with the
South Korean drug major – KGCC (Korean Green Cross
Corporation) for marketing certain blood products in India.
C. New Product introductions: Sun has been very aggressive in launching
new products since the beginning. It has introduced eighteen new
products during 1988, which have contributed about Rs. 51 million
in sales during the launch year.
D. Expansion strategies: Sun has been the first Indian drug firm to
createand organiseitsbusinessaroundstand-alonestrategicbusiness
units dedicated to one or more therapeutic and prescriber segments
to achieve a sharper marketing focus. This has been one of the
major contributingfactorstoitssuccessinspecialitysegments. Today
a number of leading Indian pharma companies follow this strategy
of creating speciality-oriented marketing divisions or SBUs. Sun
has further consolidated its structure and created eight strategic
business units catering to neuro-psychiatry, cardiology, nephrology,
diabetology,gastro-enterology,respiratorydisorders,orthopaedics,
gynaecology, paediactrics, oncology,anaesthesiology, opthalmology,
critical care and ENT.
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.
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!
The marketing mindset 113
8
THE MARKETING MINDSET
Executive Summary
Marketing mindset is viewing the entire business from

the customers’ point of view. When the sole purpose of
the whole business is to ‘create’ and ‘keep’ a customer,
can marketing be seen as a only a functional area in an
organisation? Peter Drucker emphatically declared that,
“There is only one valid definition of business purpose:
to create a satisfied customer. It is the customer who
determines what the business is. Because it is its purpose
to create a customer, any enterprise has two – only two
basic functions: Marketing and Innovation”.
Marketing mindset has to become the philosophy of an
orga nisation . It mu st perm eate thr oughout the
organiszation. Customers should be able to see, touch,
feel, taste and experience the marketing orientation and
mindset of an organisation. How can one cultivate the
marketing mindset? One possible way is to clearly define
and identify the criteria that determine the marketing
mindset and set objectives for each of these. Consider
these criteria for a starter, which can be used as
indicators of gauging the marketing mindset:
 Market share and growth
 Brand building capabilities
 Focus on therapeutic segments

 Size of the participated market
 Product portfolio and product strategies
 Strategy for key markets including overseas markets
 Customer franchise and satisfaction
Evaluating or taking stock of where the organisation
stands against these criteria is an essential first step.
Only when you know where you stand, you can plan and
decide where to go and which way to go. As a second step,
benchmark the intra and inter-industry best practices
for each of the criteria.
Marketing, therefore is an organisational responsibility
and should not be viewed as just that of one functional
area. That is the essence of marketing mindset. The
managers of General Electric, the world’s largest
corporation said it best: “Marketing is too important a
function to be left to the marketing department alone”.
8 THE MARKETING MINDSET
Pharmaceutical industry the world over is research-led and

marketing-driven. The drug markets can be broadly classified into two
categories – the innovative and the imitative. The innovative markets
are single source product-markets, which are the terra firma of research-
based drug companies. The imitative markets are the multi-source
product-markets or branded-generic markets with inadequate protection
for intellectual property rights. While the competition is very intense in
innovative markets, it is both intensive and extensive in nature in imitative
markets.
Competition, therefore, is doubly fierce in imitative markets. When
competition is fierce it is marketing that calls the shots. We are not
referring to marketing in the narrow functional sense here. Neither
are we undermining the importance of research or technology, which
are the key success factors in the pharmaceutical industry. What we
are referring to is the marketing attitude of the organisation as a whole
or the classical marketing concept that pervades the entire company.
In other words, we are referring to the extent of customer focus and
the disposition of the company to serve the customer.
Can we measure the marketing mindset of an organisation? While
measurement of attitudes is not possible, one can infer and indeed
measure the degree of marketing orientation, disposition or even the
mindset of a company through observable behaviour in the marketplace
and the outcomes. Consider these parameters or criteria for example:
 Market share and growth
 Brand building capabilities
 Focus on therapeutic segments

 Size of the participated market
 Product portfolio and product strategies
 Strategy for key markets including overseas markets
 Customer franchise
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
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.
The company has a distinct leadership position in the anti-bacterial

segment which is the largest in the Indian drug market, accounting for
about one-fourth of the total market. The company has built its brands
through a well planned, consistent strategy. Today it has 13 brands
(Table 8.1) among the top 250 of the industry. These thirteen brands
account for about 57 per cent of the company’s total domestic formu-
lations’ sales of Rs. 5.26 billion. The company’s marketing orientation
is evident from the fact that it is able to manage and build a large and
diverse product portfolio and build many major brands out of them.
The company has launched a fully integrated strategy to build 25 global
brands of major molecules that are going off-patent, in all its key markets.
Table 8.1
Ranbaxy’s leading brands
Brand Rs. Million
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
Source: Data derived from ORG, June, 1998

Dr. Reddy’s Labs

Dr. Reddy’s Labs have chosen to enhance the “customer reach” strategy
to build brands. The company has integrated its two marketing divisions
in 1996 to create one large marketing force to increase its customer
coverage. It has cut down the redundancies and expanded its customer
reach effectively. The company as a result, has shown a phenomenal
growth rate that is three-and-half times higher than the industry average
for the past two years. To fuel the growth further, the company has also
followed the brand acquisition route. It has acquired two brands from
Standard Organics and one from Pfimex during 1996. The company’s
rank currently (ORG, June, 1998) is 22nd in the Indian pharmaceutical
industry. It has a market share of 1.3 per cent. Recently the company
has acquired five brands from Dolphin Laboratories. These are: styptovit,
styptochrome (to enter the haemostatic market), doxt (to reinforce its
position in the anti-bacterial segment) trichodol (a hepatic stimulant)
and styptomet to consolidate its already strong position among
gastroenterologists, physicians and general practitioners.
The company’s marketing orientation becomes obvious when you
consider that the company has, at the right time, shifted its focus to
value added formulations. It has achieved a strong presence in two
speciality prescribe segments:cardiovascular and gastrointestinal. The
company has built a very strong franchise in these two segments. Four
Table 8.2
DRL’s leading brands
Brand Rs. Million
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.
Table 8.3
Cipla’s leading brands
Brand Rs. Million
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
Table 8.4
Lupin’s leading brands
Brand Rs. Million
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.
Table 8.5
Wockhardt’s leading brands
Brand Rs. Million
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.
Table 8.6
NPIL’s leading brands
Brand Rs. Million
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.
Table 8.7
Torrent’s leading brands
Brand Rs. Million
1. Quintor 241.0
2. Dilzem 214.4
3. Alprax 190.3
4. Domstal 150.5
5 .Listril 102.3

Cadila has been concentrating on brand building activity for quite some
time. Even after the division of Cadila into two corporate entities, the
brand building activity continues. The undivided Cadila had as many as
Table 8.8
Leading brands of Zydus
Brand Rs. Million
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.
Table 8.9
Sun Pharma’s Leading Brands
Brand Rs. Million
1. Monotrate 147.3
2. Alzolam 109.2
Sun’s rate of new product introduction can only be described as prolific.

It has introduced as many as 30 new products in all segments during
the last two years. The company is planning to launch at least twelve
more before the end of this year.
Sun has a market share of 1.6 per cent of the Indian pharmaceutical
industry and is growing at 28 per cent as compared with the industry’s
14 per cent average (ORG, MAT, June, 1998) . With the acquisition of
Natco’s entire prescription brand portfolio, Sun has improved its market
share virtually over night by 0.5 per cent and moved up into the top
ten club of Indian pharma industry.
The fact that Sun has only two brands among the industry’s top 250
contributing only one-fifth to the company’s total sales belies its
marketing mindset. In speciality segments, when a company is practising
a disease management approach, share of the therapeutic segment is
equally important. Table 8.9 presents details of Sun’s leading brands.
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.
Table 8.10
IPCA’s Leading Brands
Brand Rs. Million
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
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.
Brand Building or Segment Leadership?

Brand building or segment leadership is as mindless a question as egg
or chick – which comes first? Before getting into the details of both, we
need to first define what brand building is. The top 250 brands out of
the 60,000 brands, which are being marketed by the Indian
pharmaceutical industry account for about 42 per cent of the entire
industry’s formulation sales. One logical way of looking at the brand
building capabilities of a company is to compare the number of brands
a company has among the industry’s top 250 and their contribution to
the total sales of the company. If it has more number of products and
their contribution is equal to or more than the industry average that
could be indicative of the company’s brand building capabilities.
Companies, which are operating in speciality segments, find it difficult
to build big brands. There are two main reasons for this. Firstly, the
total size of the market in some of the speciality therapeutic segments is
smaller than the sales of some of the industry’s top brands. Secondly,
companies in speciality segments are forced to introduce a wide range
of products or different molecules with little or no overall sales benefits
in the same therapeutic category, just to keep up with the Jonesses. In a
branded generic market like India, the temptation is to introduce brands
of every single molecule launched by different companies for the same
condition. In research-based pharmaceutical markets like North America,
Europe and Japan, the innovator companies defend their respective
molecules with all their might. Therefore, speciality focused companies
in India defend their therapeutic segments with a range of products
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
Company No of brands Contribution to

among top 250 company’s total
(per cent) sales
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
Dr. Reddy’s has a major presence in gastro-intestinal and cardiovascular

segments. Ipca is the country’s largest anti-malarial player. Torrent and
Sun Pharma have a strong speciality focus. Kopran leads the plethora
of atenolol brands in the antihypertensive segment.
The customer coverage strategies and the consequent customer
franchises are naturally based on different marketing approaches. Cipla,
Ranbaxy and Dr. Reddy’s, for example, have a very broad coverage
across large prescriber segments, whereas Sun Pharma’s customer
coverage has a very sharp focus on a number of speciality-based narrow
prescriber segments. Cipla balances these two – broad customer base
and narrow prescriber focus very effectively, though it may sound like
an oxymoron. Cipla has achieved the uncommon success of being among
the top three in a number of prescriber segments.
These companies have also shaped the strategic thinking of the industry
itself. The strategy for not just winning in the domestic market, but for
penetrating overseas markets as well. These companies account for all
strategic acquisitions made by Indian drug companies in overseas
markets. Ranbaxy, Lupin, Wockhardt and Sun Pharma have acquired
generic companies in the US and UK for exploiting the rapidly expanding
markets for off-patent generic formulations in these highly industrialised
markets. These companies also account for over eighty per cent of
strategic alliances to gain faster access to new products, markets, and
technology and to exploit the off-patent generic markets in the West.
On all criteria which assess the marketing mindset of an organisation
(like market share, growth, brand building capabilities, segment
leadership, new product introductions, focused approach, customer
coverage strategies, customer franchise among others), these twelve
companies have demonstrated that they are ready and willing to take on
GATT, and they have got what it takes to win in the post-GATT era.
Upgrading technology 133
UPGRADING
9 TECHNOLOGY
Executive Summary
Technology drives corporate success worldwide. Even in

India, it is technology that fueled the growth of the
successful companies. Consider the pharmaceutical industry
for example:
The pharmaceutical sector has shown the most dramatic
growth among all sectors since independence - from a mere
Rs. 100 million to about Rs. 150 billion in 1998. Twelve
companies: Ranbaxy, Cipla, Lupin, DRL, Wockhardt, Nicholas
Piramal, Torrent, Cadila Health Care, Sun Pharma, Kopran,
Ipca and Orchid account for over a third of the total
industry sales. What is the common strategic thread that
runs through all these companies and other successful
companies not mentioned here?
Technology. All these companies have been steadily
investing in upgrading their technology to world class
standards. Unless your products and services are world
class, you have no chance of even entering international
markets. The highly industrialised markets like North
America, Europe and Japan, which account for over 80 per
cent of the world pharmaceutical market, have erected

many entry barriers. Consider these barriers for example:
 Indian drug firms can export bulk actives only when
they have a DMF (Drug Master File) for that particular
drug.
 One can have a DMF only when he manufactures the drug at
a facility approved by US FDA and the formulator should
have his formulation approved by the FDA using the bulk
from the proposed source.
 To market an off-patent generic formulation, one needs
to match his formulation like a finger print with the
innovator brand both in terms of dissolution profile
and bio-equivalence.
 Even the bio-studies need to be conducted at a US FDA-
approved laboratory.
Even the NICs (Newly Industrialised Countries) and some
of the developing countries have been upgrading their
regulatory requirements to these levels, making entry
difficult.
Technology is the only key to success. Only world class
technology can convert these barriers into gateways. The
message is loud and clear. Upgrade technologically or be
out-dated. With technology it is ‘Up’ or ‘Out’!
9 UPGRADING TECHNOLOGY
Corporatesuccess worldwide has long been fueled by technology.

Wall Street calls these technology-drivencompanies ‘techies’ and tracks
their success regularly. The pharmaceutical industry is essentially
technology intensive and is research driven.
Of all the sectors that have seen growth, the pharmaceutical sector
probably is the most dramatic. In 1947, the size of the Indian
pharmaceutical industry was Rs. 150 million. Today the pharmaceutical
production exceeds Rs. 150 billion and exports exceed Rs. 30 billion.
Moreover, although it was controlled by multinationals till the end of
1960s, today Indian manufacturers of bulk drugs and formulations
dominate the market. There are at least a handful of companies like
Ranbaxy, Cipla, Dr. Reddy’s, Lupin, Wockhardt, Sun, Zydus and NPIL
which are planning to become Rs. 10 billion companies by year 2000.
Ranbaxy is the most ambitious among these for it is planning to become
a $ 1 billion company by 2003.
There is a common misconception that this fantastic growth has been
due to pirating technology from the West, because the Indian Patent
Act of 1970 recognised only process, not product patents. But the fact
is, less than 10 per cent of the Rs. 30 billion exports are covered by
product patents. The rest are off-patent drugs; hence Indian
manufacturers are competing in the open market, with original
discoverers, there byproving the more efficient nature of their process
technologies and control of manufacturing costs.
It is undisputed that the most important factor that will catapult India
onto the global stage, in terms of competitive presence, is the state of
technology available for production of bulk drugs and formulations.
In terms of technological capability for bulk drug production, India is

probably the fourth major force in the world, after the US, Western
Europe and Japan, particularly for synthetic drugs.
In the area of fermentation for antibiotics, steroids, enzymes and amino
acids,Indian companieshave toenhance theircapabilities significantly
to catch up with global standards.
Today, there are nearly 800 bulk drug manufacturers in India. Some
of them are being wooed by multinationals for tie-ups involving
manufacture, marketing and even joint research.
A large number of high-selling antibiotics, cardiovascular and other
drugs are going off-patentin thenext fivenears. Thereis also a growing
shift towards generic drugs, particularly in the US. These new Indian
‘techies’ are ambitiously planning to exploit the exploding North
American generic market.
To penetrate the developed markets like the US is not going to be
easy, whether it is for bulk actives or for formulations. There are a
number of entry barriers. Consider these for example:
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.
3. The third barrier is that your generic formulation of off-patent

drug should match the innovator brand’s formulation like a
fingerprint in termsof dissolution profile andbio-equivalence. Only
when your generic formulation meets these criteria will your
Abbreviated New Drug Application (ANDA) get the approval of
the US FDA and get a ‘therapeutic equivalence’ rating. And only
then you will have chance of marketing your generic formulation
because it can be therapeutically substituted by the pharmacist or
sold to HMOs and PBMs.
4. The fourthbarrier is that you have toget thebio-equivalence testing
done only at the US FDA approved research laboratories. This,
onceagain,increases costs.
5. The fifth barrier is that you have to find the right distributor to
market your products. Unless you have a basket of ANDAs for your
generic formulations in a given therapeutic area, that meet the
emerging disease management criteria or approach, you cannot
reach the large customers like HMOs and PBMs in the US.
6. The sixth barrier is that you have to achieve all this fast enough to
be among the first two or three generic versions of the innovator
drug soon after its patent expiry. A report by Lehman Brothers
(1996) notes that, in the US, the first generic can sell at a 30 per
cent discount to the branded product compared to a 75 per cent
discount for later entrants.Industry expertssay that80 percent (of
profits) are milked out of a drug in the first 18 months of its
genericisation.
7. Costs, ever escalating costs, in achieving all these are the seventh
barrier. Upgrading technology, doing bio-equivalence testing at US
FDA approved laboratories, ANDA filing, finding the right
distribution and marketing network in the developed markets like
the US, require large up front investments. This is a major entry
barrierbyitself.
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:
 World class technology

 Superior product development skills
 Quality that meets the international standards
 International regulatory approvals
That is why all these companies have been vying with each other in
upgrading their manufacturing facilitiesto meet international standards
and regulatory approvals. Consider for instance, the rapid progress
made by these companies during the last few years.
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.
Dr. Reddy’s Labs

DRL has been steadily investing in technology to create a world-class
manufacturing infrastructure. The group’s bulk drug facilities have
international regulatory approvals. They have been exporting their
bulk actives and intermediates to the highly regulated markets like the
US, Europe and Japan. All their plants implement cGMP and conform
to international standards. Cheminor, a group company, has built a
formulation plant mainly to cater to the North American and European
generic markets and is awaiting the approval of US FDA.
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.
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:
 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
 Formulations including novel drug delivery dosage forms

 Biotechnology
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
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
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
Phamaceutical research is expensive, time consuming and

risky. A 1994 study conducted by economists at Duke
University found that only 3 out of every 10 NCEs introduced
from 1980 to 1984 had returns higher than their average
after-tax R&D costs. The analysis revealed that only 20
per cent of products with the highest revenues generated
70 per cent of the returns during the period. What is the
moral of the story? Evaluate research programs thoroughly.
Focus on focused research.
Given the high cost and risk of drug discovery, what with
estimates ranging between $ 350–500 million for developing
a single drug from concept to commercialisation, can
Indian companies ever think of discovering new drugs? At
$ 450 million, the total turnover of India’s largest
pharmaceutical company for the fiscal 1997 just equals
the amount required for developing just one new drug.
Dr. K. Anji Reddy has demonstrated that Indian drug firms
can do it, despite these odds. DRL became the first
Indian drug firm to licence its molecules (developed by
its research foundation) to international drug majors
against milestone payments, sharing of further

developmental and registration costs and royalty payments
once the drugs are approved. He has indeed shown the way
to drug firms in developing countries.
Close on the heels is Ranbaxy, India’s leading
pharmaceutical company, in announcing its NCEs. Ranbaxy
too is looking for partners for carrying on the further
developmental activities required and for registration
across the world. Torrent has become the third company to
file for patents in India and the US for its NCE – TR 266,
a coronary vasodilator. Very recently, Wockhardt too has
announced its success in identifying two anti-infective
lead compounds. The company is also scouting for partners
for further development and for marketing these, once
they are approved. Lupin also has announced its drug
discovery program. There are at least five other companies
that have stepped up their R&D expenditure to about 5 per
cent as compared to the present industry average of 1.8
per cent of sales.
The leading Indian companies are clearly shifting their
emphasis from imitative research to innovative research.
There is a clear change of focus on focused research.
10 FOCUSING ON RESEARCH
The relationship between patent protection and the pharmaceutical

industry is closest and most direct in research and development.
The policy decisions here centre on the investment, the selection of
priorities when setting up the programs and the balance between
management of innovation and the management of risk. All of these
are necessarily evaluated with an eye on patent protection. This is
because unpatentable success in pharmaceutical R&D is rapidly devalued
by imitation, eventually forcing the innovators to become less
innovative in order to reduce industrial risk.
In a world where progress in drug therapy is needed and desired, the
industry considers patent protection to be indispensable for innovative
endeavour. Patents do not guarantee innovative success, but their absence
or inadequacy will undermine the motivation to take the financial risks
that are implicit in drug development.
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.
The Cost of a New Chemical Entity

A 1994 study conducted by economists at Duke University found that
only 3 out of every 10 drug products (New Chemical Entities) introduced
from 1980 to 1984 had returns higher than their average after-tax
R&D costs. The analysis revealed that 20 per cent of products with the
highest revenues generated 70 per cent of returns during the period.
In other words, given the high cost and risk of drug research, companies
must rely on a limited number of highly successful products to finance
R&D.
Economists have estimated the cost of bringing a new drug to market
at $ 359 million. This estimate, however, captures the final costs for
drugs that entered clinical trials during the late 1970s. A precise
projection of what it may cost to develop a drug, beginning the research
process now is difficult. Since the late 1970s, however, major drivers of
development costs, including the number of required clinical trials and
patients in each trial, have more than doubled.
During the 1990s the average length of time required to develop a
drug has increased to 15 years. Lengthening developmental times
dramatically increase the cost of bringing a new drug to market by
increasing the capital needed for R&D. The cost of capital increases as
companies are exposed to economic risks and uncertainties over a longer
period of time.
These are the underlying reasons why pharmaceutical progress is
dependent on intellectual property protection. Without strong patent
protection, drug companies would not be able to attract the investment
needed to conduct this high cost R&D.
Academia, Industry and Drug Research

Academic research establishments can, and often do, make important
discoveries in basic research. Industrial development, however, takes
up two-thirds of the cost and risk of pharmaceutical R&D. The cost of
drug discovery becomes prohibitively high, when you factor in the cost
of failure. Approximately nine out of ten drugs discovered enter the
Phase I of clinical development. Nowhere in the world, has the public
sector been able to finance the cost of drug development as a result.
As a minimum, the industry insists that research and development

risk must, in the event of successful drug development, have a chance
of being well rewarded by ensuring marketing exclusivity of patented
drugs from the date of launch until patent expiry. The protection of
intellectual property is regarded as a necessary pre-condition for
industrial and economic survival.
The Prerequisites of R&D

The experience of recent decades demonstrates that, as a general rule,
three prior conditions must be fulfilled for pharmaceutical R&D to
flourish. They are:
1. Infrastructure in relevant science and technology.
2. Adequate industrial cash flow and profitability.
3. Water tight patent protection of the results.
Infrastructure is evidently vital, especially for pioneering advances
in pharmaceutical science and biotechnology. Academic input and
mechanisms to ease the flow of knowledge between ‘pure’ research
and applied technology must either exist or be brought into existence.
Cash flow and profits have to be adequate in order to stimulate
sustained risk and investment. That is particularly true of innovative
R&D in pharmaceuticals and biotechnology, because the risk of failure
is abnormally high when compared with many other research-based
industries, especially during the development phase. This phase usually
absorbs two-thirds of pharmaceutical R&D time and budgets.
Water-tight patent protection, the third prerequisite, is now
universally accepted for pharmaceuticals in the industrialised world,
for underwriting the risk of project failure and to cover the high costs
of long periods of development and other costs of R&D.
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
conditions for innovative research, development and investment by

industry are in place and the obstacles to the flow of knowledge and
expertise between academic service and applied technology are
removed. Only then will the ultimate purpose of such work – advances
in health care and benefit to the national economy and to society – be
achieved.
In the industrialised world, the role of the state in pharmaceutical and
biotechnological R&D has in recent times been limited but is not
unimportant. Public sector grants for academic research have helped
to create many centres of excellence. The main function of the state
has, however, been to manage economic stability and to define policies
that are designed to encourage risk investment in pharmaceutical and
biotech research and development.
Results in these fields have generally been closely related to
government’s willingness (or reluctance) and success (or failure) in
creating such a climate of encouragement, both for pharmaceutical
chemistry and biotechnology.
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.
Government Support to R&D – The Indian Scenario

While the recent creation of the Technology Development Board is not
comparable to the Chinese government initiative, it is certainly a welcome
sign. The Indian government finally, after a twenty-five year wait, has
created a Technology Development Board (TDB) in 1995 and the
Technology Development Fund (TDF) in September 1996. But, in the
two years since its creation, there has been visible progress in funding
commercially viable technology development products. It has funded
Table 10.1
R&D initiative by government
Firm/ Technology Total cost TDB

Institute Rs. mil. component
Rs. mil.
1. Shantha Recombinant hepatitis-B
Biotechnics vaccine 150 30
2. Shantha Paediatric version
Biotechnics of the vaccine 66.5 55
3. Bharat Recombinant hep-B
Biotech Intl. vaccine (collaboration
with IISC, Bangalore) 122.1 32.5
4. Alpha Amins Production of
amino Butanol, anti-TB
drug intermediate 32.2 15
5. Ranbaxy Cardiovasculars:
pravastatin 38.6 19.3
6. Ranbaxy Anti-bacterials:
cefpodoxime 31 15.5
7. J.K. Druga Manufacture of antibiotic:
& Pharma cefixime 32 15
8. Cadila Recombinant hep-B
vaccine 90 45
9. AVRA Labs Anti-inflammatory
drug CMI-392
abortive pill RU-486 50 20
10. Manukrit Reagent for detection of
Biogems bacterial Endotoxin 11.5 55.7
26 projects, valued at Rs. 1.78 billion with a TDB component of

Rs. 660 million. These are in varying stages of execution. Ten out of
these 26 projects (Table 10.1) are in the pharmaceutical industry. The
source of funds for the TDF is basically the 5 per cent cess levied on all
payments made for technology imports – in the form of technology

payments, royalties and dividends – as required under the R&D Cess
ACT of 1986.
The Process of New Drug Development

What does it take to develop a new drug from concept to commerciali-
sation? Typically, the new drug development process involves five major
stages (Table 10.2).
After extensive toxicological tests and animal studies, the manufacturer
must decide whether the compound should be tested on humans. If
the company decides to go ahead, it must file an Investigational New
Drug (IND) application with FDA. This application may run as long as
2000 pages and must include information about the pre-clinical testing
and a description of the proposed clinical trials. Unless the FDA orders
a hold, clinical trials may begin 30 days after the application is filed. In
addition, the application must be approved by a review board of the
institution or institutions, where the trials are to be conducted.
Clinical trials are conducted in three phases. In phase I, safety studies
are conducted on 20 to 100 healthy volunteers. Potential side effects
are identified and dosage range is determined.
Phase II clinical trials are conducted to determine the effectiveness of
the drug. Approximately 100 to 300 volunteers, who have the targeted
disease, participate.
Phase III typically involves 1000 to 3000 patients (and sometimes
thousands more) in clinics and hospitals. They are closely monitored
to assess the drug’s efficacy and safety. The company compiles all the
data from these trials and, if the data successfully demonstrates safety
and efficacy, submits a New Drug Application (NDA) to FDA. The
NDA must contain all the scientific information the company has
gathered. NDAs typically, run into 100,000 pages or more. By law, FDA
has six months time to review an NDA. The average review time for all
NDAs approved in 1996 was 17.8 months.
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.
According to the Centre for the Study of Drug Development at Tufts

University, clinical development time for drugs approved between 1990
and 1995 was 6.9 years, up from 5.5 years.
The State of R&D in India

Philip A. Roussel, Kamal N. Saad and Tamara J. Errickson of Arthur D
Little Inc., one of the leading management consultancy firms in the
world, have developed a frame-work for analysing the state of R&D in
their path breaking book “Third Generation R&D.” According to them
there are three types of research:
1. The Incremental Research aims at small advances in technology
on the foundation of existing body of knowledge. This is similar to
applied research. Most of the Indian companies like Ranbaxy,
Dr. Reddy’s Labs, Lupin, Cipla, Wockhardt, Sun and Cadila have
been engaging in this kind of research. The focus on incremental
research is due to the absence of product patents. A number of
Indian companies have demonstrated considerable skills in process
research. These companies were able to compress the average time
taken to launch new drugs from five years in the seventies to one
year in the nineties. The advantage gained through incremental
research, however, is not as long lasting as that from radical research.
2. The Radical Research aims at creating new knowledge on the
basis of the existing body of knowledge. Some companies like
Dr. Reddy’s Laboratories, Alembic, Ranbaxy and Wockhardt have
recently become active in radical research.
Radical research is now being carried on in a limited way by
government sponsored research institutes like Indian Institute of
Chemical Technology (IICT) and Central Drug Research Institute
(CDRI). IICT concentrates on developing cost-effective technologies
for life saving drugs and has recently shifted the emphasis from
process development to product development in tune with the
changing global scenario.
3. Fundamental Research is risky, time consuming and expensive
as it falls in the domain of the discovery of new products.
Prof. H. Grabowski of Duke University has analysed R&D data of
93 new drugs from 12 US companies in 1987. His study established
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
Biggest R&D spenders in 1994
Company R&D Sales R&D as a

spending $ million per cent
$ million of sales
1. Glaxo 1287.0 8484.0 15.2

2. Roche 1226.3 5285.6 23.2
3. Merck&Co 1120.0 8877.5 12.8
4. Bristol Myers
Squibb 972.1 6524.0 14.9
5. Hoechst 955.8 6811.8 14.0
6. Sandoz 900.8 4972.9 18.1
7. Pfizer 888.1 6210.3 14.3
8. Bayer 840.1 5788.4 14.5
9. SmithKline
Beecham 743.5 5231.3 14.2
10. Ciba 714.7 4466.0 16.0
R&D in Indian Current Scenario

For decades, the phrase ‘research and development’ in the Indian
pharmaceutical industry parlance, meant little more than the copying
of patented drugs. Since India grants no product patents, Indian drug
companies could legally manufacture a drug patented abroad using a
different process and market it in India and third world countries with
weak or no IPR protection. But not for very much longer. Now that
the country has signed the GATT agreement, that easy route to profits
for Indian companies will be blocked by the year 2005.
That is why some of the more progressive Indian companies have been
investing in building new laboratories, buying sophisticated equipment
and recruiting talented scientists both at home and abroad. Indian
R&D finally seem to be getting the focus it needs.
These companies seem to recognise the fact that indigenous R&D is
the need of the hour, to become competitive internationally. Industry
estimates put the start up cost of a basic research company at Rs. 10
billion, as compared to Rs. 75 billion in the West.
Strategic Options for Indian Companies

New drug discovery is very expensive. It could cost around Rs. 15.7
billion and take about 8–10 years from concept to commercialisation.
The cost of capital to develop one new drug is more than the annual
turnover of India’s largest drug company. What are the options
available for Indian drug companies? Can they ever become innovative?
Dr. Reddy’s Labs, Ranbaxy, Wockhardt, Torrent, and Lupin have shown
that it is possible to make the transition from imitative to innovative
culture. It is tough, but as these companies have shown, it can be done.
Indian companies are focusing mainly on two areas:
1. Analogue Research: Analogues are modifications of original
molecules and thus exhibit similar activity. Analogue molecules
basically are superior versions of existing drugs. An analogue typically
neutralizes side effects and/or improves the therapeutic efficacy of
an already patented drug. Under pressure from cost containment
strategies, a number of research-based pharmaceutical companies
too, are focusing on analogue research. Indian drug majors are
working mainly on analogue research. An analogue may take about

two years and Rs. 150–300 million to develop. Consider these initial
successes that some of the leading Indian companies have achieved
within a short period of launching their drug discovery programs:
 Dr. Reddy’s Laboratories has developed NCEs in therapeutic areas
like diabetes and cancer. It has already filed for international patents
and became the first-ever Indian drug company to licence its new
chemical entity to a multinational against upfront payments linked
to pre-defined milestones and royalties once the drug is
commercialised.
 Ranbaxy too has filed for international patents for its NCE for
treating BPH and is looking for a strategic alliance for taking this
through further development to commercialisation.
 Wockhardt has also developed two anti-infective compounds and
is ready to file for international patents. It is also looking for a
strategic alliance partner to share the further developmental effort,
registration and marketing internationally.
 Torrent too has developed a new compound in the coronary
vasodilator category and is filing for international patents.
 Nicholas Piramal also has identified an anti-cancer molecule at its
recently acquired R&D centre from Hoechst. The company is
planning to file global patent application for the same.
 Lupin has developed an anti-migraine product and is conducting
clinical trials. It is filing for a provisional patent for this new herbal
formulation. The company plans to take this product for clinical
trials to Europe and US.
2. Novel Drug Delivery Systems (NDDS): Novel drug delivery systems
are superior ways of administering the drug and this requires
formulation development and process development skills. It may
take about three years and an investment of Rs. 1–2 billion for
developing a NDDS. A NDDS could be a helper compound
(polymer used to direct the drug to the target site), a polymer implant
(a small polymer wafer, a capsule or a gel that allows slow and
sustained release) or a microsphere (a fatty compound or liposome,
that encloses the drug to slow the release and lower the toxicity).
A new NDDS concept is patentable. If it is an improvement, it could

give a market-exclusivity for three years in the US. Ranbaxy,
Wockhardt and Cipla are seriously pursuing the NDDS market in
the US.
DOE – Strategy to Optimise R&D effort

Design of experiments (DOE) ensures optimisation in conducting
experiments in terms of speed and dependability. It is an R&D
technique developed by Sir Ronald A. Fisher, a British statistician, for
systematic experimentation. It is a scientific way to analyse the causal
effects. R.S. Chalapati, Head of start-up quality improvement
consultants, who has helped Ranbaxy implement the DOE program,
highlighted the salient features of this highly useful technique in an
interview with Ms. Manjari Raman of Financial Express.
At the heart of DOE lie templates for experimentation called
‘orthogonal arrays’. An orthogonal array is akin to a sophisticated
switching system into which many different design variables can be
plugged in. With the help of an orthogonal array, even a relatively
inexperienced scientist can extract the average results and thus reach
reliable conclusions despite the large number of changing variables.
Moreover, with an orthogonal array, the scientist has to run just eight
experiments in the order prescribed in the array to reach virtually the
same conclusions as he would have if he had performed up to 1024
experiments. The six steps of DOE are:
1. Problem identification: To define the problem more precisely, a
team of scientists or design engineers needs to undertake a Pareto
analysis, use a cause and effect diagram and brainstorm the possible
parameters which lead to the problem.
2. Selection of experimental design: The team chooses the right
orthogonal array depending on the number of factors (elements of
a process, which have an effect on the outcome) and levels (the
values the factors will take) involved in the experiment. The team
after identifying the parameters, needs to isolate two levels for each
parameter – a high and a low – to run the experiments.
3. Conducting the experiments: The team has to do just eight experiments.
The DOE principle can be applied to cycle time, yield, waste and cost.
4. Analysis of variance: Analysis of variance (ANOVA) is a statistical

tool used to measure the impact of each individual factor on the
variation in the final response. This step allows the team to prioritise
which of the identified factors have maximum impact. The impact
of each factor is ranked and only the factors with significant impact
are chosen. This step invariably results in cost reduction.
5. Determining the best levels: The team now selects the optimum
combination of factors and levels. It is critical that the team selects
the right factors, levels and parameters.
6. Conducting confirmation run: To reassure themselves that the
optimum experiment is designed by DOE does deliver, the team
conducts confirmatory experiments. Comparing the actual rejection
or defect levels improves the veracity of the new experiment.
Ranbaxy is the first and only domestic pharmaceutical company to
use DOE techniques to develop new bulk drug and formulation
development processes. Within eighteen months of implementing
DOE techniques, Ranbaxy has achieved significantly higher yields
– about 17 per cent improvement in one product. In another
product, it was able to bring the costs down by slicing the quantity
of one ingradient by 38 per cent. The company has been able to
achieve better control over processes and has shrunk the cycle time
for developing a bulk drug from the lab to the manufacturing stage
from 3 years to 18 months on average.
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
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
to world class standards and inject the spirit of enterprise and

collaborative culture.
Interestingly, state owned laboratories have also begun serious work on
new drug development. Consider these moves:
 Indian Institute of Chemical Technology (IICT), Hyderabad, which
has turned the copying of drugs into a fine art, is taking to drug
research with a missionary zeal.
 In Lucknow, the Central Drug Research Institute (CDRI), the only
institution in the country to have produced new drugs so far, is
updating its facilities.
 The Council of Scientific and Industrial Research (CSIR) is trying
to pool and restructure its resources and expertise to start work on
drug development. Considering its infrastructure and experience,
the CSIR could play a significant role in the joint drug research
programs being considered by the government and a section of the
industry.
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.
Contract Research Opportunities

Pharmaceutical research is a different ball game. It is very much different
from other industries. Wherever basic research is highly dependent
on technology, India will not be able to be competitive enough for

world business to be interested. But in pharmaceutical research,
particularly at the initial end of the funnel of discovery like identifying
a molecule and conducting tests, the value addition can be very high.
The scientific skills of India definitely suit the business needs of
pharmaceutical R&D.
Within the US there is pressure to keep costs down. In the past, research
funding generally kept rising by 10 per cent each year and the salaries
of research scientists also kept rising annually. There is cap on research
spending now.
There are only two options in such situations. Either they would have
to reduce the number of projects or get more work done with the
same amount of money. One of the ways to do this is by what is called
– “out-sourcing research.” This is happening very quickly within the
US. Contracting out to academic institutions, universities and non-
profit organisations etc., has begun. This out-sourcing could extend to
countries like China and India.
The basic research costs of drug discovery are high the world over and
staffing cost, in particular, is very high. It is 40 per cent in Japan and as
high as 60–70 per cent in the US. Because of the high quality of R&D
and qualified scientists, India can carry out the initial part (of the
research funnel) at a tenth of international cost. By contracting out
the basic research, they can save the costs of development and deploy
these for clinical research and other areas where costs are going up
significantly.
This business–research model is already becoming popular in the
developed countries and will definitely usher in an era of contract
research in India too. Here is what Randall L. Tobias, chairman and
CEO of Eli Lilly, the global pharmaceutical major said about out-
sourcing research some time ago:
“The dispersed research helps to achieve global level research
capabilities by leveraging local research strengths. Each country or
region is strong in certain areas of disease and drug research. Also
technology has made it possible to access and also to communicate
individual and group research capabilities through a net work spanning
the globe. Such a dispersed approach should bring better results cost
effectively”.
Patents Hold the Key

Furthermore, Richard Sykes, chairman of the world’s leading drug
firm – Glaxo-Wellcome, in his recent visit to India said:
“If all goes well with the patent bill, we would consider investment in
R&D seriously as patents is one of the fundamentals governing inward
investment. We would look for strengths in the science base and in
the clinical base in India and that’s where we would put our
investments.”
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
In 1994, Ranbaxy spent Rs. 180 million on a new research laboratory

near Delhi. In addition, it also spent 4 per cent of sales on R&D. The
company has no product patent to its name and had only 13 process
patents till 1994. Cefaclor (a product developed by the international
drug major, Eli Lilly of the US) process patent development took
Ranbaxy three years and Rs. 20 million. Eli Lilly, the discoverer of the
drug itself, buys $ 15 million worth of Cefaclor from Ranbaxy every
year. The company within the fifteen years since 1978, could cut short
the time from synthesis to commercialisation of a bulk active substance
from five years to less than two years. It has indeed converted the science
of process development into a fine art.
In its vision statement for 2003, the company has spelt out that it
wants to attain $ 1 billion in sales to develop new molecules. Ranbaxy
set the ball rolling in the product development area in 1995. The
company has just entered an NCE (New Chemical Entity). They have
already got three biological leads each in the anti-bacterial, anti cancer
and memory-enhancing areas.
Biotechnology, an emerging area, is also getting attention. It is just the
first step but the potential is tempting. Biotechnology-based drugs are
expected to corner a 22 per cent share of the pharmaceutical market by
2000.
Ranbaxy has been very actively creating the essential infrastructure for
drug discovery. The research group has identified three more promising
lead compounds, an anti-fungal, an anti-hypertensive and a new
generation anti-bacterial. The company will file applications before the
Drug Controller of India (DCI) and the Federal Drug Authority (FDA)
of the United States by October, 1998, asking for permission to conduct
clinical trials for its first Investigative New Drug (IND). The company plans
to launch the first molecule from its original research before 2005.
Ranbaxy has become the second pharmaceutical company from India
to taste an early success, when it unveiled its first new molecule – RBX
2258 for treating the Benign Prostate Hyperplasia (BPH). The new drug
has already been tested out successfully on animals. The company is
planning to carry out the other developmental studies required for
commercialisation of the drug worldwide. It is close to finalising a
strategic alliance for taking this through further development to market.

Research has been a major thrust area for Dr. Reddy’s group right from
its inception in 1984. Dr. K. Anji Reddy, the founder and chairman of
the group views it as an investment. The group has set up Dr. Reddy’s
Research Foundation (DRF), an independent basic research centre and
the first of its kind in the private sector in 1993, at a capital cost of Rs.
200 million. DRF has world class research facilities.
The foundation pursues basic research programs in all important areas
relevant to the drug industry. These are:
 Process development
 Analytical R&D
 Biotechnology
 Phytochemistry
 Pharmacology
 Biochemistry
 Discovery and development of NCEs
DRF is currently concentrating on anti-cancer, anti-diabetic, anti-
inflammatory, anti-infective and cardiovascular research. Around 75
per cent of its efforts are directed towards drug discovery with about
25 per cent of the input going towards process R&D for different
drugs, depending on the needs of Indian patients.
During 1994–95, its second full year of operation, the foundation
incurred a capital expenditure of approximately Rs. 95 million and a
revenue expenditure of about Rs. 45 million. The group plans to spend
over 10 per cent of its turnover on R&D. Within a short span of three
years they have demonstrated the promise of success, unprecedented
by any Indian drug firm. Dr. Reddy’s is the first group from India to
ever enter into research-based strategic alliances with international
companies. These two alliances are the first of their kind, where an
Indian drug firm has licensed out the molecules developed by them to
international pharmaceutical companies. The company’s research is
driven by five principal objectives:
1. Speed of development
2. Pilot stage commercialisation

3. End stage production
4. Sustained cost cutting
5. Commercial prospects
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
 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
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.
Piramal plans to undertake basic research at this centre. The research

centre’s 18 target disease areas complement the group’s focus areas too.
These include diabetes, cardiovascular ailments and diseases of the central
nervous system.
The group will get a tax-break on the centre’s annual operating costs of
Rs. 50 million and the R&D expenses of the group have gone up to 3
per cent of sales in 1998.
Swati Piramal, medical director, who heads the R&D unit, says that
they will focus on certain segments of the pipeline. They also hope to
carry out contract research work in quid pro quo arrangements – for
several multinationals which are eyeing compounds based on Indian
natural products.
Nicholas Piramal very recently has identified an anti-cancer molecule
at this centre. Cancer therapy is a focus area for the company. The
molecule falls in the class of kinase, which usually acts as a catalyst
giving rise to a reaction that may arrest the excess of cell multiplication
in the body. The company is planning to file a global patent application
for its new molecule.
Nicholas Piramal is investing Rs. 160 million to augment its clinical
research activity. It is adding a new building adjacent to the Piramal
Memorial Hospital in Parel, Mumbai for conducting clinical research
activity. The company is planning for a joint venture with foreign
partners to start a clinical research centre of international standards.
The centre will undertake research programs for pharmaceutical
companies, both domestic as well as international. This will fill an
important gap in infrastructure requirements for pharmaceutical
research activity in India.
Four Pillars of Research at Nicholas Piramal

NPIL is restructuring its research activities into four groups:
1. Formulation development
2. Bulk drug development: organic synthesis and process development
3. Drug discovery
4. Clinical research at the group’s hospital in Parel, Mumbai
Clinical research would be the fourth pillar of the company’s R&D

strategy (after its entry into drug discovery program, herbal research
and chemical process development). The clinical research centre in
Mumbai will employ 40 bio-statisticians and pathologists. In addition, about
100 pathologists will be in each of the five clinical laboratories acquired.
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.
Torrent is one of the foremost sponsors of research in universities.

The company is planning to back up its research activities with strategic
alliances with well-known international companies.
Torrent is working out ways to make its R&D a profitable proposition
and has signed up with the likes of William Harvey Research Institute
in the UK for conducting collaborative research. Samir Mehta, the
vice-chairman of the company, is confident that at least one-third of
the R&D revenues will come through collaborative research and the
net earnings will be positive.
Zydus (Cadila Health Care)

Cadila Health Care is intensifying its R&D efforts. Firstly, the company
is investing Rs. 350 million in upgrading and expanding its R&D
infrastructure. Secondly, it is planning to enter into collaborative
research both in developing new processes for pharmaceutical substances
as well as for developing new molecules.
The Zydus group is planning to spend 4 per cent of their turnover on
research and will gradually increase it to over 7.5 per cent in the next
five years. The group has two full-fledged R&D centres in Mumbai and
Ahmedabad that are recognised by the government of India. Besides
these, they have commissioned a new state-of-the-art R&D centre in
Moriaya, adjacent to their new manufacturing facilities at Ahmedabad.
The investment outlay for this new centre is around Rs. 500 million.
Zydus has identified five broad areas of research. These are:
1. Cardiovasculars
2. Anti-infectives
3. Biologicals
4. Gastrointestinals
5. Immunologicals
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
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
global pharma majors. Surendra Somani, the chairman and managing

director of Kopran is confident when he says, “if India can do it with
technology upgradation, given opportunity and infrastructure, it can
do the same in research of molecules.”
Kopran is working on developing alternative cost-effective processes for
a number of drugs like sterile cephalosporins, clarithromycin in
macrolides and proton pump inhibitors like lansoprazole etc. It has
already developed sidenafil citrate. These are some of the more
prominent molecules that Kopran is developing at its Malad facility.
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
What should the Government do?

Dr. Parvinder Singh, chairman of an Indian multinational in the
pharmaceutical sector, strongly feels that government should take the
right initiatives and help India prepare itself to be competitive in the
coming product patent regime. Here are some of his suggestions to the
government.
1. Government’s role involves having to step up its own investments
in infrastructure and of course, in the pharmaceutical industry.
2. Step back from controlling and move into a facilitating mode.
Government does not need to fix prices of medicines; it should
intervene only when a need arises as in case of a monopoly situation
and when prices are unduly high.
3. We must have EMRs now and patents later as the industry and the
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
There seems to be a well-defined hierarchy of goals in

the pharmaceutical industries of the developing world.
All firms virtually start off either as manufacturers
and marketers of formulations or bulk actives and drug
intermediates. Then they integrate backward or forward
depending upon the point from where they started, to
become fully or vertically integrated pharmaceutical
companies.
Vertical integration gives a significant and sustainable
advantage to a pharmaceutical firm. It gives them control
on costs, timely availability and quality of inputs. The
underlying assumption here, of course, is that the
integrated firm has a more cost-effective process. Superior
technology, therefore, holds the key to successful
integration.
Barring Teva, the Israeli drug major, there are not many
international generic companies that are fully integrated.
Many of them outsource their raw materials and here lies
the big opportunity. Indian drug companies, which have
developed very good process development skills over the
years, can compete very effectively in international

generic markets.
That is why some of the leading Indian drug firms like
Cipla, DRL, Lupin, Wockhardt, Kopran, Ipca and Sun have
been pursuing vertical integration very aggressively to
succeed in the highly competitive international generic
markets. Ranbaxy, which has already become a vertically
integrated international generic company, has reset its
goal: To be among the top three international generic
companies in the world by 2015.
11 INTEGRATING STRATEGICALLY
What is common between the leading drug firms like Ranbaxy,

Cipla, DRL, Lupin, Wockhardt, Kopran, Ipca, Orchid and the others
in terms of their strategic content and intent?
Verticalintegration. Virtuallyevery oneof thesefirms andthose others
with aspirations to becoming international generic companies and
research-based international pharma companies have been vying with
each other to become vertically integrated. This is because vertical
integration helps lower costs, achieve economies of scale andraise the
capitalcostbarriers.
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
vertically integratedfirm can,therefore, achieve considerable control

on input costs. The new entrant consequently must be either integrated
or face a cost disadvantage, as well as foreclosure of inputs or markets
if most established competitors are integrated. Consider the case of
the cephalosporin market. A number of molecules are going to be out
of patent in the next few years. Orchid, although enjoying a strong
positionintermsofexportsof oral cephalosporins,isforcedtointegrate
forward to enhance value addition and also to achieve synergies.
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
of patent drugs by some leading Indian drug firms amply illustrates

this.
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
company at transfer prices reflecting market prices to insure that each

unit will manage its business properly. If transfer prices differ from
market prices, one unit will be subsidising the other compared to what
it could be achieving on the open market. One unit will be better off
and the other worse off as a result. The managements of the upstream
and downstream units may then make decisions which reduce efficiency
and harm the competitive positions of the units.
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.
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
1. Amoxycillin 13. Sparfloxacin

2. Ampicillin 14. Ranitidine
3. Cefaclor 15. Terfinadine
4. Cefadroxyl 16. Diazepam
5. Ceftriaxone 17. Midazolam
6. Cephalexin 18. Amlodipine (Croslands)
7. Ciprofloxacin 19. Cetirizine (Croslands)
8.Cloxacillin 20. Clotrimazole (Croslands)
9.Di-cloxacillin 21. Permethrin (Croslands)
10.Flucloxacillin 22. Silver sulphadiazin (Croslands)
11.Norfloxacillin 23. Cefpodoxime
12. Ofloxacin

DRL’s process innovation skills are an industry legend by now. The
company’s product strategy for bulk drugs is based on current market
intensity and appropriate timing. The company had scored a victory
over Ethyl Corporation in the US in an anti-dumping suit over its
ibuprofen exports. The company could prove that its process route was
indeed different and highly cost effective. The group’s chairman knows
exactly what molecule to choose and when to enter and more
importantly when to exit.
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
DRL’s bulk drug portfolio
1. Amlodipine 18. Sparfloxacin

2.Cetirizine 19. Flutamide
3. Ciprofloxacin 20. Terbenafine
4. Cisapride 21. Losartan
5.Enalapril 22. Valsartan
6. Enrofloxacin 23. Diltiazem (Cheminor)
7. Fluoxetine 24. Naproxen (Cheminor)
8. Lansoprazole 25. Domperidone (Cheminor)
9. Lomefloxacin 26. Doxazosin (Cheminor)
10. Loperamide 27. Famotidine (Chemonor)
11. Nimuselide 28. Ibuprofen (Cheminor)
12. Norfloxacin 29. Iopamidol (Cheminor)
13. Omeprazole 30. Ondansetron (Cheminor)
14. Risperidone 31. Ranitidine (Cheminor)
15. Salmeterol 32. Terazosin (Cheminor)
16. Finasteride 33. Terfenadine (Cheminor)
17.Pefloxacin
Cipla
Cipla has developed over the years cost effective, innovative processes
for over fifty drugs. Many more are under various stages of development.
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.
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.
The company is also one of the very few global manufacturer’s of

captropil, an antihypertensive drug. Wockhardt is one of the early
entrants in the off-patent generic formulations market of catropil in
the US.
With the merger of Merind, Wockhardt has became one of the lead-
ing manufacturers of vitamin B12 bulk drugs in its portfolio. Wockhardt
is also planning to manufacture recombinant hepatitis-B vaccine and
erythropoietin. Wockhardt is one of the highly integrated players in
the Indian pharma industry.
Table 11.5
Wockhardt’s bulk drug portfolio
1 Azithromycin 8. Amitryptyline (Merind)

2.Captopril 9. Cyanocobalamin (Merind)
3 Dextromethorphaman Hcl 10. Cyproheptadine (Merind)
4. Dextropropoxyphene 11. Dexamethasone (Merind)
5.Pefloxacin 12. Chloroquine phosphate (Tata Pharma)
6. Toldimfos 13. Mebendazole (Tata Pharma)
7. Amiloride (Merind) 14. Miconazole (Tata Pharma)
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.
Table 11.6
Nicholas Piramal’s bulk drug portfolio

1. Chlordiazepoxide
2. Ciprofloxacin
3. Diltiazem
4. Enrofloxacin
5. Ibuprofen
6. Vitamin A
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
Torrent’s bulk drug portfolio
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
Torrent, in a step toward backward integration, manufactures a number

of bulk drugs (Table 11.7). These are used both for captive consumption
aswell assales to other formulators.
The backward integration is aimed at cost reductions in the production
of formulations. The company is also planning to set up in-house
manufacturingforbetalactamantibioticstointegrateforwardstrategically
forpenicillin-G,semi-syntheticpenicillinandsemi-syntheticantibiotics.

Zydus has a very wide product portfolio. The company has been
sourcing a number of new products that have high technological bias
from international companies. The company manufactures about seven
bulk drugs, many more are at various stages of development. Its bulk
production would cover about one-fifth of its formulations. The
company has not yet become a vertically integrated player.
Table 11.8
Zydus’s bulk drug portfolio
1. Dicyclomine Hcl 5. Glibenclamide

2. Ethambutol 6.Loratidine
3.Famotidine 7. Omeprazole
4.Fluoxetine 8. Amlodipine
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
manufactures as many as 46 bulk drugs (Table 11.9). The company, in

addition, manufactures a number of intermediates. Sun Pharma is
progressing rapidly on its course to become a vertically integrated
pharmaceutical company.
Table 11.9
Sun Pharma’s bulk drug portfolio

1
. Amidioquin 24. Fluoxamine Maleate
2
. Clomipramine 25. Iopamidol
3
. Clonazepam 26. Nortryptyline Hcl
4
. Clopamide 27. SalmeterolXinafoate
5
. Digoxin 28. Tramadol Hcl
6
. Dobutamine 29. Buprenorphine
7
. Flurbiprofen 30. Buspirone
8
. 5-aminosalicyclicacid 31. Calciumlactate
9
. Carbidopa 32. Carboplatin
10. Isosorbide5 mononitrate 33. Cisplatin
11. Lacidipine 34. Danazol
12. Lofepramine 35. Meloxicam
13. Olanzapine 36. Erythromycin
14. Ornidazole 37. Mebendazole
15. Magnesium stereate 38. Metformin
16. Pentoxofylline 39. Mitoxantrone
17. Tizanidine 40. Ondansetron
18. Losartan 41. Roxithromycin
19. Carvedelol 42. Amoxycillin(Gujarat Lyka)
20. Nicorandil 43. Ampicillin(GujaratLyka)
21. Luprporelin Hcl 44. Cephalexin (Gujarat Lyka)
22. Octreotide 45. CefodroxylGujarat Lyka)
23. Dothiepin Hcl 46. Cloxacillin(GujaratLyka)
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
Ipca’s bulk drug portfolio

1. Amidioquin 5. Frusemide
2. Atenolol 6. Metoclopramide
3. Bromhexine 7. Probenecid
4. Chloroquine 8. Pyrantel Pamoate
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.
In bulk drug manufacturing, unless one has a more efficient process

and integratesbackward,itis notpossible tobe competitive.Thebackward
integration enables Kopran to sell its bulk drugs abroad at prices that
are almost 4 per cent lower than its European competitors.
Kopran has also undertaken forward integration, through the
manufacture of formulations of both penicillin and non-penicillin based
productsat itsKhopoli plant.
Table 11.11
Kopran’s bulk drug portfolio
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
Orchid’s bulk drug portfolio
1. Cephazoline sodium 4.Ceftazidime

2.Cefradinearginine 5.Cefonicid
3. Cefradine sodium carbonate 6.Sidenfilcitrate
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
enviable position, because there is hardly any international generic

company, which is so fully integrated and operates in as many markets.
The company is able to command higher margins in both bulk drugs
and formulations, because it controls costs throughout the value chain.
That is what has made Ranbaxy the ninth generic company in the
world.Itisthisdistinctcompetitiveadvantagewhichwilldriveitsgeneric
business in the US and Europe and help it achieve its objective to be
among the top three generic companies in the world by 2015.
As Dr. Parvinder Singh, chairman of Ranbaxy says, “the fact is that if
you control bulk, youalso control cost, qualityand strategy.”
‘Internationalising’ the business 193
12
‘INTERNATIONALISING’ THE BUSINESS
Executive Summary
There is more to the phrase-‘internationalisation’, than

mere semantics. The transition from exports to
internationalisation is not simple. It is an arduous
journey, which requires determination and an uncompromising
attitude. Above all it needs a change of mindset to view
the world as a whole. The transition from an export-
oriented company to an international company broadly
involves five phases:
1. Domestic operations with some exports

2. Strongly export oriented
3. Regional operations with core domestic strengths
4. International operations with strong headquarter control
5. Global operations
Ranbaxy is one company that has been working hard to

internationalise its operations. It started its exports
in 1975 and has evolved as the first Indian multinational
drug company through a well crafted strategy, matched by
impeccable execution. Other leading pharma companies like
Lupin, Wockhardt, Cipla and Sun too have been aggressively

pursuing a course of internationalisation. The degree of
aggression of course varies from firm to firm.
The key success factors for an internationalisation strategy
are:
1.Creating, developing and upgrading to world class in
manufacturing technology, product development, packaging
and marketing.
2.Building manufacturing facilities that conform to
international regulatory standards and getting them
approved. Without these approvals, one cannot export
formulations or bulk actives to the industrialised
world which accounts for over 80 per cent of the total
pharmaceutical market.
3.Reach a critical mass and economies of scale in time
through what ever means it takes to achieve – brand,
business or company acquisitions.
4.Collaborating to compete. Improving synergies and
market and product access through strategic alliances.
Convert entry barriers into gateways through joint
ventures.
5.Formulating country-specific strategies.
6. Establishing manufacturing presence to improve market
access and logistics.
7.Moving closer to customers by setting up regional
operations across various countries.
12 ‘INTERNATIONALISING’ THE
BUSINESS
“Going global” has become a catchphrase for many companies

across industries worldwide and the pharmaceutical industry in India
is no exception to this. The Indian drug industry has earned a net
exporter status for over four years now, mainly due to the spectacular
effort by a handful of companies. The main reasons for this pursuit of
the greener pastures abroad are:
 The market outside your home market is much larger, however big
your domestic market might be.
 India for example accounts for just two per cent of the world
pharmaceutical market in value terms and 6–7 per cent of world
production. The market is thus low priced and realisations are lower.
In fact, even neighbouring countries like Bangladesh, Pakistan and
Sri Lanka havehigher prices.
 The global market is higher priced and offers better realisations.
Globalisation, therefore, is the natural choice for any company that
wants to expand in terms of value and volume.
 Drug industry is technology-driven and research intensive. Both
technology and research need huge up front investments. Revenues
and profits generated in the domestic markets are not adequate in
funding to fuel growth.
 International operations enable an organisationto developworld class
technological and marketing competence.
The Indian drug industry has come a long way from the status of a
‘necessaryevil’duringthelicenserajoftheearly1980stotheexport-led
growth stage in the early nineties and now towards internationalisation

ofthebusiness.
In theearly eighties,exports were seen as unprofitable but necessary if
one wanted an import licence as were linked. Ranbaxy was perhaps
the first Indian pharmaceutical company, which thought otherwise;
that exports could be profitable. After all, prices of pharmaceutical
products were much higher all over the world. It is this winning mindset
that has been responsible for keeping Ranbaxy ahead of other
companies in India since the late 1980s.
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
this was through building competitive advantages both in terms of

strategy and implementation. The key elements of Ranbaxy’s
internationalisationstrategyare:
 Developing and upgrading to world class level in manufacturing
technology, product development, packaging and marketing.
 Creating and building infrastructure that support the strategy. In
other words, building manufacturing facilities conforming to
international standards and getting them approved by international
regulatory authorities for both pharmaceutical substances and dosage
forms.
 Reaching the critical mass and economies of scale through acquisition
of brands, businesses and companies that fit into the overall game
plan of the company.
 Improvingsynergiesand marketaccess todifficult-to-penetrate markets
throughjoint ventures.
 Formulatingcountry-specificstrategies.
 Establishing manufacturing presence to improve market access and
logistics.
 Moving closer to customers by setting up regional operations across
variouscountries.
Ranbaxy had set its sights on the global market way ahead of its peers
in the Indian drug industry. The company had taken an approach to
exports in the late 1970s that is significantly different from what was
then prevalent in the industry. While the industry was convinced that
exports were not profitable (as they had to be done on a marginal
costing basis), Ranbaxy thought otherwise. The company had seen,
much before the others, that exports could be profitable as price
realisations in international markets for pharmaceutical products are
much higher. The company identified the emerging markets that had
maximum potential and pursued those aggressively. Here is the
evolution of Ranbaxy’s internationalisation process (Table 12.1)
Ranbaxy has always been ahead of the competition by continu-
ously revitalising its strategy. Today, the company has achieved the
distinction of being one of the major international generic companies
Table 12.1
Evolution of Ranbaxy’s internationalisation
1975 Exports to Sri Lanka and Malaysia

1976 FirstJointVentureinNigeria
1982 ExportstoAfrica,MarketingofficeinSingapore
1984 Joint Venture in Malaysia
1985 Exports to Europe
1987 Joint venture in Thailand
1988 Marketing office in Cameroon
1992 StrategicAlliance anda Joint Venture withEli Lilly, USA
1996 Acquires the New Jersey-based Ohm Laboratories
1997 Sets up 50:50joint venture with Schein Pharmaceuticalsfor marketing the
generic formulation of Ranitidine Form I in the US
Ties up with the generic firm – HMS for marketing off-patented, multi-
source generic formulations of Cefaclor and other products in the US.
with a turnover of close to half-a-billion dollars. There is no other

company except for perhaps Teva, an Israeli company, that has a pres-
ence inas manymarkets asRanbaxy. Further, ithas adistinct competitive
advantage over many overseas generic companies. It is one of the most
integrated generic companies in the world. Many overseas generic com-
panies out source their bulk drug requirements, whereas Ranbaxy is
vertically integrated and can use its low-cost bulk manufacturing base
in India for generic launches overseas. The fact is that if you control
bulk, youalsocontrolcost, qualityandavailability.Ranbaxy, therefore,
is likely to derive more value addition than its peers in the US generic
markets, as it controls costs throughout the value chain.
China: The first country that Ranbaxy targeted in a big way was China,
where it set up a 79 per cent subsidiary – Ranbaxy–Guangzhou China
Limited. The company began marketing formulations in 1995 and is a
market leader in many of the drugs that it makes. Sales growth in 1997
was 30 per cent and it is now making profits as well, apart from paying
6 per cent royalty on sales to the parent company – Ranbaxy. In the
past two years, Ranbaxy has invested around Rs. 300 million in its
China venture. Ranbaxy maintains a 100-member sales team in China.
Middle East: Iran is an emerging market in the Middle East. Ranbaxy

has already achieved the distinction of being the top exporter of bulk
drugs to Iran with sales of about $ 20 million.
Further, Ranbaxy has re-entered the UAE market in 1998 with the re-
registration of five of its products. Ranbaxy is the only Indian company
to bere-registered withthe ministry ofhealth, whenmany pharmaceutical
companies werede-registered forfailing tocomply with thenew stringent
criteria laid down by the UAE government in 1994 for sale of foreign
pharmaceuticals.
Ranbaxy will initially export these formulations from India. Later many
of these, and new formulations that the company is planning to register,
would be imported from their Irish and American manufacturing
facilities.
CIS: Ranbaxy was also an early entrant into the Russian market. It
got there as soon as the USSR disintegrated and the market opened
up. Despite the difficult market conditions and law and order problems,
Ranbaxy stayed on with a belief that it was the right time to build up so
that when Russia stabilised, the company would be able to take off. It
has acquired the over-the-counter business of Natco in the Russian
Federation to reach critical mass. Ranbaxy today has a 50-member
sales team in Russia covering the CIS markets. To further consolidate
its business in Russia, the company has acquired the formulation
business of Natco Laboratories in 1995. Ranbaxy was able to achieve a
turnover of Rs 1 billion in 1997, even without a manufacturing base
in CIS.
Europe: The company, in 1997, has invested in Ranbaxy Netherlands
BV, a 100 per cent subsidiary which was set up as holding company for
expansion in the region. This was used to set up Rema Pharmaceuticals
(Ireland)and fournew subsidiaries:
1. Ranbaxy, Egypt
2. Ranbaxy SP, Poland
3. Bounty Holdings, Thailand
4. Ranbaxy, Mauritius
With these, Ranbaxy now has joint ventures in 14 countries:
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)
US: It is the US operations, which would be the key determinant of

the success of Ranbaxy’s globalisation effort. The company began
operations in the US through a 100 per cent subsidiary called Ranbaxy
Pharmaceuticals Inc. In September 1996, it acquired a New Jersey-based
company, Ohm Laboratories, which produces over-the-counter
analgesics. Ranbaxy had a big victory in 1997 when Glaxo–Wellcome
withdrew a case against it and cleared the way for marketing its own
genericversionoftheworld’slargestselling prescriptiondrug,ranitidine
Form I, in the US.
The company since then has set up a 50:50 joint venture with Schein
Laboratories, the generic arm of the German drug major Bayer AG in
the US for marketing ranitidine.
In yet another strategicalliance for penetrating the lucrative American
generic market, Ranbaxy has tied up with a highly successful generic
marketing firm, HMS for marketing its generic formulations, starting
withcefaclor. Thisexplains the swift responseof thecompany, following
thedecisionofEliLillyitspartnerinmultiplealliances,ofnot entering
the US generic market with new drugs except where it could innovate on
existing products. Rather than break off their relationship completely,
the partners now have an arrangement to market some of Eli Lilly’s
existing off-patent drugs through HMS.
Ranbaxy is planning for a big basket of off-patented generic
formulations for the US market. The company plans to file for approval
of eight to ten new drug applications before the US FDA this year and
follow it up with 10 to 12 ANDAs every year. All these marketing
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.
Dr. Reddy’s Labs

DRL has been shifting emphasis of international operations from bulk
drugs to value added formulations for some time now. The company
has a strong presence in the CIS markets, including a joint venture. It
has however, taken a conscious decision, in the wake of the rouble
rubble, to restrict its exposure to the Russian market. The company has
been focusing on marketing its branded generic formulations in a number
of countries across the globe. While the focus is mainly on China and
Brazil, the company has been registering its products in a number of
countries in South East Asia, Africa, Middle East and South America.
It has so far 204 registrations under its belt and many more are at
various stages of development. DRL has recently launched six products
in Venezuela. With this, it has become the first Indian pharma company
to market its products in that country.
Cheminor Drugs,a groupcompany hasbuilt astate-of-the-art formulations
plant, essentially to cater to the generic markets in North America and
Europe. The company has also entered into strategic alliances with two
generic companies in the US, Pharmaceutical Resources Inc. and Schein
Pharma, for marketing generic formulations. The company is actively
pursuing similar alliances in Europe.
DRL has gone a step ahead of the others in internationalising its busi-
ness by exporting its intellectual property. DRF, the independent
research arm of the DRL group, is the first Indian company to licence
a new molecule to a multinational corporation.Its licensing arrange-
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.
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
plans to achieve 40–50 per cent of its turnover from international

operations by the year 2000.
Wockhardt’sstrategyforglobalisationincludesstrategicalliances,joint
ventures and even acquisitions in key markets. The company’s strongest
playgroundsarethemostdifficultand highlyregulatedmarketslikeEurope
and US, accounting for 80 per cent of Wockhardt’s total exports
currently. Wockhardt expects to achieve a turnover of Rs. 800 million
from its bulk drug exports to Europe alone in 1998–99. Some important
high lights of Wockhardt’s globalisation plans are:
 Wockhardt’s joint venture in China has received approval from the
government of China and it will be operational by the middle of 1999.
The company has already acquired the New Jersey-based Acumed Inc.,
whichwill help it enter the generic market in the US.
 It has recently acquired Wallis Laboratories of UK for $ 5 million,
which will help it gain market access to UK and key European markets.
Wallis with its $ 18 million turnover offers great strategic advantage
because of its committed set of buyers for its products like tesco,
unichem and ASDA etc.
 Wockhardt has also established a marketing joint venture in Egypt
to enter important markets in Africa and the Gulf in addition to
gaining access to the Egyptian market.
 The company is also shifting its emphasis from bulk drug exports to
marketing ofvalue-added formulations in select international markets
where product patents are not yet recognised. It has submitted over
200 product registration dossiers andreceived registrations for some
of the products in China, CIS and from some South Asian and
African countries.
Continuous focus on exports of select bulk actives like
dextropropoxyphene and captopril to industrialised markets with
strong IPR protection like Europe, US, and Japan.
 Entering the generic markets for off-patent, multi-source products
in the West by filing ANDAs ( Abbreviated New Drug Applications)
through joint ventures.
 Wockhardt has recently entered into a marketing alliance between
Denmark’s Ferring Labs and its recently acquired Wallis.
 Another winning move of Wockhardt is its recent joint venture with

Sidmak in the US to market 15 generic formulations of off-patent
drugs. The JV envisages a turnover of $ 100 million by 2003.
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.
The company is planning to harness the power of alliances even in

international arena. Once its new manufacturing facility gets the ap-
proval of international regulatory authorities in the US and European
Union, the Company is confident that exports will take off.
The JV with Bayer, apart from pushing Zydus into the top five league
inIndian pharma industry, willalso giveit ashot in the arm in increas-
ingexports.
In addition, the Company’s JV with BYK Gulden of Germany for
pantoprazolewill alsohelp boostits exports.
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.
 Marketing of branded generic formulations in select markets like

South East Asia, South Africa, Mauritius and the Russian Federation.
 Bidding for bulk business such as Red Cross tenders in African
countries.
The company has registrations in about 50 countries for exporting its
products. Ipca was the first Indian company to be registered in South
Africa. It has approvals in the industrialised first world countries in
North America and Europe only for bulk drugs.
Ipca also makes two products for a European company. The company is
planning for more contract-manufacturing arrangements.
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
already achieved a 13 per cent share of the world cephalosporin market

forbulkactives.
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.
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.
Many of these companies, whose approaches we have discussed here,

have achieved significant success in terms of export turnover and have
contributed to the domestic industry’s net exporter status. But
internationalisationofbusinessisadifferentballgame.Itrequiresworld
classskillsandcapabilities,relentlesspursuit,internationalcharacter,
respectfor intellectualproperty rights and a winning mindset. Above all
an openness to change.
Attracting alliances 211
13
ATTRACTING ALLIANCES
Executive Summary
Necessity, as in the case of invention, is the mother of

alliance too. The basic reason behind any alliance is a
strong need. The need for gaining access to products,
markets, technology, know-how and even capital.
Alliances between companies, whether they are from
different parts of the world or different ends of the
supply chain, are facts of life in business today.
‘Collaborate to compete’ and ‘Co-opetition’ have become
signs and symbols of business today.
The Indian pharmaceutical industry is no exception. From
being a highly protected environment until recently,
Indian industry, particularly the pharmaceutical industry,
seems to be in a tearing hurry to get into the alliance
mode. How else can any one explain the sudden increase in
alliances with both Indian and foreign companies?
The top ten Indian drug companies have forged into as
many as 63 alliances with leading international players
during the last three to four years. Out of these, just
two companies, Nicholas Piramal and Zydus, have entered
into 30 alliances as on date. Nicholas Piramal is clearly
dependent on its alliances for growth. The company expects

to achieve 50 per cent of its turnover from alliances
within two years.
Alliances do not guarantee success. An alliance is like
a marriage. The success of an alliance depends on how
competent, open, understanding and mutually dependent
each alliance partner is. In the absence of mutual respect
and importance, alliances are no more than fleeting
encounters, lasting only as long as it takes one partner
to establish a beachhead in a new market. Others may
become a prelude to a full merger. What is of paramount
importance in making an alliance successful is ‘being a
good partner’. It has become a key corporate asset.
In today’s global economy, a well-developed ability to
create and sustain fruitful collaborations is a significant
competitive advantage.
13 ATTRACTING ALLIANCES
What is the new trend in the world pharmaceutical industry?

Alliances. Strategicalliances ofvarious types, shapes, sizesand levels
are on the increase. Ernest Young, the international accounting firm,
reports that drug firms in the US alone had invested a whopping $ 1.3
billion in 152 alliances during 1994.
Bigger drug companies have been making deals with relatively small
research-intensive firms to get marketing rights for drugs thatthey are
discovering. Consider for example Ciba-Geigy’s (Novartis, now) tie up
with Oncogene to develop TGF-beta 3 for treating mouth and throat
lesions, and Berlex Laboratories’s deal with Chiron to manufacture
betaseron, which slows the progress of multiple sclerosis.
Why Are Alliances On The Increase?

The basic reason behind any alliance is to achieve synergy. To optimise
utilisation of resources. To do more with less. Here are nine important
reasons for this unprecedented increase in alliances or partnerships in
the pharmaceutical industry the world over.
1. Stagnant growth rates in many markets.
2. Slowing down of population growth rates (or even no-growth) in
manyindustrialised countries.
3. Continuous escalation of costs in manufacturing, marketing and
otherareas.
4. Huge costs of research and development.
5. A number of block-buster drugs that fueled the growth in the

previous decade coming off-patents.
6. Not enough potential block-buster drug candidates in the new
product pipeline of companies.
7. Shortening of product life cycles due to intense competition.
8. Increasing pressure from cost-containment programs in virtually
every market.
9. Eroding profit margins resulting from direct or indirect price
controls by various governments.
All these changes in the marketing environment of the global health
care industry are most likely to result in a greater harmony between
the needs of pharma producers in the developed world and the
developing world. Research-based pharma companies in the developed
world will be even more selective in setting up off-shore manufacturing
bases. There will be a sharp increase in the number of marketing
alliances and technology transfers between multinational companies
that do not want to manufacture locally and the local generic companies
that do not have product development capabilities.
Generic companies in developing countries will look for alliances that
help them in upgrading their technology base and to gain market access
for their pharmaceutical substances and generic formulations.
Alliances – The Indian Scenario

India has all the features to become one of the most attractive alliance
partners for prospective suitors. Consider these reasons:
 India has the potential to become one of the largest bulk drug
manufacturers in the world. This is crucial, as the biggest single
development in the late 1990s will be the growth of the generic
market in the advanced countries. Moreover, all these countries are
currently reeling under the pressure of rising health care costs and
cost-containment strategies of their respective governments. They
are likely to out-source off-patent generic drugs and formulations
from low cost producers that meet their quality.
 The key success factor in the generic market is low cost manufacturing
of bulk actives, drug intermediates and generic formulations. India

is strong on both counts.
 Further, India is a large market with a growing middle class that is
two hundred million large. This is almost the size of the population
of the whole of Europe. Increasing living standards of the urban
middle class and the ruralpopulation make it a potentially attractive
market, despite its present per capita consumption of $ 3 per annum,
which is the lowest in the world.
 A number of brand-name drugs are going off-patent in the next five
years. This will increase the opportunities for significant revenue
growth in the generic drug market.
 There is considerable pool of highly trained scientific personnel. The
cost of conducting research in India is considerably lower than in
developed countries like USA, Germany, France, UK and Japan.
Thecosts of conducting pre-clinical tests too, are extremelylow when
compared to the developed countries. A rough estimate puts the
cost ofconducting clinical trials at about eighty per cent lower than
in the US. India, thus can be very attractive to those MNCs that are
looking for out-sourcing part of their research and development
work.
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.
1. Changing customer demands

Customer demands in many markets are changing. Consider for
example that in the highly industrialised countries in Western Europe,
North America and in Japan, the cost-containment drives by the
respective governments are creating new opportunities for low cost
generic drugs on an unprecedented scale. Many of the research-based
pharmaceutical companies are making new strategic moves to meet
the challenges either by starting their own generic companies or by
allying with generic companies or by sourcing generic drugs from low
cost manufacturers in developing countries.
A number of leading Indian companies like Ranbaxy, Dr. Reddy’s
Laboratories, Lupin, Wockhardt, NPIL, Torrent and Cipla have been
forming multi-level alliances with well-known MNCs. The salient
featuresofthesealliancesare:
 Collaborative research inselect areas.
 Sourcing of off-patent generic drugs – bulk actives and formulations.
 Access to new products, markets and technology.
2. Sharing of R&D costs

The pharmaceutical industry is research-led. Research is very risky and
expensive. High financial stakes, escalating R&D costs and cut-throat
global competition have fueled a number of collaborations based on
research. Out-sourcing of research too is on the increase. The major
purpose ofthisisto optimiseresource utilisation,reducecostsandspeed
up the development process.
Take for example the three recent research-based alliances between
Indian pharma companies and their international partners:
 Ranbaxy’s joint venture with the American drug major – Eli Lilly
covers research, marketing and out-sourcing of generic formulations.
 Dr. Reddy’s collaboration with Novo Nordisk covers research and
development, licensing and manufacturing.
 Lupin’s alliance with Merck Generics involves market access and
out-sourcing of generic formulations.
 Wockhardt’s alliance with Sidmak covers market access, product

development and marketing.
 NPIL’s alliances are mainly in the area of marketing.
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.
4. Achieving economies of scale

Alliances can achieve the economies of scale needed to amortise
investment and improve profitability. Alliances between Ranbaxy and
Schein Pharma, Lupin’s alliance with Merck Generics are going to
achieve considerable economies of scale.
5. Enhance scope of economies

Companies can dramatically enlarge the scope of their operations
throughalliances.Considerfor examplethe multi-levelstrategic alliance
between Ranbaxy and Eli Lilly, that covers two 50:50 joint ventures,
collaborative research in select therapeutic areas, manufacturing and
marketing of generic drugs and formulations in the US, India and
South East Asia. Companies with well-defined strengths can, through
tie-upslike these,enter new business areasmore effectivelyand enhance
the scope of economies significantly.
Development-based alliances can generate a steady stream of product
enhancements in banded generics, generic drugs and formulations.
6. Converting barriers into gateways

However formidable the position of a company in its ‘home’ market
may be, the company may not be able to market its major or mature
products equally well in all the international markets. More so in the
case of companies in developing countries trying to enter the advanced
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.
7. Pre-empting the competitive threats

You can pre-empt and blunt the competitive threats by a time-tested
method through alliances. Remember? If you cannot beat them, join
them!
8. Using excess capacity

A small number of companies in India are preparing themselves for
entering into manufacturing alliances with some well known
multinational companies to soak up their excess capacities.
9. Minimising exit costs

Companies can use tie-ups, collaborations and alliances to minimise
thecosts of leaving a business sector by establishingan alliance with a
competitor and becoming a partner.
Ranbaxy
1. Alliance with Eli Lilly: Ranbaxy has entered into a major strategic
alliance in 1994, covering two 50:50 joint ventures with an
investment of $ 100 million, one each in the US and India.

One of the joint ventures will be a research and development and
manufacturing venture. The investment for this will be around
$ 60 million in the next three years. The R&D focus in this venture
will be to develop off-patent products, introduce line extensions of
Lilly and Ranbaxy products and bulk synthesis and dosage form
development of new products.
The other joint venture is for marketing products developed by the
research-based joint venture. The marketing joint venture will be
based in the US and will have an investment of $ 30 million.
Lilly will have access through this alliance to high quality, low cost
products which will help in disease management programs in the
US. They will also gain access to excellent product development as
well as research anddevelopment capabilities.
For Ranbaxy, these alliances will spearhead the company’s entry
into the US market. Recently these alliances have been scaled
down, both in terms of investment and scope, as Eli Lilly has
decided not to get in the generics business.
2. Alliance with Schein Laboratories: Ranbaxy has set up a 50:50 joint
venture with Schien Laboratories to market its generic version of
ranitidine in the US.
3. Alliance with HMS: In yet another strategic alliance, Ranbaxy has
tied up with HMS, a highly successful US generic firm to market
someexistinggenericformulationsofEliLilly,startingwithcefaclor.
This is because the planned entry into the generic market by the
Lilly-Ranbaxyalliance wascalled off.
4. Co-marketing with HMR in India: Ranbaxy has entered into a co-
marketing arrangement with HMR, India for marketing three of
HMR’s molecules – ofloxacin, anti-bacterial (HMR markets this
under the brand name tarivid and Ranbaxy markets under the
brand name zanocin), roxatidine, an anti-ulcerant (HMR markets
this under the brand name rotane) and fexofenadine, anti-allergic
(HMR markets this as allegra and Ranbaxy markets under the
brand name altiva). Ranbaxy, through this arrangement, gains
access to HMR’s new products.
5. Ranbaxy has entered into a co-marketing agreement with Cipla for

marketing carvediol, the new betablocker that is useful in treating
hypertension and CHF and cefpodoxime proxetil, an advanced third
generation oral cephalosporin. Ranbaxy developed cefpodoxime
whereas Cipla developed carvedilol. Ranbaxy will market carvedilol
as caslot and cefpodoxime as cepodem and Cipla will market these
as carloc and cefprox respectively. Both the companies will source
the bulk actives from each other.
6. Ranbaxy has very recently entered into a strategic alliance with its
rival – Glaxo in India for co-marketing an advanced dosage firm of
cephalexin. The new formulation has been developed by Ranbaxy
using proprietory controlled drug delivery system for which the
company has filed an international patent. The new formulation
allows a convenient twice-a-day dosage schedule as opposed to the
conventional 3 to 4 times a day.
Ranbaxy and Glaxo are two dominant players in the cephalexin
market with a 55 per cent market share between them. The
advantage of this tie-up is that the two market leaders can use their
marketing muscle to convert the market to twice-a-day schedule at
a faster rate. It is a win-win alliance as Ranbaxy and Glaxo are the
only two companies offering this delivery system.

1. Alliance with Novo Nordisk: DRF has also earned the distinction
of becoming the first Indian firm to license its discovery to a
multinational pharmaceutical company.
Novo Nordisk, the Denmark-based drug firm is a world leader in
insulin and diabetes care. The company also manufactures and
markets a number of other pharmaceutical products in a number
of countries. It is also the world’s largest producer of industrial
enzymes.
The present agreement of DRF with Novo Nordisk covers
compounds having potential for treatment of diabetes, obesity,
dyslipidemia and complications associated with these diseases. DRF
has already filed a few patents for NCEs discovered by it in the US.
Novo Nordisk would obtain exclusive license to develop and market
pharmaceutical products based on these compounds discovered and

patented by DRF.
DRF in return would receive up front and milestone payments
and royalties from Novo Nordisk. Though the products would be
developed and marketed exclusively by Novo Nordisk in the
international markets, they would be co-marketed in India by both
the partners.
Dr. Bruce Carter, the executive vice president, Health Care
Discovery and Development at Novo Nordisk, said about this
alliance, “the agreement with DRF is another important step in
our efforts to widen the scope of our research and to gain access to
compounds which may prove useful in the treatment of diabetes
and its complications”.
2. Cheminor Drugs, a group company of DRL has entered into an
equity based strategic alliance with the US-based Schein
Pharmaceutical Inc. to penetrate the North American generic
formulations market. Schein has invested 12.79 per cent of the
paid up equity in Cheminor, which has built a state-of-the-art
formulations plant essentially to cater to the North American and
European generic markets.
3. Cheminor Drugs has also entered into a marketing alliance with
PRI of the US to penetrate the North American market for off -
patent generic drugs and formulations.
4. DRL is entering into a marketing joint venture in Brazil with a
local partner – Biochimico. The investment is a modest $ 1 million
towards 50 per cent equity of the marketing firm. Biochimico is a $
40 million company in Brazil with access to distribution network.
DRL will export finished formulations to Brazil to be marketed by
the joint venture marketing company . The company expects a
turnover of $ 10 million in the second year.
5. DRL is also planning to invest $ 5 million in China for a
manufacturing tie-up. It may enter into an alliance with more than
one partner. Canada-based Rotan, which has a presence in the
Chinese market, is one potential partner. DRL is currently selling
two of its brands in China: cetrine, an anti-histamine brand and
enam, an anti-hypertensive.
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.
The joint venture brings together Genpharm’s extensive knowledge

of the Australian market, marketing expertise, field sales force,
and distribution net work and Cipla’s extensive product range,
research and development capability and technical expertise. While
Cipla will manufacture the formulations in India, Genpharm will
handle marketing of these.
The alliance will market over 20 products including antibiotics,
anti-ulcerants and cardiac drugs. The prescription drug market in
Australia is valued at about A$ 3 billion. Cipla’s manufacturing
facilities at Kurkumbh and Patalganga in India have already been
approved by Therapeutic Goods Administration (TGA) of Australia,
which is a prerequisite for undertaking exports to Australia.
7. The company has forged a strategic alliance with a $ 40 million
Irish company – Chanelle, for marketing human health and
veterinary products in key European markets. This alliance will
cover major markets like the UK, France, Holland among others
and would generate around $ 5 million in sales once the product
registrations are in place. Major therapeutic segments covered in
phase oneinclude cardiovascular drugs, anti-virals,antibiotics and
anti-helmintics.
Ciplawill manufacturethese productsat itsfacilities inIndia while
the overseas partner will handle marketing. Three of the company’s
five manufacturing facilities in India have been certified by the UK
MCA, which is a pre-requisite for exporting to European countries.
This alliance may start a green field manufacturing facility abroad.
The investment envisaged is in the range of $ 3–5 million.
8. Cipla has entered with a strategic alliance with the UK- based Neo
Labs for marketing generic formulations in Europe. Cipla will
receive royalty on the sale of the products marketed by Neo Lab.
9. Cipla has also entered into a marketing alliance with Cipharm to
penetrate the African markets.
10. Cipla has entered into a strategic alliance with Ranbaxy to jointly
market a basket of drugs in India. This alliance combines the
intellectual capital of thetwo companiesleading toconsolidation of
market share and the creation of sustainable competitive advantage
in marketing.
As a first step the two companies are launching two molecules

jointly – carvedilol, the new anti-hypertensive that is very useful
in congestive heart failure, and cefpodoxime proxetil, an advanced
third generation oral cephalosporin. Cipla has developed carvedilol
and Ranbaxy has developed cefpodoxime.
Ranbaxy will market carvedilol under the brand name caslot and
cefpodoxime as cepodem whereas Cipla will market these under
the brand names carloc and cefprox respectively. The companies
willbuythebulk drugsfromeachother. ThisisCipla’sfirststrategic
tie-up in the domestic market.
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
in Indiais small,the thrustis onoverseas marketing.Merck Generics

withits hospitalfocusbringssynergytothis alliance.
2. Lupin and MOVA: Lupin Laboratories and Puerto Rico-based MOVA
Pharmaceutical Corporation have formed a 50:50 joint venture firm
– CEPH to manufacture and market multi-source oral
cephalosporins in the United States.
This tie-up is a major step in Lupin’s game plan to emerge as a
dominant integrated player in the $ 10 billion-large world
cephalosporin market.
Lupin’s recently acquired oral-cephalosporins plant in Puerto Rico
from Eli Lilly has been transferred to CEPH. Lupin will export the
bulk actives from its US FDA-approved plants in India to CEPH,
which will formulate these into finished dosage forms for marketing
in the US. In addition, CEPH will continue to manufacture products
forEliLillyforfouryears.
Lupin willexport cefaclorand cephalexinto startwith; subsequently
cefadroxyl will also be exported. CEPH will target two business
segments within the cephalosporins market:
A. Multi-source cephalosporins generic market.
B. Contract manufacturing segment.
3. Lupin has very recently finalised a deal to takeover a pharma company
in Ireland.This beach–headwill help Lupin gain access tothe rapidly
growing off-patent generic markets in European Union.
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.
Wockhardt plans to export 50 per cent of its sales globally through

these alliances by 2005.
The company’s strategy is to manufacture these products in bulk in
India and supply them to its partners abroad, where these
formulations will be packed and marketed.
2. Wockhardt and Rhein Biotek, gmbh: Wockhardt entered into a
joint venture with the German firm Rhein Biotek, gmbh, for
developing, manufacturing and marketing biotechnology-based
products in India. The JV will launch its hepatitis-B vaccine by July
1999 and recombinant erythropoietin by the end of 1999.
3. Wockhardt and Proctor & Gamble: Wockhardt and P&G have
recently signed a marketing agreement for promoting some of the
OTC brands of P&G like vicks inhaler, vicks sinex and whisper
sanitary napkins to the medical profession. The strategy behind this
is to create a positive endorsement by the medical profession to the
OTC brands that are advertised directly to the consumers.
Wockhardt will detail these brands to about 30,000 doctors through
the 140-strong field force of its Mother & Child Care division. P&G
will handle sales and distribution. Proctor & Gamble seems to be
on the look-out for a partner for introducing its ethical range of
products in India. Wockhardt, through thisalliance islooking (apart
from profitability), for winning the confidence of P&G and gaining
access to the company’s ethical range of products when it introduces
them in India.
4. Wockhardt has recently entered into licencing agreements with two
Japanese firms: Histamitsu and Daichi to facilitate exclusive
marketing rights of their products in the country. The products
covered under these agreements are in therapeutic segments of
Wockhardt’s interest. One is in the haemostatics category, which
will be marketed by the Mother & Child Care division and the
other is in the topical pain management category, a segment where
Wockhardt has considerable interest. Daichi is one of Japan’s top
threedrug companies,whereas Histamitsu is astrong playerin topical
pain management. Wockhardt will pay a royalty to the Japanese
firms, besides sourcing the active ingredients from them.
5. Wockhardt and Sidmak Inc.: Wockhardt has recently tied up with
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.
Nicholas Piramal Industries limited (NPIL)

1. The Piramal group has set up a joint venture to manufacture and
market a wide range of opthalmic products of Allergan of the US
in India. This collaboration has enabled the production and
marketing of hydration fluids, intra-ocular lenses and
pharmaceutical formulations for eye care.
2. NPIL has set up another joint venture with Scholl of the United
Kingdom for manufacturing and marketing their foot care products
inIndia.
3. In yet another joint venture with the Baroda-based Ambalal
Sarabhai Enterprises, the Piramal group will market select branded
generic formulations in orthopaedic and pain management
segments. This joint venture company Sarabhai Piramal has recently
entered into a marketing alliance with the Israel-based Teva Pharma
for manufacturing and marketing of their anti-cancer products in
India.
4. The group has entered into a 50:50 joint venture with the Seattle-
based Cytran Inc. for developing molecules to be marketed in India
and select international markets in Asia and the Middle East.
5. NPIL has entered into the over-the-counter pharmaceutical market
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
research centre has vast experience and a strong knowledge base,

particularly in phytochemistry. The JV partner will provide a ready
and steady source of inputs for its new research thrust area from its
10-acre herbal culture farm at Bangalore.
12. Nicholas Piramal is embarking on a very ambitious health care plan
of acquiringcontrolofachainofpathologicallabsinDelhi,Calcutta,
Mumbai, Bangalore and Hyderabad. The company is planning to
acquirean 80percentstakeinthe equity. Itis planningfor achieving
a ROCE (return on capital employed) of 25 per cent from these
labs.
13. The company is also setting up a joint venture company with upto
three foreign partners forconducting PhaseIII clinical trials (drug
trials on human volunteers) for pharmaceutical companies. Nicholas
Piramal will hold 50 per cent stake in the venture. The JV will also
get into ambulatory care and offer insurance and health care products
for corporatesand individuals.
14. Nicholas Piramal is also finalising a co-marketing arrangement,
wherein Nicholas Piramal will market formulations of molecules
developed by Hoechst. Nicholas will market these under its own
brand names. The various payment terms available to companies
going for such arrangements are transfer pricing, manufacturing
arrangements, brand-user agreements and technical-service-cum-
royalty payments. Both HMR and Nicholas Piramal may opt for
transfer pricing. The co-marketing arrangement is expected to take
off from April 1999. In thefirst yearNicholas Piramalwill co-market
two productseach in anti-diabetic and anti-infective segments.
In the anti-diabetic segment HMR will market their human insulin
as insuman, while Nicholas Piramal will market the same molecule
under their own brand name. The second product in the anti-diabetic
segment is HMR’s researchproduct – glimipride, an oral anti-diabetic
drug. HMR will market this as amaryl and Nicholas Piramal will
market under its own brand name. The market for anti-diabetic drugs
(both injectableand oralsolid dosageforms) isestimated tobe around
Rs. 2.2billion andisgrowingat 20per centperyear.Nicholas Piramal
has identified ‘diabetes’asathrustarea.It alreadyhasapresencein
the oral anti-diabetic market with its euglucon.
In the anti-infectives segment Nicholas Piramal will market two

products – ofloxacin and roxithromycin under its own brand names.
15. Nicholas Piramal has already entered into another collaborative
arrangement with the German drug major – HMR in the area of
research and development, shortly after the acquisition of Hoechst’s
researchcenterin India.
16. Nicholas Piramal has signed a joint venture agreement with Swiss-
based Siegfried Pharma Limited, a $ 400 million pharmaceutical
company – for development and manufacture of certain formulations
going off-patent after the year 2000. Thisis thefirst among a series
of joint ventures lined up with European companies, who are eyeing
the fast expanding global generic markets.
Siegfried will market these off-patent formulations manufactured
by Nicholas Piramal in Europe. The JV will identify a marketing
arm for the US. The costs and profits will be shared based on the
marketing performance in both the continents, equally by the
partners.
Both the companies have identified four formulations going
off-patent between the year 2000 and 2003 and decided to file
ANDAs (Abbreviated New Drug Applications) jointly, soon after
the expiry of patents.
17. Nicholas Piramal is about to sign a memorandum, involving total
technology transfer of a new anti-malarial compound (80/53)
developed by CSIR to combat chloroquine-resistant malaria. The
company would target South East Asian markets for this new drug.
18. Boots Health Care International, the £ 300 million British pharma
major is in talks with Nicholas Piramal India Ltd (NPIL) for
marketing a range of 13 products from the Indian company’s
ayurveda stable. These products are developed at NPIL’s Quest
Institute of Life Sciences, the research centre acquired by the
company from Hoechst Marrion Roussel.
Boots intends to brand these products using its own name for
marketing in Europe through the group’s chain of ‘Boots – The
Chemist’stores.Ifthisdealmaterialises,itwillprobablybethefirst
instance of an international marketing network picking up ayurvedic
pharma products for sale.
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.
Zydus (Cadila Health Care)

1. Zydus has entered into a marketing alliance with Centeon of the
US, for marketing a wide range of plasma protein therapies covering
anti-haemophilic factors, wound healing agents, immunoglobulins
and plasma substitutes in India.
2. Indo-Pharma (Indon), a group company of Zydus, has also entered
into a technical alliance with Bio Sidus of Argentina, in the area of
biotechnology and genetic engineering. Indo Pharma will be
marketing the only thermo-stable erythropoietin manufactured by
Bio Sidus in India under the brand name zyrop in India.
3. Zydus is also setting up a 51:49 joint venture with the German

chemicals and health care major – Bayer. The new joint venture
company, Bayer–Zydus will be marketing the existing pharmaceutical
brands of Bayer and select brands of Zydus in India. There will also
be co-marketing arrangements between Bayer and Zydus for new
products and the export of Zydus products to Bayer AG and
subsidiaries. The joint venture would also consider possibilities of
co-operation in R&D and for training of Zydus personnel in R&D.
Very recently in May 1999, Bayer and Zydus have decided to call off
the proposed marketing joint venture. They came to the conclusion
that their mutual interests would be better served by not entering
into the marketing joint venture. Other options for cooperation
are under evaluation.
4. Zydus has recently entered into another joint venture for
manufacturing recombinant vaccine for hepatitis-B with South
Korea’s leading pharmaceutical company, Korean Green Cross
Corporation (KGCC).
5. The group is also planning a tie-up with South Korea’s Hanmi
Pharma for manufacturing and marketing cyclosporin, an essential
drug for preventing organ rejection.
6. Another strategic alliance that is on the cards is the one with San
carloofItalyfor theproduction ofcalcitonin injectionsfortreating
osteoporosis.
7. ZydusPath Line,the diagnosticdivision, hasentered intoa marketing
alliance with Anda Biologicals of Austria for marketing their Elisa
kits for diagnosing TB.
8. Zydus Path Line has also entered into another alliance with the US
based Chembio Diagnostic Systems for marketing their single step
rapid immunodiagnostic test for hepatitis-B.
9. In another strategic alliance with Germany’s Diasys, Zydus Path Line
has started marketing liquid biochemistry reagents in India.
10. Zydus–Cadila Health Care division has entered into a co-marketing
arrangement with Abbott for marketing two research molecules of
Abbott’s terazosin and clarithromycin in India under the brand
names of olyster and clarimec respectively.
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.
2. Ipca has entered into a MOU (memorandum of understanding) with

SmithKline Beecham for manufacturing some unbranded dosage
forms. The company is actively pursuing alliances in this area.
3. Ipca has also been supplying certain drug intermediates to Teva of
Israel, which churns out sales of about Rs. 60 million per year.
4. Ipca has entered into an alliance with Tillomed, a British generic
manufacturer for supplying atenolol tablets from fiscal 99.
5. Ipca will also be supplying Rs. 50–60 million worth of PHPA and
other drugs to Zeneca of UK in fiscal 99.
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
support towards upgrading technology and will supply enzymes to

Synpac under this agreement.
5. Kopran is 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 United Arab Emirates
(UAE). The company will manufacture and market a range of life
savingdrugsincludingantibiotics,anti-ulcerantsandcardiovasculars.
The company would serve the markets in the Gulf and the Middle
East inthe firstfour yearsbefore going global in the fifth year. The
company would be the first in the region to manufacture active
ingredients and innovative dosage forms.
The company is planning two more alliances – one in West Asia and
another in the US.
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.
Outlook for Strategic Alliances

Alliances are here to stay. Just the ten leading Indian drug companies
have entered into as many as 71 alliances during the last three to four
years.Mostofthesearemarketingalliancestogainaccesstonewproducts.
Many Indian companies are pursuing a very aggressive strategy to
introduce new products before the product patent regime arrives. Some
alliances cover manufacturing, technology transfer and collaborative
research. A few of them are even equity-based.
Two companies – Nicholas Piramal and Zydus, lead the pack in forging
alliances with a total of 30 between them. Nicholas is clearly dependent

on alliances for its growth. Already alliances account for about 35 per
cent of its turnover. The company expects this to grow to 50 per cent in
the nexttwo years.
About a third of these seventy one alliances focus on gaining market
access.Cipla hasenteredintosixallianceswithin thelast threeyears to
penetrate the overseas markets via the joint venture route with local
partners.
Another major focus of at least a fifth of these alliances is the
penetrationof thedifficult toenter buthighly lucrative North American
generic market for off-patent drugs. Companies like Ranbaxy,
Dr. Reddy’s, Lupin, Wockhardt and Sun Pharma are actively pursuing
this. Ranbaxy is clearly ahead of the rest and is expecting to achieve at
least $150 million from its North American strategic alliances alone
within the next three years. Lupin is also well placed to make a mark
with its recent alliance with MOVA in the US.
Whatever be the objectives and the duration of these alliances, being a
good partner has become a key corporate asset. How to become a good
partner may be a matter of pure and simple common sense. But the
only thing common about common sense these days is that it has
become so uncommon. It is, therefore, worth reiterating what Rosabeth
Moss Kanter emphasised in her HBR article sometime ago as the eight
‘I’sfor anenduring relationship.
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
Business, the world over, is moving into a new era, where

competitive advantage comes only from intellectual capital.
Generations of business and accounting students have
been taught that value lies in ‘assets’. Assets come in
four forms – three of them (current, fixed and investments)
are precise and measurable, and the fourth (intangible
assets) is imprecise and essentially unmeasurable until
it is sold.
All this is changing rather rapidly. It is increasingly
becoming obvious that the new source of wealth is not
material – it is information, knowledge applied to work
to create wealth.
How fixed are fixed assets really? Gary Hamel, a professor
at London School of Business has argued that an asset is
really ‘only a perception of an opportunity about which,
a majority of people have agreed!’
Some observers have even suggested that intellectual
capital actually subsumes what we usually think of as

fixed assets, which on closer observation prove to be
less fixed, than we thought.
Whatever viewpoint you may agree with, it is apparent
that the value of intellectual capital in the world’s
business is immense. Consider these facts:
Charles Handy of London Business School has estimated
that these intellectual assets may typically be worth
three or four times a company’s tangible book value.
 Morgan Stanley’s world index estimates that the average
value of companies on the world’s stock exchanges is
two times the book value.
 In the United States, corporate market value typically
ranges from two to nine times the book value.
 Closer home in India, Price Waterhouse Coopers have
done an indicative analysis of listed Indian companies
with 1997-98 turnover of more than Rs. 1 billion. The
study has identified 25 companies which, even in today’s
depressed markets, command a market value which is
more than 4.5 times the book value of tangible assets.
Alfred P. Sloan, the legendary chairman of General Motors
realised the intrinsic value and true worth of intellectual
capital long before any one could even visualise it for
he said:
“Take away my factories, my money and assets. But give
me back my people and my organisation. In five years, I
will have all of them back”.
That should be convincing enough even for the sceptics on
the real power and value of intellectual capital.
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”.
In the pharmaceutical industry, leveraging of intellectual capital is even

more important. A few years ago a huge pharmaceutical entity (Novartis)
was created by the merger of two Swiss-based pharmaceutical giants –
Sandoz and Ciba, mainly on the platform of intellectual capital: both
companies wanted to benefit from the combined pipeline of new drugs
under research once they came together.
Three Essential Elements

Intellectual capital has three essential elements. These are:
1. Human Capital is the combined knowledge, skill, innovative
capabilities and employee competence. It also includes the
company’s values, culture, and philosophy. The company cannot
own human capital.
2. Structural Capital includes the hardware, software, customer
databases, patents, trademarks and infrastructure – in other words
everything left at the office when employees go home.
3. Customer Capital is essentially the relationships built with the key
customer groups.
Intellectual Capital – Future implications

A few years from now, investors may look for things like a customer
satisfaction index and employee satisfaction index. Steven M.H.
Wallman, the then commissioner of the Securities & Exchange
Commission (SEC), at a symposium in 1996 at Washington predicted
that intangible assets and their use would become the heart of annual
reports and financial statements, the way they are today, would be added
as appendices.
Furthermore, a special committee on financial reporting formed by
the American Institute of Certified Public Accountants (AICPA) to
address a growing concern about the relevance of orthodox financial
reporting and disclosure to the modern economy, in its report suggested
these improvements:
1. The provision of information about corporate plans, opportunities,
risks and uncertainties.
2. Better alignment of external reporting systems with internal

management control and information systems.
3. Enhanced discussion of non-financial performance factors that
create long term value such as non-financial performance data, have
value relevance and can be effectively used by analysts as leading
indicators of future financial performance.
Four Pillars of Intellectual Capital

1. Employee satisfaction index: There is a strong correlation between
market capitalisation and employee satisfaction. Human resource
development (HRD) policies and practices in all relevant areas like
role clarity, goal clarity, performance review mechanisms,
compensation systems, training and development initiatives,
transparent transactions with employees and team building activities
are essential to create a performing organisation. In the ultimate
analysis, morale can be high where performance is high and
employees enjoy what they do. Organisations should therefore,
constantly benchmark their practices against the best-in-class
companies and monitor their progress. Periodical employee surveys
on the following areas are very useful to achieve high levels of
employee satisfaction:
 Average years of service
 Employee turnover
 Willingness to take up new projects
 Willingness to be relocated
 Time and resources spent in training and development.
2. Customer satisfaction Index: Customer satisfaction leads to customer
loyalty. It is your contented customers who will drive your market
shares up. In the ethical drug business, prescription monitoring is
one sure way of measuring customer satisfaction. The number and
frequency of prescriptions and even the number of products
prescribed can measure the relative loyalty levels of customers.
3. Share of talent: In the new millenium, knowledge is the crucial
determinant factor of success in the market place. Competition is
not just between products and markets. Competition is essentially

between the talent of one company versus others. Acquiring and
retaining talent, therefore, is of paramount importance. Success
strategies for acquiring and nurturing talent include:
 Drawing up a list of the best available talent in the industry
 Acquiring them
 Monitoring the response to job advertisements
 Involving the top management in hiring
 Developing and building internal commitment through
empowerment.
4. Capturing organisational knowledge: An organisation’s knowledge
is the sum of the knowledge of all the employees. But, when people
leave companies, they usually take away whatever they have learnt
with them. This vital loss is preventable. While you cannot capture
whatever they have learnt entirely, you can capture a substantial
part of it. The two strategies to prevent this loss are:
A. Ensure that your employees document almost everything that
they have learned while working with the company.
B. Make sure that people work in teams that are mutually
supportive so that learning is always shared among the employees.
The Only Source

What are the factors that are responsible for creating a competitive
advantage? Some thing which is not freely available, not easily
substitutable and cannot be leveraged across the business is of
competitive advantage.
Capital, which has been historically a scarce commodity, is no longer
scarce. Today as markets have globalised and become more efficient, it
is relatively easy for companies around the world to access cash at
relatively inexpensive rates from anywhere on the globe. Its access is
not restricted any more with more and more countries liberalising their
economies.
Customer relationships and employee commitment are not easily

replicable. One cannot leverage them across the businesses. In such a
scenario, what is the only non-replicable, unique, proprietary and
sustainable competitive advantage your business has? Intellectual capital
of course!
How Successful Companies Build Intellectual Capital

Intellectual capital in the pharmaceutical industry comprises intangible
assets like brand equity, FDA approvals, trademarks, patents, physician
relationships, relationships across the supply chain, relationships with
alliance partners, relationships with original patent holders and
employee competence and commitment.
Research overseas has shown that customer loyalty and employee
commitment are perhaps two of the most important intangible assets.
A few years from now, investors may look for things like a customer
satisfaction index and employee satisfaction index.
Here is how successful companies constantly work on building and
strengthening their intellectual capital base and enhance the value of
their intangible assets:
1. Customer Relationships: Pharmaceutical companies monitor
customer contacts product category-wise and prescriber segment-
wise. They track customer loyalty and customer conversion through
continuous prescription monitoring.
They involve their key customers like opinion makers and trend-
setters in identifying new product opportunities and even
formulating their product strategies to gain greater internal
commitment.
They build wide distribution networks of stockists and retailers and
manage them effectively to ensure continuous availability of their
products at the right time, at the right place and at the right price.
2. Relationships with Alliance-Partners: The key to success in any
alliance is the ability to build a win-win relationship based on mutual
trust and respect for each other’s competence and contribution.
Ability to build and manage a strategic alliance is an increasingly
important intangible asset. When technology changes (it is changing
rapidly), you automatically get the benefits of change through

alliances, if you manage them effectively. Further, if a multinational
is looking for a partner in India, it would obviously choose a
company with a strong base of intellectual capital like good
customer franchise, wide distribution network, product and process
developmental capabilities and employee competence.
3. Brand Equity: Successful pharmaceutical companies review the
health of their brands internally and take corrective action as
required. They actively pursue an aggressive strategy of brand
building. They track brand preferences and prescription switches
through continuous prescription monitoring. Based on this, they
formulate customer conversion and consolidation strategies
accordingly.
4. Research and Development: They step up the R&D investment to
create world class infrastructure for doing research and development
work. They put up a competent and experienced research team
focusing on all key aspects of research like process development,
formulation development, NDDS, biotechnology and even drug
discovery (analogue research, mainly). They file for international
patents for the molecules developed and look for strategic alliances
for sharing the further developmental work, product registration
and marketing across all key markets in the world.
5. Management Processes: Winning companies are constantly looking
for improvement in their management processes. They reorganise
their operations around customer segments to be more competitive.
6. Information Technology: Highly successful pharmaceutical
companies like Ranbaxy, Dr. Reddy’s Labs and Nicholas Piramal
are investing in information technology. Ranbaxy in particular is
setting the pace in creating an infotech culture within the company.
The company believes that there is more to infotech than mere
investment in hardware and software. Building an infotech culture
involves, apart from hardware and software, top manage-
ment commitment to training and development and change
management. It is investing about one per cent of its sales in
information technology and is convinced that infotech is an enabler
of operational effectiveness.
7. People: Progressive companies realise that people are their most

important asset as they create and enhance the value of their
intellectual capital. Their top managements spend time in
recruitment, training and development of managers. They believe
that increasing levels of productivity is a direct outcome of increased
hours spent on training. They also track training per employee.
Some of them even put the value of their employees (Infosys, for
example) on their balance sheet. There are others who track the
education levels of their employees and the value added per
employee.
How Indian Pharma Companies are Building it?

Table 14.1 illustrates how the twelve fast growing Indian pharma
companies, who are preparing themselves aggressively to compete in
the post-GATT era are building their intellectual capital bases. This
qualitative assessment of ‘High, Medium, Low’ is essentially subjective
as it is based on the perceptions communicated during informal
discussions of various participants in the industry, including some well
informed managers and employees of the respective companies. This
is also supported by secondary data like their compensation packages,
published reports, press releases interviews with key managers in the
media, manpower, turnover rates and training and development
activities etc. They are at best indicative of the relative emphasis on
these parameters and the direction in which they are progressing.
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
Intellectual capital –how Indian pharma companies are building it?
Company Customer Relation- Brand Research Manage- Inform- People

relationships with equity development ation
ships alliance- ment processes techn-
partners ology
Ranbaxy Medium Medium High High High Very High High

Dr. Reddy’s High High High High Medium Medium Medium
Labs
Nicholas Medium High Low Medium Medium Medium Medium

Piramal
Cipla High Medium High Medium High Medium Low
Wockhardt Low Medium Medium High Medium
Lupin Medium Medium High Medium Medium Medium Low
Zydus Medium High High Medium Medium Medium Medium
Sun Pharma High Low* High Medium Low Medium Low
Torrent High Medium High Medium Medium Medium Low
Kopran Low to Medium Low to Low to Low Low Low
Medium Medium Medium
Ipca Low to Low High Low Low Low Low
Medium
Orchid # Low to Low Low Low to Low to Low Low
Medium Medium Medium
* Sun Pharma virtually has no strategic alliances as on date

# Orchid very recently has entered the formulation business. The company has very good franchise with its buyers of bulk actives in
international markets
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!
Operational excellence 249
15
OPERATIONAL EXCELLENCE
Executive Summary
Formulating winning strategies is one thing. Executing

them effectively is quite another. It calls for managing
the present effectively and efficiently. While
considerably less glamorous, at least conceptually,
implementation is at the heart of the strategy. Without
it nothing gets accomplished.
Strategic brilliance or operational excellence is as
mindless a question as whether the chicken or the egg
comes first? Operational excellence translates strategies
into action plans as effectively as they are conceived.
It is the ‘doing’ part, converting the ‘thinking’ into
doing. In the ultimate analysis, a strategy is only as
good as its implementation.
Let us consider for a moment the strategic approaches of
some of the leading companies in the Indian pharmaceutical
industry, which are planning to compete effectively in
the post-GATT era. The key elements of strategy are
similar because the problems and prospects that these
companies are going to face are similar. There are however,
differences in the relative emphasis each company gives
to these various elements. When the basic approaches are
so similar, what is the critical success factor that is

going to make the difference between winners and
spectators? Operational excellence, of course!
Ranbaxy and Cipla stand out, as far as their operational
excellence is concerned. Both the companies are in the
top bracket in the domestic pharmaceutical industry.
Both have very good systems in place. Other leading
pharma companies too, have been planning aggressively to
improve their operational efficiencies and effectiveness.
The important factors to consider in achieving operational
excellence are:
 Building core competencies.
 Introducing performance management systems based on
positive reinforcement.
 Managing costs strategically.
 Improving productivity in all functional areas.
15 OPERATIONAL EXCELLENCE
Formulatingwinningcorporate strategies with detailed functional

and resource plans is one thing: implementing them is quite another.
Specific actions required for successful implementation will depend on
overall organisational factorssuch asstructure, the appropriateness of
the company’s management systems, company culture, organisational
vitality and leadership. These “contextual” variables, of course can be
changed in the medium to long term, but in the short term they are
relatively fixed. Like competence and resources, these organisational
factors form the “back drops” within which short-term plans have to
be implemented.
Implementation in the short term therefore, boils down to managing
the present efficiently and effectively. It calls for actions needed to
carry through today’s plans, nominating those responsible for carry-
ing out the actions and setting timetables for their successful comple-
tion.
Unless an organisation manages its present effectively, it cannot have
a future. Implementation, therefore, is at the heart of the strategy.
Without it, nothing is accomplished. It tends to be grossly underesti-
mated as a part of theoverall strategic process. Specifying the discrete
actions needed to implement a strategic program in a segment is a
time-consuming and rigorous undertaking. Being explicit about what
has to be done, by whom and by what date is an important discipline.
It is a large step on the way to accomplishing the visions which other-
wise may remain largely cerebral, restricted to planning documents
filed away until the next planning cycle.
Operational excellence as the name implies is about excelling in all

functional areas of the firm. Since it isthe criticaldeterminant factor
for success, the organisation has to ensure that it improves executional
capabilitiesofallitsstrategicactionplans.
How do Successful Companies Achieve Operational

Excellence?
1. Revamp their processes to prevent defects, rework and reinspection
and thus reduce costs.
2. Analyse their operations to root out unnecessary work that does
not add any value in the eyes of the customer.
3. Benchmark other companies to find a better way of doing things
and then implement and spread the best practices across the
organisation.
4. Eliminate redundant administrative functions by setting up centres
of excellence which perform repetitive, high volume, transactional
functions acrossthe organisation.
5. Go against the conventional wisdom of ‘don’t fix it if ain’t broke’
and fix it beforeit breaksproactively byfollowing theprinciples of
‘Kaizen’ (continuous improvement).
How to Achieve Operational Excellence

Howdoes anorganisation excelat operations?The firststep isto achieve
a clarity of goals and roles. Thesecond step is to introduce appropriate
performance measurement systems and review the progress periodically
to ensure course correction when required. There are eight important
steps to achieve superior levels of implementation. Any organisation
that canfollow theselogical steps can excel in itsoperations. Here are
the key elements of a strategy to achieve operational excellence:
A. Productivity improvement through constant rationalisation of
processes
B.Revitalisation ofstrategies toaccelerate growth
C. Strategic cost management
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
process rationalisation and relentless pursuit of productivity

improvement.”
C. Strategic Cost Management (SCM)

Strategic cost management can probably be defined better by
articulating what it is not. Strategic cost management is not cost
reduction.Whilecuttingallavoidablecostsisvitalfortheorganisation’s
health, itis important to understandthe limitationsof acost reduction
focus,whichwewilldiscusslater.
Table 15.1
Strategic cost management approach
Key questions Strategic cost management

approach
1. What is the most useful way A. In terms of the various stages of to
analysecosts? the overall value chain of which the
firmisapart.
B. Has a strong external focus.
2. What is the objective of cost A. Three basic objectives: score keep-

analysis? ing, attention directing and problem
solving.
B. Inaddition to these,thedesign of cost
management systems changes dramati-
cally dependingon the basicstrategic po-
sitioningofthe firm: eitherundera cost
leadership strategy or a product dif-
ferentiationstrategy.
3. How should we try to Cost is a function of strategic choices
understand cost behaviour? about:
A. The structure of how to compete .
B. Managerial skills in executing the
strategic choices: in terms of structural
costdriversandexecutional costdrivers.
Source: Adapted from the book: ‘Strategic cost Management – The new tool for competitive advantage’by
John K. Shank and Vijay Govindarajan, The Free Press, New York
Cost analysis traditionally is viewed as the process of assessing

the financial impact of alternative managerial decisions. Strategic
Cost Management (SCM) is cost analysis in a broader context, where
the strategic elements become more conscious, explicit and
formal. Strategic cost management uses cost data to develop
superior strategiesto gainsustainable competitiveadvantage. It blends
financial analysis with three major elements of strategic planning –
value chain analysis, strategic positioning analysis and cost
driver analysis. A broad overview of strategic cost management
approach and what it stands for is presented for in Table 15.1.
Cut Costs, Not Corners!

Whatever financial strategies you decide to follow, the basic objective
remains the same for any business. The bottom line needs to be strength-
ened. There are no two opinions about it. Many change programs
mainly aim to improve profitability by reducing costs. In spite of the
noble-sounding names that companies give to these programs like –
Mission 2000, Top Three by 2003, Fast Track etc. – the basic driver is
too often the need to reduce costs, mainly personnel costs.
Corporate dieticians in India and elsewhere in the world prescribe cost
cutting when profitabilityis hit. The same people tend to ignore this as
enthusiasm overpowers these very tenets in the growth phase.
The focus on cost reduction will tend to cripple most change programs
fromthe start.This isbecause excessivecosts are normally theresult of
poorly operatingprocesses. Ifyou reducestaff withoutfixing processes,
you are likely to find that the remaining staff will be unable to support
the workload. Consequently, servicelevel fallsand costsgradually drift
up again. It is therefore, important to target process improvement first
and cost reduction next. If you don’t completely agree, consider this:
According to a study by Mercer Management Consulting in the United
States, over the past decade, fewer than 20 per cent of cost cutters
were subsequently able to get their companies back on a profitable
growth track. They point out that, “traditional cost cutting tools,
including benchmarking and process re-engineering provide at best, a
one-time snap shot of the organisation and do not take into account
the long term value that the investment creates”.
Cost consciousness should be built into the strategic framework. The

key question one needs to ask when cutting costs is what approach
should be used? The mistake most companies makes is to use the lawn
mower approach, without taking into account what it means for their
competitive position. Do not sub-optimise in the name of cost cutting.
Cost reduction has to be a strategic process and should not be dealt
with in isolation. Cut costs by all means, but not corners!
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
A Vital Tool to Achieve Operational Excellence

“What gets done is only what gets measured” is a frequently quoted
homily. You cannot manage what you cannot measure. Knowing where
you want to go and where you are is crucial to achieve any objective, let
alone operational excellence. Without the right measures in place,
everything from strategic planning to local operational improvement
becomes unreliable at best and impossible at worst. Performance
measures provide a means of tracking position. They enable managers
to monitor the progress on their journey to excellence.
Andy Neely in his thoroughly researched and insightful book,
‘Measuring Business Performance: Why, What and How’ suggests that
all reasons as to why performance measurement is a must, fall into
four generic categories. He calls these as 4 CPs:
1. Check Position
2. Communicate Position
3. Confirm Position
4. Compel Progress
Measurement in itself will not improve performance. The impact will
be observed when people do things more efficiently and effectively.
Measurement can compel progress by communicating priorities.
Measurement is very often linked to a reward. Further, measures makes
progress explicit. The very act of measuring sends a signal to members
of the organisation, which says: this is something we care about.
Remember the not-so-old adage: ‘you get what you inspect, not what
youexpect!’
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:
1. The financial perspective: how do we look to our shareholders?

2. The customer perspective: how do our customers see us?
3. The internal perspective: what must we excel at?
4. The innovation and learning perspective: how can we continue to
innovate and create value?
Performance Framework for Operations

Mark Brown, a US-based consultant in his book, ‘Keeping the Score:
Using the right metrics to drive world class performance’ suggests that
processes are evaluated in terms of input, process, output and outcome
measures. It facilitatesa pinpointed analysis thatcan identifywhere an
intervention is needed:
A. Input measures focus on issues such as quality and quantity of input.
B. Process measures focus on cycle times and process parameters.
C. Output measures monitor quality and dependability of output.
D. Outcome measures track the impact of the output.
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).
Table 15.2
Four phases of benchmarking process
Phase Issues to be addressed

1. Planning A. What will be benchmarked?
B. Who will be the benchmark companies?
C. How will the data be collected?
2.Analysis A. Are the benchmarking companies better?
B. If so, by how much?
C. Why are they better?
D. How can we apply what we have learned to our business?
3.Integration A. Have the results been accepted by management?
B. Do goals have to be changed or modified based on the
results?
C. Have these new goals been communicated to all affected
parties?
4. Action A. Have the steps required to achieve the desired goals been
identified?
B.Istheprocessbeingtracked?
C. Is there a plan for recalibration of the benchmarks?
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.’
Positive reinforcement works. In research and day-to-day experience of

managers who use it, positive reinforcement has repeatedly been shown
to produce significant gains in performance. Moreover, performance
gains with positive reinforcement are sustained over time. Compared
to negative reinforcement, positive reinforcement typically results in
performance that is 20 to 50 per cent better. Occasionally, the perfor-
mance is even hundreds of percentage points better.
Positive reinforcement in addition, improves morale, job satisfaction
and relations between managers and employees. In a positively rein-
forced organisation, people have a much more positive attitude about
their jobs, feel a heightened sense of satisfaction and self-worth and
are much more positive about the company.
The ‘How’ of Positive Reinforcement

Fran Tarkenton, the former professional quarterback, who now runs
Tarkenton & Co, a business consulting firm specializing in productiv-
ity solutions in the US, suggests how to implement positive reinforce-
ment program. He writes about the price system of positive reinforce-
ment program developed by them in his book, ‘How to Motivate People:
The team strategy for success’.
Pinpointing: The first essential step in motivating people toward
achievement is to set precise, measurable, ‘pinpointed’ objectives that
are realistic, meaningful, simple to understand and perceived as
personally worthwhile by every one involved in their implementation.
Recording: Recording or scorekeeping is the second important step by
which, people can tell how fast and how far and in what direction
their motivation is taking them.
Involvement: The role of managers today is much more challenging
than ever before. Three factors are mainly responsible for this. These
are: changing attitudes toward authority, a change in the relative im-
portance of work and a heightened expectation for participation in
decisions. Involvement of employees willcertainly result in sustainable
superior performance. How to get employees more committed and
involved is an important area that every organisation is trying to fig-
ure out. The challenge is to see if we can incorporate into our working
lives the same elements of cooperation and joint decision making and
democracy that we keep exhorting in our political lives. That would

certainly help us improve employee involvement to a very great
extent.
Consequence: It is only a change in behaviour on the job that can lead
to performance improvement. To change a given behaviour, you have
got to start with its consequences. There are three basic ways in which
you as a manager could impact the performance of your team. You
could give them Positive reinforcement by making the consequences
of their behaviour better. You could give them Negative reinforcement
by making the consequences unattractive. Or you could give them Neu-
tral reinforcement – that is no reinforcement – by asking for a new
behaviour without tying it to consequences.
Positive reinforcement, without doubt, results in outstanding
improvement in performance. Negative reinforcement leads to
increased compliance and improvement in performance and thus paves
the way for superior performance. Neutral reinforcement leads to
extinction effect. Unless you reinforce good behaviour, that behaviour
willinevitablydecrease.
John D. Rockefeller said long ago that, “good management consists in
showing ordinary people how to do the work of superior people”. This
means learning to balance negative and positive reinforcement so that
the general level of achievement in the middle is increased.
Evaluation: “Feedback is thebreakfast of champions” is an often-quoted
truism. Evaluation is providing this vital feedback to employees on how
they are doing, where they need to improve and how they can im-
prove their performance. The purpose of evaluation is to improve per-
formance and develop employees.
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 –
from decision making to deal clinching, to communications to product

introductions – speed, more often than not, ends up being the com-
petitivedifferentiator”.
Speed has three main advantages:
1. Speed has a striking impact on new product introduction process –
the driver of tomorrow’s top line growth.
2. Speed has impact on asset management too – speed of the order-to-
remittance cycle- from the time of order to when you get paid,
which can drive bottom line growth up.
3. Speed redefines capacity, reducing plant and equipment investment.
A few words of caution here. Speed, as a management tool does not
equate with haste. Rather it means removing wasteful activities and
simplifying products and processes to get to the market faster. Speed
achieved by short cuts and compromised quality will hurt more than it
willhelp.
There are three prerequisites for achieving speed:
1. A company needs to know how to learn quickly if it is to move
faster.
2. It also needs employees who are prepared to take decisions. A long
chain of command is the enemy of speed.
3. Good information technology linking the company from custom-
erstosuppliers.
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-
ployee satisfaction, employee organisational commitment and overall

business performance.
Research completed in 1998 by Gallup in the United States suggests
that organisations achieving higher levels of employee satisfaction than
their rivals outperform them by 22 per cent in terms of productivity,
38 per cent in terms of customer satisfaction, 27 per cent in terms of
profitability and 22 per cent in terms of employee retention.
Two Kinds of Commitment

Chris Argyris, professor emeritus of education and organisational
behaviour at Harvard University wrote in his famous HBR article
‘Empowerment: Emperor’s New Clothes’ that human beings can
commit themselves in two fundamentally different ways: externally and
internally. Both are valuable in the work place, but only internal
commitment reinforces empowerment.
It is a fundamental truth of human psychology that the less power
people have to shape their lives, the less commitment they will have.
If management wants employees to take more responsibility for their
own destiny it must encourage the development of internal commit-
ment. As the name implies, internal commitment comes largely from
within. Individuals are committed to a particular project, person or
program based on their own reasons and motivations and closely al-
lied with empowerment. The more top management wants internal
commitment, the more it must try to involve employees in defining
work objectives, specifying how to achieve them and setting stretch
targets.
If you want to create a climate of internal commitment, you need to
empower people. To identify how far an organisation is in empowering
itspeople, a simple and quick check-list is presentedin Table 15.3. The
attributes and characteristics of a control-driven organisation are at
one extreme end of the spectrum and of an empowered organisation
at the other end of the spectrum. Treat it as a ten-point scale and place
the control-driven organisation at ‘one’ and empowered organisation
at ‘ten’. You can identify areas of improvement and change required
for becoming an empowered organisation. You can calibrate the
Table 15.3
Quovadis? (Whither goes thou?)
Performance Control-driven Empowered

dimension organisation organisation
1. Leadership Management acts as All managers are active inside

“individuals” in taking and and outsidethe organisation in
communicating decisions. They promoting improvement activ-
promote the need to develop ity.Commitmentisinternalised.
and improve the organisation Continuous improvement is the
andtosettargets.Trustislow. cultureandbusinessphilosophy.
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.
3. People management Training is seen as a cost and Trainingisseenasaninvestment.

people employed to do a job are Employee morale is high and
viewed as commodity. exceeds competitive benchmark.
Thefullpotentialofallpeopleis
beingrealisedtoachievethestra-
tegicdirection.Peopleareviewed
and treatedas aresource.
4. Resources Resource management tends to All thecompany’s resources are

be directedsolely at financial deployedtomeetagreedpolicies
areas. Decisions on stock and and strategies. Benchmarking
materials are taken using againstthe‘bestinclass’isakey
hunches and ‘gut’ feeling. resource improvement driver.
Information iskept in peoples’ Resources are planned opti-
heads. Resources are mally.
underplanned.
.
5. Processes Few proceduresexist apart from System ensuresexisting and new
financial controls. Every one products and services meet all
doeshisbestand‘firefighting’is stakeholders’ needs. Customers
the norm. Changes are made to finditeasytodobusiness.Con-
fix the problems as and when tinuous feed back causes
required. improvement and innovation.
6. Customer satisfaction Customer satisfaction only All processesand relationships

considered interms of external are deliveringcustomer commit-
complaints. Complaints are ment. Improvement and
dealtwithasandwhentheyarise innovation exceed customer ex-
withlittleattempttocorrectthe pectations.
cause.
7. Employee satisfaction Disputes and grievances are Benchmarking against other

resolved as andwhen theyarise. organisations shows employee
Absenteeism and staff turnover satisfaction is high and has an
arehigh.Moraleattimesispoor improving trend. 360-degree
and management tends to appraisal is takenas the norm
concentrateonthemselves.
.
8. Impact on society Environmental and social Data gathered and views sought
obligations seenascostly and a from local society and employ-
threat to competitiveness. eesareusedinbusinessplanning.
Damage limitationexercises are Formal recognition of environ-
used to counter the problems. mental performance has been
received.
9. Business results Thefinancialresultsareavailable The organisation’s performance

and some non-financial exceeds external benchmarks.
indicators are published. They Continuous performance im-
are seen as ‘management data’ provement is a part of the
bymajorityofthestaff.’ organisation’sculture.
Source: Adapted from ‘The West midlands Excellence Award’ as described in ‘Measuring Business Performance:
Why, What and How’ by Andy Neely, The Economist Book, published by Profile books, London.
midpointsin thescales with identifiable andmeasurable characteristics

and attributes so that tracking the progress on your journey to
empowerment is possible.
The Imperative of Operational Excellence

Professor Sumantra Ghoshal cautions the Indian pharmaceutical
industry that: “a simple benchmarking exercise comparing major Indian
companies in key industries with their global competitors, shows that
Indian companies are (pharmaceutical companies in particular) running
a major risk. They suffer from a profound bias for growth. There is
nothing wrong with that. The problem is when you do not have the
same bias for productivity improvement.
While companies are showing a robust growth of 20 per cent or more,

their ‘returns on capital employed’ (ROCE) and labour productivity
are considerably lower than some of the leading multinationals. What
makes matters even worse is that many Indian pharma companies
barely manage to cover the cost of their capital while leading interna-
tional drug companies like Glaxo, Smithkline Beecham and Pfizer earn
average ROCE of 65 per cent.
Passion for growth is fine. If it is not matched by a strong desire to
improve productivity, the growth will not only become unsustainable,
the firm’sability tocover evenitscostof capitalwill comedowndrasti-
cally, eroding its value. They need to focus on the productivity side of
the equation as well.
Towards Operational Excellence: The Indian example

Here are some examples of initiatives taken by leading Indian pharma-
ceutical companies to achieve excellence in their operations. Ranbaxy
has achieved a considerable level of operational efficiencies and leads
the pack. It has a number of ‘firsts’ in terms of initiatives launched to
improve itsoperational efficienciesand effectiveness.
1. Ranbaxy has decided to benchmark its cost management practices
against the best in class in the world – like Ivax and Mylan of the
US, Tofa of Italy and Teva of Israel. The company gathers cost data
on these companies constantly through its overseas’ arms. Ranbaxy
uses these inputs for improving its process design, manufacturing
and product development teams to control costs. The company
has already set a cost reduction target of 8 per cent by the year
2000. It has already slashed operational costs by 3 per cent.
2. Ranbaxy and Dr. Reddy’s Labs have started subjecting themselves
to the discipline of Economic Value Added (EVA). They are planning
to use EVA as a tool to enhance shareholder value.
3. Ranbaxy has started a Total Quality Management (TQM) exercise
and christened it as ‘culture change and quality management’.
Dr. Reddy’s Labs, Wockhardt and Lupin too have started
implementing Kaizen (continuous improvement) programmes.
4. Ranbaxy has also decided to affect all inter-departmental transfers
are marked to market so that inefficiencies in one department are

not subsidised by efficiencies in another.Its raw material expenses
are down to 46 per cent of sales from 60.11 per cent six years ago.
5. Ranbaxy is the only Indian pharmaceutical company to invest one
per cent of its sales on infotech. The company is planning to
digitalise itsoperations acrossall itsmarkets aroundthe world.
6. Ranbaxy is also investing substantially to excel in operations on
high-tech information technology tools like ‘Enterprise Resource
Planning’ (ERP). Dr. Reddy’s Labs are also implementing ERP.
7. Ranbaxy has been paying attention to the productivity side of
the equation too. Turnover per employee has gone up to Rs. 2.27
million in 1996–97 from Rs. 1.07 million in 1992–93.
8. Ranbaxy is the first Indian drug firm to implement a statistical
management tool – design of experiments (DOE) to optimise
research effort and achieve significant reduction in costsand cycle
times.
9. In so far as process development capabilities are concerned, a num-
ber of Indian drug companies like Cipla, Wockhardt, Kopran, Ipca,
Orchid, apart from Ranbaxy and Dr. Reddy’s Labs have developed
highly cost-effectivealternativeprocessesforanumber ofbulk drugs
and become internationally competitive.
10. Cipla has achieved a very high degree of operational effectiveness by
virtue ofits systems-driven approach. Itsprocess andproduct devel-
opment capabilities are comparable with some of the best in the
businessinternationally.
The Rule of Three

The three most important factors that can help an organisation excel
in operations are very precisely identified by Jack Welch, the legendary
CEO of General Electric when he said:
“We always said that if you have three measurements to live by, they
would be: employee satisfaction, customer satisfaction andcash flows.
If youhavegotcashinthe tillat theend, therest isallgoingto work.
If you have got high customer satisfaction, you are going to get mar-
ket share. If you have got high employee satisfaction you are going to
get productivity. And if you have got cash you know it’s all working.”
Winners and spectators 269
16
WINNERS AND SPECTATORS
Executive Summary
The pace of change in the Indian pharmaceutical industry

ever since the government has joined WTO and signed GATT,
can only be described as ‘radical’. How else can you
explain the recent spate of mergers and acquisitions of
all sizes and shapes and types – brand, business, facilities
and even research centres?
In any radically altered environment what is put to the
test is one’s ability to adapt and cope up with the
change. The peculiar characteristic of any change is
that it gives only one option for dealing with it. Either
you master the change or you will be mastered by the
change.
Mastering change involves anticipation. It calls for a
proactive approach. You have to visualise the change
before it arrives. That is what strategic vision is all
about. The detailed accounts of twelve of the leading
Indian drug companies are presented here. These companies
have visualised the likely aftermath of GATT and the
inevitable product patent era. They have been preparing
thoroughly and proactively to meet the challenges of a
strong IPR protection regime – a virtual about turn from
the highly protected process patent environment of the

present.
These twelve companies are ranked in order of their
readiness and preparedness to compete effectively in the
post-GATT era. They have been taking a number of
initiatives to build sustainable competitive advantages
into their strategies. Their workouts too, have been far
more strenuous than those of their peers. It is said that
there are three basic types of companies:
A. Companies that make things happen
B. Companies that let things happen and
C. Companies that wonder what happened
These twelve companies obviously belong to the first
category. They are distinctly ahead and are planning to
stay ahead. Consider for example that these twelve companies
if fact collectively account for:
1.Over a third of the industry’s turnover
2.About 40 per cent of the industry’s exports
3.Close to 90 per cent of manufacturing facilities in
the country that are approved by international
regulatory authorities like US FDA, UK MCA
4.Over 90 per cent of acquisitions – brands, businesses,
facilities and research centres- in the industry
5.Over 90 per cent of all strategic alliances in the
industry both in India and abroad
And the winners are. . . . .

16 WINNERS AND SPECTATORS
The marketing environment of the Indian pharmaceutical industry

is changing radically. Analysts and pundits predict that the industry is
in for a major shake-out. The symptoms and the telltale signs are already
there for the discerning observer to see. How else can you explain the
recent spate of mergers and brand acquisitions? All these portend a
strong and positive consolidation phase for the industry.
How do you decide, select and identify the winners in such a rapidly
and constantly changing scenario? Picking up winners against such a
backdrop is not an easy task. You cannot just evaluate them on mere
performance indicators. Current performance does not necessarily
guarantee future success. Neither can you judge based on the potential.
Potential is only a promise on the evaluation sheet till it is realised.
Apart from the current performance indicators, it is important to assess
how the companies are preparing themselves for competing in the
impending product patent regime.
Based on the international experience of countries like Italy and Japan
which have embraced product patents in the late sixties, ten strategic
elements can be isolated as criteria for evaluating the degree of
preparation by Indian pharma companies to meet and beat competition
in the post-GATT era:
1. Strategic Vision
3. The marketing mindset
4. Technology upgradation
5. Research focus
6. Strategic integration
7. Internationalisation of business
8. Alliance attractiveness
9. Intellectual capital
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.
Evaluation Criteria # 1: Strategic Vision

How does one evaluate a company on a criterion like strategic vision?
Strategic vision essentially means building the best possible assumption
base about the future and thereby develop intuitively proactive strategies
that shape the industry evolution. Competition for strategic vision,
therefore, is to establish one’s company as the intellectual leader in
terms of anticipation and influence over the direction of industry
progress. It is virtually seeing the future before it arrives.
Ranbaxy, viewed against this background, certainly emerges as the

intellectual leader of the Indian drug industry. It has always been ahead
of the competition. The company over the years has been able to
develop the much-needed prescience to anticipate changes almost
intuitively and was virtually able to see the future before it arrived. Its
strategy is almost a model for many aspirants in the Indian
pharmaceutical industry for survival and growth 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
Company Assessment Observation

1. Ranbaxy High Clear vision, Precision in terms
of strategy and immaculate
capabilities of execution differen-
tiate Ranbaxy from the rest.
The company has always been
ahead of competition, be it
in strategic integration,
internationalisation of business,
upgrading technological infra-
structure and competence and
investment in R&D.
2. Dr. Reddy’s High The vision and mission of the
Labs Technocrat-founder Chairman
of Dr. Reddy’s labs has in fact
put India in general and
Hyderabad in particular on the
bulk drug map of the world. The
company’s strength is in technol-
ogy, research and development.
The company of late has demon-

strated a strong marketing bias.
The power of the company’s
vision becomes palpable when
you consider the first-of-their-
kind collaborative agreements
with trans-nationals like Novo
Nordisk for licensing the mol-
ecules developed at Dr. Reddy’s
Research Foundation.
3. Cipla Medium Cipla has been a dominant
player in the domestic market for
some years now. It’s the second
largest pharma company in the
Indian sector in terms of market
share. Its core competencies are
technology and marketing. The
company has very quickly drawn
up its plans to exploit the
opportunities that the liberalised
economy and the post product-
patent era have to offer. Cipla
has forged a number of alliances
with overseas partners wherein
it will provide the technology
and products and the
international partner will take
the responsibility for marketing
and distribution.
4. Lupin Medium Lupin too, had a very clear
strategy when it entered the
domestic market and built its
core competencies in technology
to become a leader in
fermentation technology. Its
strategy for internationalising the
business is also a focused one. It is
poised to achieve a sizeable share

of the world generic market for
injectable cephalosporins through
its win-win alliance with Merck
Generics. Its recent acquisition
strategies too reinforce its
dominant position.
5. Wockhardt Medium The grand strategy of Wockhardt
too, has been clear and well
executed. The company’s focus
has been on key markets in the
industrialised world. The
company is well placed to exploit
the rapidly expanding generic
market for off-patented drugs
in North America and Europe
through its recent acquisitions
and alliances abroad.
6. NPIL Medium Timing seems to be the
essence of this rapidly growing
conglomerate. The company
seems to be in a great hurry to
reach the top. The company has
chosen the acquisition and alli-
ance route to move up the
industry ladder. What analysts
have been pointing as a strate-
gic gap – the absence of focus on
research and development and
excessive reliance on alliances –
has been filled with the recent
acquisition of the prestigious re-
search centre of the
multinational Hoechst Marion
Roussel at Mumbai. Yet another
recent tripartite joint venture
with American and British bulk
drug manufacturers will com-

plete the success strategy jig-saw
puzzle at NPIL.
7. Torrent Medium Torrent has started as a niche
player and achieved leadership
position in cardiovascular, neuro-
psychiatry segments in India.
Some companies in India
emulated Torrent and became
successful. Torrent has later gone
into unrelated diversification
and diluted its focus. Recently,
Torrent has been regaining its
focus in pharmaceuticals and
pursuing strategic alliances
strengthening its R&D effort.
Torrent has earlier heavily
depended on its exports in the
Russian market and enjoyed a
high market share. After the
disintegration of the former
USSR and in the changing
environment it has yet to regain
let alone build on its market in
the CIS region. Over all, Torrent
has yet to firm its plans for
internationalisation.
8. Zydus Medium Zydus in less than two years after
the division of Cadila has moved
into the top ten of the Indian
pharmaceutical industry all by
itself. The company has a clear
vision and a strategy to match to
meet the challenging objective of
Rs. 1 billion in sales by the year
2000. The company has entered
into as many as thirteen alliances
with leading players in the world

to gain access to new products
and markets.
9.Sun Pharma Medium Sun Pharma too, like Torrent
has followed the niche strategy
to enter the Indian pharmaceu-
tical market and achieved the
leadership in neuro-psychiatry
and coveted 2nd position cardio-
vascular markets. The company’s
strategy for international opera-
tions is based on marketing
branded generic formulations in
overseas markets. The company
has also been following an acqui-
sition route to buy time in
building infrastructure and capa-
bilities to meet its ambitious
growth plans. It continues to
maintain its status as one of the
top 5 companies in terms of
growth rate.
10. Ipca Low Three areas of focus. Backward
integration. Export thrust.
Brand building in domestic for-
mulations market. These are the
drivers of growth at Ipca.
11. Kopran Low Kopran’s entry strategy has been
to exploit a dormant opportu-
nity in building up huge capaci-
ties and economy of scale of
semisynthetic and other penicil-
lin based antibacterials. The com-
pany has become one of the
leading players in the interna-
tional amoxycillin market. It has
been following the alliance route
and integrating forward into

value added formulations
to meet the post-GATT oppor-
tunities and challenges. The
company’s recent restructuring
and the new alliances are bound
to sharpen its focus.
12. Orchid Low Orchid, a 100 per cent export
unit has achieved outstanding
success in the world cepha-
losporin market with a 13 per
cent share in less than five
years. The company’s focus
has been on building and
commercialising process devel-
opment and technological capa-
bilities. The company has been
embarking on a forward integra-
tion project into high value for-
mulations like sterile and oral
cephalosporins among others
without losing its 100 per cent
export unit status. The company,
however, will be facing formi-
dable competition from two In-
dian drug majors, Lupin and
Ranbaxy, in the international
markets.
Evaluation Criteria # 2: Critical mass

Critical mass is the market share, which a firm must obtain in order to
become fully competitive on price and cost. This calls for an ability to
assimilate the start-up costs and then build on direct cost base large
enough to absorb competitively the indirect costs of business. Timing
is of essence in terms attaining the critical mass. It is important to
reach it with in a reasonable span of time, comparable to normal
developmental lead-time in the relevant industry. Failure to do build

up quickly creates strong pressures even to abandon the venture itself
and may even lead to bankruptcy.
Making realistic estimates of the critical mass is indeed critical. A
number of firms in Indian pharmaceutical industry apparently with
out having anticipated the very high start-up costs, the critical mass
required to sustain and the very large development, marketing and
debt servicing costs have paid very dearly. Natco’s failure to anticipate
these and to reach the critical mass quickly enough has forced the
company to sell its established over-the-counter medicine brand in the
Russian Federation to Ranbaxy and to put its most profitable domestic
formulation business on the block. Orchid on the other hand, has
reached the critical mass in real quick time and has been a darling of
the investing community almost since inception.
Here are some of the successful companies that have reached the critical
mass to be competitive in the post-GATT era. The companies are
preparing actively to progress in the strong intellectual property
protection regime of the future. Here are the criteria used in assessing
these companies on their race to reach the critical mass:
Reaching the Critical Mass

A. Sales turnover, growth rate
B. Rank in the industry
C. Size of the field force and total number of employees
D. Strategic routes taken to reach the critical mass – organic growth?
Acquisition of brands? Companies?

1. Ranbaxy High Ranbaxy clearly is ahead of the
pack even in terms of critical
mass. The company has re-
corded a turnover of close to
$ 500 million and is half way
towards its objective of $1 billion
by 2003. The company has
reached the critical mass in all

key areas of business and is twice
as big as its nearest rival.
2. Dr. Reddy’s Medium DRL group turnover (including
Labs Cheminor Drugs) was Rs.3.8
billion in 1997. The company
has built world class manufac-
turing infrastructure. Above all,
the R&D infrastructure and
capabilities of the group are
considerably higher than the
rest of the industry in India.
The company’s renewed focus
in domestic formulations busi-
ness is yielding good results.
The company has acquired two
brands from Standard Organ-
ics Limited, one brand from
Pfimex in 1996 and 5 brands
from Dolphin in its race for the
critical mass. The company
enjoys considerable reputation
both from its customers and the
consuming public.
3. Cipla Medium Cipla is a dominant player in
the domestic market with a
sales turnover of Rs. 4.51
billion in 1997. Cipla has a di-
versified product-mix and a
leadership position in the anti-
asthmatic segment in India.
Cipla has been actively pursu-
ing exports through the alliance
route.
4. Lupin Medium Lupin is also aiming to reach
that magic figure of $ 1 billion
by 2003. The company has
achieved a turnover of Rs.5.7

billion in 1997. The company
has achieved world leadership
in the anti-tubercular market.
It is also significantly ahead of
others in India in the area of
fermentation technology.
5. Wockhardt Medium Wockhardt too has been
pursuing an acquisition strategy
to accelerate growth. The total
turnover, including the newly
acquired Merind sales volume
for 1997, was Rs. 3.69 billion.
Wockhardt too has created a
manufacturing infrastructure
that is second to none. The
company has also acquired
generic companies in the UK
and US to exploit the vast
market opportunity for multi-
source off-patent products in
the difficult-to-penetrate and
highly industrialised western
markets.
6. NPIL Medium NPIL in the short span of eight
years has achieved a sales vol-
ume of Rs.5.19 billion entirely
through acquisitions. Acquisi-
tions and alliances are the
pillars on which the entire edi-
fice of NPIL is being built. The
company has reached the criti-
cal mass even in research and
development, which it was lack-
ing, with just one stroke of
acquisition - the prestigious
R&D centre of HMR.
7. Torrent Medium Torrent has stormed its way

into the domestic formulation
market by entering through a
niche strategy. It has now en-
tered the antibacterial market
in a big way and integrated
backwards to reach a critical
mass. Torrent’s turnover in
1997 was Rs. 3.18 billion. The
company has also forged a few
strategic alliances to gain access
to new markets and new prod-
ucts. Its strength in exports has
eroded to a large extent mainly
due to its over dependence
in the Russian trade, which
was based on rupee-rouble
agreement between the two
governments. Torrent has not
completely adapted to the
changing market scenario as
regards exports to CIS and it
has yet to gain a foothold in
other international markets.
8. Zydus Medium Zydus has reached a turnover
of Rs. 3.38 billion in fiscal’ 97.
The company has chosen the
alliance route to gain access to
new high value products. The
company has also reached a
critical mass of target audience
through its one-thousand-plus
field force. Zydus has a 2.1 per
cent of the domestic formula-
tion a market. The company
has six strategic business units
to promote its different busi-
nesses that cover pharmaceuti-
cal formulations, bulk drugs, di-

agnostics, agro-veterinary and
cosmetics.
9. Sun Pharma Low Sun Pharma has moved into
the top ten Indian pharmaceu-
tical companies in less than
fifteen years. The company fol-
lowed the niche strategy like
Torrent and is pretty close to
the leader in the two speciality
segments. In neuro-psychiatry
it has even overtaken Torrent.
Sun Pharma has very aggres-
sively pursued acquisition as a
means to reach the critical mass
in sales, manufacturing infra-
structure, process development
and product-market diversifica-
tion. Sun’s turnover, including
the sales of recently merged
TDPL was Rs. 2.34 billion in
fiscal’ 97. Sun Pharma has also
been pursuing a strategy to
internationalise its business
rather than merely chasing
exports, right from the begin-
ning.
10. Ipca Low Ipca too has a strong presence
in the bulk drug market. The
company’s turnover in the year
to March 1998 was Rs. 2.67
billion. The company has
reached a critical mass in terms
of its sales, investible surplus,
technological competence and
infrastructure. The company’s
domestic formulations’ was less
than one per cent.
11. Kopran Low Kopran has become a leading

player in the international
market for amoxycillin. It
has built huge capacities and
reached economies of scale
to be internationally competi-
tive in this segment. Kopran’s
sales were Rs. 3.47 billion in
fiscal’ 96. The company has yet
to reach a critical mass in
domestic formulation market.
Kopran’s domestic formula-
tions market share was only
0.6 per cent. The company,
having reached a critical mass
in terms of over all sales and
profits, is able to invest in its
forward integration projects
aggressively.
12. Orchid Low Having reached a critical mass
of Rs. 2.41 billion in record
time, the company is integrat-
ing forward into value-added
formulations of cephalosporins
as well as non-cephalosporins.
Evaluation Criteria # 3: The Marketing Mindset

The marketing orientation and focus of an oraganisation are crucial
for its success. Marketing orientation is synonymous with customer
orientation. Understanding the needs and perceptions of the customer
should be the starting point of any business.
The Marketing Mindset

A. Market share and growth rate
B. Size of the participated market
C. Degree of dominance in key therapeutic segments

D. Extent of customer franchise
E. Width and depth of distribution
F. Brand building capabilities
G. New product introductions

1. Ranbaxy High Ranbaxy has realised the power
of brand equity long ago. It has
constantly and consistently
focused on brand building in
both domestic and interna-
tional markets. This is evident
from the fact that 12 of the
company’s brands (including
those recently acquired and
merged companies) are among
the top 250 brands of the
Indian pharmaceutical indus-
try. They contributed to over
56 per cent of the company’s
total domestic formulation
sales of Rs. 5.17 billion in 1997.
The company is a leader in the
largest therapeutic segment in
India – anti-infectives, which
accounts for almost one-fourth
of the total market.
Ranbaxy has identified 25
molecules and is aggressively
planning to develop a highly
integrated strategy to build
global brands out of these in all
its key markets.
2. Dr. Reddy’s Medium Dr. Reddy’s group started with

Labs bulk drugs as a focus area, but
quickly realised the potential
and focused on the value added
formulation business. Bulk
drugs continue to be an impor-
tant area for the group as
they form the basis for the
competitive advantage for any
integrated pharma company.
DRL’s focus on brand building
has paid off handsomely. The
company has four of its brands
among the top 250 of the
industry. These accounted for
over one-half of the company’s
domestic formulations YTD
sales of Rs. 1.36 billion end May
1998.
3. Cipla High Marketing has always been a
core competence at Cipla. The
company has been managing
its diverse product-mix very
dexterously . It is a clear leader
in the anti-asthmatic segment
in India. The company has built
an enviable franchise with
all prescriber segments of its
customer base with the result
that Cipla is among the top 3
companies in any given thera-
peutic segment in the country.
As many as ten brands of the
company feature among the
industry’s top 250 brands.
These brands account for over
one half of the company’s
total domestic formulation
sales of Rs.4.42 billion in the

year-to-date sales at the end of
May 1998.
4. Lupin Medium Lupin’s marketing strategy is
based on the time tested con-
cept of focus. Through its sharp
focus, the company has become
a dominant player in the anti-
TB market not only in India
but internationally as well. Lu-
pin has 8 of its brands featur-
ing in the industry’s top 250
brands. These brands account
for almost two-thirds of the
company’s total domestic for-
mulations sales of Rs. 2.47 bil-
lion in May 1998 on a YTD
basis. Five out of these eight
brands are in the anti-TB seg-
ment. Having achieved uncom-
mon success in the anti-TB
segment, Lupin is now concen-
trating on the huge world cepha-
losporin market, in which a
number of molecules are going
to be off-patent in a few years
from now on.
5. Wockhardt Medium Wockhardt’s therapeutic area
of focus has been pain manage-
ment, from the beginning. The
company subsequently has di-
versified into other major
therapeutic categories and re-
structured its marketing its op-
erations to retain focus on key
segments even after product
diversification. Wockhardt,
including the recently merged

companies (Merind and Tata
Pharma), has 6 of its brands
among the industry’s top 250.
These accounted for over 21
per cent of its domestic formu-
lations sales of Rs.2.43 billion
on YTD basis at end May 1998.
6. NPIL Medium The company has chosen the
route of M&A and joint ven-
tures to increase its market
share. All the mergers, acquisi-
tions and joint ventures of the
group are carefully planned to
enhance their therapeutic cov-
erage and create synergies. In
a short time the group has
moved in to the 4th position
mainly through alliances. The
group has a strong to reason-
able presence in rapidly grow-
ing therapeutic segments like
cardiovascular, neuro-psychia-
try, nephrology, critical care,
oncology, opthalmic and eye
care products, foot care prod-
ucts, post-surgical care products
and in over-the-counter phar-
maceuticals. The combined
turnover of all group compa-
nies is around Rs. 2.8 billion
with a share of 2.7 per cent of
the domestic formulations mar-
ket in India. The group has one
of the largest field forces with
over 1600 trained medical
detailmen promoting the vari-
ous products of the company

across the country.
7. Torrent Medium Torrent started with a niche
strategy and moved to a broad
based product strategy by diver-
sifying into major therapeutic
segments like antibacterials to
reach the top. The company
has moved up to the 5th
position in the Indian pharma-
ceutical industry. Torrent con-
tinues to grow at a rate much
higher than the industry aver-
age. The company is a leader
in the cardio-vascular and
neuro-psychiatry segments in
India. Five brands of Torrent
feature in the industry’s top
250. Nearly a third of the
company’s domestic formula-
tions sales of Rs. 2.31 billion,
on a YTD basis at end Septem-
ber 1998, came from these.
8. Zydus Medium Zydus group of Cadila Health
Care has been focusing on
brand building right from in-
ception. The company has
6 of its brands among the
industry’s top 250. They ac-
counted for about 46 per cent
of the group’s domestic formu-
lations YTD sales of Rs. 1.78
billion end May 1998.
9. Sun Pharma High The marketing orientation or
the mindset of Sun Pharma is
very high, although it is not
obvious in its brand building
exercise. The company’s focus

has been on speciality therapeu-
tic segments. While only two of
the company’s brands feature
among the industry’s top 250,
accounting for about one-fifth
of its domestic formulations
sales, its share of the key thera-
peutic segments is very high and
the company is planning to be
among the top two players in
all its focused segments. Sun
Pharma has been the first
Indian pharmaceutical com-
pany to structure its strategic
business units around specific
therapeutic segments with a
view to offer total therapeutic
solutions for disease manage-
ment. This is an emerging
concept the world over. All
research based pharmaceutical
companies have been planning
to restructure to meet the chal-
lenges of the disease manage-
ment approach.
10. Ipca Medium Ipca through a very focused
approach has become the
country’s leading player in the
anti-malarial segment. The
company is planning to diver-
sify into other speciality seg-
ments. The company is ranked
26th in the domestic formula-
tion market, with four of its
brands – lariago, tenolol, solvin
and eltocin featuring among
the industry’s top 250. These
four brands contribute nearly

two-thirds of the company’s to-
tal domestic formulation sales.
11. Kopran Low Kopran has essentially been a
major force in the bulk drug
manufacturing and exports.
The company of late has been
focusing on value added formu-
lations both in the domestic
and export markets. One of the
major achievements of Kopran,
from a marketing point of
view, is the way it has gone
about building a distinct brand
leader in the betablocker seg-
ment of anti-hypertensives.
The company has also a reason-
able presence in the respiratory
segment. The company’s re-
cent restructuring moves would
certainly help Kopran gain the
necessary marketing focus to
reach the much-needed critical
mass in the formulations busi-
ness. Kopran’s rank in the do-
mestic pharmaceutical market
is 55th. It has a market share
of only 0.5 per cent.
12. Orchid Low Yet to demonstrate its marketing
mindset. The company has done
very well in marketing bulk
drugs and intermediates globally.
Branded generics is indeed
the true testing ground of a
company’s marketing acumen.
Orchid has very recently en-
tered the formulations business.
Evaluation Criteria # 4: Technology upgradation
The pharmaceutical industry is technology-driven. Technology

upgradation, therefore, is essential just to keep pace with the changing
industrial scenario. To lead the change, development of technology
should be of an even higher order. Technology gives a firm its distinctive
competitive advantage. High labour costs, for example can be offset by
superior technology. Take the case of Glaxo’s microprocessor controlled
continuous process plant at Singapore for manufacturing the bulk drug
ranitidine, the world’s largest prescribed drug. It has very few operators.
The production costs compare favorably with some of the world’s low-
cost producers. Technology can increase productivity considerably.
Consider the opportunity horizon for Indian drug companies in the
post-GATT era. A number of leading drug manufacturers from India
are vying with each other to exploit the huge opportunity in the fast
growing off-patent generic formulations market in North America and
the European Union. Technological upgradation to international
standards is a prerequisite for exporting to those markets. The
regulatory authorities from these markets allow imports only from the
plants they approve. Without their approval of your manufacturing
facilities, you cannot even think of exporting your generic formulations.
You have to upgrade your facilities to their standards to get the due
approvals. Technology upgradation holds the key that can convert these
entry barriers into gateways.
To be globally competitive, you need to have world class technology.
That explains why so many Indian companies are making a beeline to
upgrade their plants and to get approvals from international regulatory
authorities like US FDA. UK MCA etc.
Here are the criteria used for qualitative assessment of technology
upgradation by the front runners of the Indian pharmaceutical industry:
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.
D.Investment pattern in technological upgradation.

1. Ranbaxy High Ranbaxy has been consistently
upgrading its technology and
over the years. Today, the
company has manufacturing
facilities approved by interna-
tional regulatory authorities
like US FDA and UK MCA for
both bulk actives and formula-
tions. In addition, the company
has manufacturing plants in
international markets.
2. Dr. Reddy’s High The credit of putting India on
Labs the bulk drug map of the world
should certainly go to
Dr. Reddy’s Laboratories. The
company has developed alter-
native processes for a number
of bulk drugs and consistently
invested on technology
upgradation. The group has
built plants for both bulk drugs
and formulations that are ap-
proved by US FDA and UK
MCA. Cheminor Drugs, a
group company, has built a
state-of-the-art formulations
plant targeting its entire
production at the North
American and European
generic markets. The group has
five manufacturing plants in
Andhra Pradesh.
3. Cipla High Cipla has built five world class
manufacturing plants for bulk

drugs and formulations. Inter-
national regulatory authorities
like US FDA, UK MCA and
TGA of Australia have ap-
proved three of these five
plants. Cipla has been a par-
ticipant in number of overseas
joint ventures which could
lead to establishing greenfield
manufacturing bases in future.
Cipla’s technological prowess
can be gauged from the fact
that it is the technology pro-
vider in all its joint ventures.
4. Lupin High Lupin has built a leadership
position in the world anti-TB
market through its technologi-
cal strengths. It has, in
addition, focused on the
soon-to-be off-patent generic
formulations of cephalosporins
in the industrialised countries.
Its manufacturing plants are
approved by both US FDA and
UK MCA. It has been invest-
ing consistently in technology
upgradation.
5. Wockhardt High Wockhardt’s Aurangabad
plant is considered to be one of
the finest manufacturing facili-
ties for pharmaceutical dosage
forms in the country. It has the
approval of both US FDA and
UK MCA. The company has
been investing in upgrading
technology over the years. The
company, in all, has 5 plants

in India. It has also gained ac-
cess to two manufacturing
facilities in the UK and the US
through recent acquisitions of
Wallis Labs and Acumed re-
spectively.
6. NPIL Medium NPIL, having fueled its growth
mainly through acquisitions,
has built an impressive manu-
facturing infrastructure. The
company has invested in creat-
ing a facility for manufacturing
formulations at Pithampur
conforming to international
standards. The group has
4 manufacturing plants for
formulations and bulk drugs.
7. Torrent Medium Torrent has upgraded its manu-
facturing facilities to
international standard. It has
also developed a number of
cost effective alternative pro-
cesses for various bulk drugs.
8. Zydus Medium Zydus- the Cadila Health Care
group-has built up a sizeable
infrastructure for manufactur-
ing a number of bulk drugs
and formulations. The
company has three plants at
Ankaleshwar, Ahmedabad and
Mumbai.
9. Sun Pharma Low Sun Pharma has built a massive
comprising 6 plants for manu-
facturing bulk drugs and for-
mulations through a strategic

combination of greenfield ven-
tures, acquisitions and invest-
ment in others. One of the
group companies (through in-
vestment), Gujarat Lyka has
US FDA approval for a key
bulk drug. M J Pharma also has
a US FDA approvable facility
for formulations.
10. Ipca High Ipca has built an impressive
manufacturing infrastructure in
the country, mainly for bulk
drugs. It has also expanded its
formulations manufacturing
facility and upgraded it to
international standards. Both
the US FDA and UK MCA
have approved Ipca’s bulk drug
plants. Ipca has as many as 11
drug master files for its bulk
drugs.
11. Kopran High Kopran has become one of
the leading manufacturers of
amoxycillin in the world. It had
very aptly identified the mol-
ecule when it was showing signs
of overtaking the ampicillin
market and built up capacities
and upgraded technology to
world class standards. Its plant
at Khopoli has the approval
of US FDA and UK MCA.
Kopran has three plants for
manufacturing bulk drugs and
formulations.
12. Orchid High Having started as a 100 per cent

export unit of cephalosporins
(sterile and oral forms), Orchid
had no choice other than to
build world class plants. And
world class plants, it did build.
Its plant has approval of the
US FDA and UK MCA. The
company has invested in a
forward integration project to
build a formulations facility
complying with international
standards.
Evaluation Criteria # 5: Research Focus

Pharmaceutical industry, the world over is research-led.
Under a strong IPR regime, no pharma company can progress without
significant R&D effort. Otherwise, it may end up as a supplier of
products and services, if it has a core competency in any relevant area
like manufacturing, marketing and distribution. The bigger firms may
even gobble it up if it has good manufacturing capability or brand equity.
Even to assimilate and absorb the new technologies, a critical mass of
product and process developmental skills are needed.
Some of the more determined Indian drug majors have been stepping
up their R&D investments and efforts. They are setting up world class
research facilities and formulating focused research strategies. Some
companies like DRL and Ranbaxy have even been successful in
developing new lead compounds and started filing INDAs. Others like
Wockhardt and Lupin have started building infrastructure required
for launching their drug discovery programs.
Research Focus
A. R&D infrastructure
B. Number of scientists and their qualifications
C. Areas of research focus

D. Investment in R&D as a per cent of sales
E. Collaborations in research
F. Progress or breakthroughs in research
1. Ranbaxy High Ranbaxy has set up a swank
R&D centre and launched
a drug discovery program.
Ranbaxy too has met with an
early success in identifying lead
compounds. The company has
recently announced its own
new chemical entity (NCE) –
RBX 2258 for treating
benign prostrate hyperplasia.
The company will go for an
investigational new drug appli-
cation (INDA) with the Drug
controller of India and the US
FDA. The company spends 5 –
6 per cent of its sales on re-
search and development and
plans to increase it to about 10
per cent by 2005.
2. Dr. Reddy’s High Dr. Reddy’s group has set up a
Labs world class research facility at
Hyderabad. Having achieved
uncommon success in process
development, the company has
launched a drug discovery pro-
gram to achieve product devel-
opment capability by the time
GATT comes into force in
2005. The company has met
with an early success. In an un-
precedented accomplishment,
DRF (Dr. Reddy’s Research

Foundation) has licensed one of
its molecules belonging to a new
class of drugs – insulin sensitiz-
ers, to the Danish drug major,
Novo Nordisk, the world leader
in the anti-diabetic segment.
DRF has filed as many as 18
product patents in the US and
other patent-friendly countries.
3. Cipla Medium Cipla has three R&D centres.
Its process development skills
are extraordinary. The com-
pany has developed alternative
processes that are cost effective
for over 56 molecules. Many
more are at various stages of
development. The company
has also developed the world’s
first oral preparation for thalas-
semia.
4. Lupin Medium Lupin has been investing about
3 per cent of its sales on
research since 1990. The com-
pany has been a front runner
in process development of
organic synthesis and fermen-
tation based products. It is
expanding its research facilities
with an investment of Rs.200
million. The company has also
launched a drug discovery
program.
5. Wockhardt Medium Wockhardt, in creating the nec-
essary infrastructure for launch-
ing a drug discovery program,
is setting up a modern R&D
centre. The company has con-

siderable strength in the pro-
cess and dosage form
development areas. The com-
pany has collaborative research
programs with international in-
stitutions like UNIDO, Rhein
biotek of Germany and other
organisations.
6. NPIL Medium NPIL has catapulted itself into
the big league of Indian drug
firms that are creating R&D
infrastructure virtually
overnight, with its acquisition
of Hoechst’s famous research
centre. The company has
gained access to the knowledge
and experience base of 84
scientists, who have got 140
patents between them. The
company, apart from process
and dosage form development
has decided to focus on drug
discovery and clinical research.
7. Torrent Medium Torrent is setting up an ad-
vanced R&D centre with an
investment of Rs. 750 million.
Torrent spends about 6 per
cent of its sales on research and
development and plans to in-
crease it to 10 per cent in the
near future. The company is
one of the foremost sponsors
of research at the universities.
It has also signed up with inter-
national research institutes like
William Harvey Research
Institute in the UK for

collaborative research. The
company is confident that it
can generate revenues through
collaborative and contract
research.
8. Zydus Medium Zydus is investing Rs. 350
million in expanding and
upgrading its research and
development facilities. The
company is also planning to
enter collaborative research in
both process as well as product
development areas.
9. Sun Pharma Medium Sun Pharma has a well-
equipped modern research
centre – SPARC (Sun Pharma
Advanced Research Centre)
at Baroda. It has two more
research centres, one in
Mumbai dedicated for develop-
ing dosage forms for interna-
tional markets and another at
Chennai, mainly for process
and formulation development.
The company spends 3 – 4 per
cent of its sales on research and
development activities. It is fur-
ther investing in upgrading
and expanding its research
facilities so that it can get it
into focused drug discovery
program.
10. Ipca Low Research effort centreing
around developing alternative
processes for various bulk drugs
and formulation development.
11. Kopran Low Research focus essentially on

process development and dos-
age form development. Re-
cently invested Rs.100 million
in creating a modern R&D fa-
cility at Navi Mumbai.
12. Orchid Low Orchid has set up a research
facility with an investment of
$ 4million. Process develop-
ment is the main thrust area of
research. The company is also
planning to diversify into all six
process technologies.
Evaluation Criteria # 6: Strategic Integration

In the Indian pharmaceutical industry extensive vertical integration is
taking place. Bulk drug firms are integrating backwards into
intermediates. At the same time, they are also integrating forward
into value-added finished dosage forms. This very significant trend is
greatly raising economies of scale as well as the amount of capital
necessary to compete in the industry. This in turn is erecting barriers
to entry. This trend, which is likely to continue, may drive smaller
competitors out of the industry once the growth levels off. If the smaller
players have efficient plants and processes of operations, they may
become the prime targets for acquisitions by the larger firms, which
are on a consolidation spree.
Some of the leading Indian drug firms, Ranbaxy, Lupin, Wockhardt,
Kopran, Ipca and more recently Orchid, have been actively pursuing
the strategy of vertical integration for some time. Their efforts are
more intensified now, since vertical integration offers some key benefits
and gives the firms distinct and sustainable competitive advantages.
Some of the commonly cited benefits of vertical integration are:
A. Achievement of economies of scale.
B. Cost savings across the firm’s operations like coordinated production.
C. Purchasing controls and leverage.

D. Control on quality.
E. Timely availability.
Strategic Integration
A. Nature and extent of integration
B. Level of integration
C. Bulk drug portfolio

1. Ranbaxy High Ranbaxy is a vertically inte-
grated organisation. Its own
bulk drugs cover almost all the
company’s major formulations.
With its strategy to develop and
integrate to build 25 global
brands, the company is going
to be one of the major interna-
tional generic companies.
Ranbaxy is poised to meet its
objective of becoming one of
the top 3 international generic
companies in the world by
2015.
2. Dr. Reddy’s High Dr. Reddy’s strength in devel-
Labs oping cost-effective, innovative
processes for a number of bulk
drugs is well known. The credit
for putting India on the bulk
drug map of the world should
go to Dr. Reddy’s Labs. The
company manufactures over
33 bulk drugs in various thera-
peutic categories and a number
of intermediates in addition.
The company backs up its for-

mulations with its own bulk
production.
3. Cipla High Cipla over the years has devel-
oped alternative cost-effective
processes for over 54 bulk drugs.
Its own bulk production covers
about 85 per cent of its formu-
lations. This clearly indicates
the extent of strategic integra-
tion the company has achieved.
4. Lupin High Lupin has become a leading
player in the world in the anti-
TB segment through carefully
planned strategic integration.
The choice of the segment is
also important , as India
accounts for almost one half of
all TB cases in the world.
Having achieved success in the
anti-TB segment, Lupin is
going all out to become a
vertically integrated player in
another segment – this time
the large, lucrative and soon-to-
go off-patent generic formula-
tions market for oral and sterile
cephalosporins in North
America and Europe. Lupin
manufactures over 12 bulk
drugs and a number of inter-
mediates.
5. Wockhardt Medium Wockhardt has achieved a
considerable level of vertical
integration in its focus
segments. It is one of the
world’s largest producers of
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-
grated pharma companies in

the country in the shortest
time. The company has devel-
oped innovative processes for as
many as 48 bulk drugs and
manufactures a number of in-
termediates in addition. It
could expand its bulk drug
portfolio through a synthesis of
in-house development, invest-
ment in other companies and
acquisitions.
10. Ipca Medium Ipca has through a steady
stream of investments has
achieved the distinction of
becoming an highly-integrated
player in the Indian pharma
industry.
11. Kopran Low Kopran has become the second
largest producer of amoxycillin
in the world , essentially be-
cause of its strategic integration.
The company has become
highly competitive internation-
ally due to its backward integra-
tion. It is planning to extend
this advantage to other semi-
synthetic penicillin based anti-
biotics to become a major
player in the semisynthetic
antibiotics segment interna-
tionally.
Integration limited to bulk
drugs particularly semi-synthetic
antibiotics. Its backward inte-
gration has given better, mar-
gins than its competitors and
has helped the company to

become internationally com-
petitive. It has yet to achieve the
same degree of success in terms
of moving up the value chain
through forward integration.
12. Orchid Low Orchid has about 13 per cent
share of the world cephalospor-
ins bulk drug market. The
company has achieved this
through a backward integra-
tion strategy. It is completing a
forward integration project in
1998 by manufacturing sterile
and oral cephalosporin formu-
lations. This is part of its
strategy to become a vertically
integrated player in the cepha-
losporins market.
Evaluation Criteria # 7: Alliance Attractiveness

With alliances, we can do more with less, remarked a managing director
of a large corporation, known for its penchant for alliances.
That is the basic purpose of allying with some one. To do more with
less. To achieve synergy. Strategic alliances will help you gain access to
new products, markets, and technology. Alliances buy time. Save costs.
Alliances will become even more important in an environment that
strongly protects intellectual property rights. Once product patents are
in place in the country, unless you are the original innovator, your
access to new products and technologies will be limited to your current
products. It is only through alliances and licensing arrangements can
you get access to new products.
That is the reason why there are a spate of alliances among the leading
players in the Indian drug industry and some of the leading
international companies over the last few years.
Consider these criteria for evaluating qualitatively the alliance

attractiveness of the more progressive Indian pharma companies:
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

1. Ranbaxy High Ranbaxy’s alliances are focused
on exploiting the off-patent
generic formulations in the
North American market. Its
alliances with Schein Pharma-
ceuticals and HMS are a means
to realise the company’s ambi-
tious objective of reaching the
critical mass of $150 – 200 mil-
lion in the North American
generic market by 2000. The
company also has an alliance
with one of America’s leading
drug firms, Eli Lilly for gaining
product/market access.
Ranbaxy in addition, has as
many as fourteen joint ven-
tures in different countries.
2. Dr. Reddy’s High Research based alliances are the
Labs driving force of Dr. Reddy’s
Labs. The group’s independent
research arm – DRF has en-
tered into two epoch-making
alliances: one with the Danish
drug major, Novo Nordisk for
taking its new molecule belong-
ing to a new class of drugs

called “ insulin sensitizers”
through further stages of devel-
opment to commercialisation
and marketing in select coun-
tries. Cheminor Drugs, a group
company has entered in to stra-
tegic alliances with Pharmaceu-
tical Resources Inc. (PRI) and
Schein Pharma – both US
based firms. These alliances are
essentially to penetrate the
North American generic for-
mulations market. Cheminor
has built a state-of-the-art manu-
facturing facility that is US FDA
approvable (the company is
awaiting approval). The com-
pany is also planning actively
for similar alliances in the
European Union.
3. Cipla High Cipla’s alliances are based on a
win-win strategy. The company
has formed over six strategic
alliances, covering the key
markets of the world like
North America, China,
Europe, Africa, Middle East
and Australia, with break-neck
speed. All these alliances are
based on a sound structure.
Cipla will provide products and
technology. The alliance part-
ner will provide market access
and what he knows best, mar-
keting and distribution. The
alliances would graduate in
phases from sourcing products
and technology to manufactur-

ing of dosage forms. In some
cases they would set up even
greenfield ventures for manu-
facturing.
4. Lupin High Lupin’s alliance with Merck
Generics is a made for each
other alliance. Lupin is fast be-
coming a vertically integrated
player in the cephalosporins
segment that is internationally
competitive and Merck Gener-
ics has a strong presence in the
hospital segment in the US and
Europe. Many leading mol-
ecules in cephalosporins are
going off-patent from now on.
All these factors make the
alliance an ideal match to
exploit the $2 billion-large
sterile cephalosporin generic
formulations market once
these molecules go off-patent.
5. Wockhardt High Wockhardt has gained a foot
hold in the North American
and European generic formu-
lation markets with its
acquisitions. The company’s
recent strategic alliance with
Ferrings of Denmark reinforces
its presence in these markets.
The company, in addition has
a strategic alliance with a
German biotech firm for
manufacturing and marketing
its hepatitis-B vaccine.
6. NPIL High Alliances and acquisitions are

the main drivers of NPIL’s
growth strategy. The group,
at the last count, had about
sixteen strategic alliances to
gain access to new markets, new
technologies and new products
with leading international
firms. The range of strategic
alliances covers the whole
gamut of therapeutic segments
literally and figuratively from
head to foot: starting from an
alliance with US based Allergen
for its eye care products to the
alliance with the UK based
Scholl Pharmaceuticals for its
foot care products. The two
recent acquisitions and one
50:50 joint venture with
Ambalal Sarabhai Enterprises
(ASE) – Sarabhai-Piramal, have
catapulted NPIL into the
4th position in the Indian
pharmaceutical industry with a
2.7 per cent market share.
These alliances, the company
justifiably hopes, would take it
to the top in the domestic drug
industry before long.
7. Torrent Medium Has entered into a 50:50 joint
venture with the French drug
major Sanofi. In addition, the
company has a tie-up with
US based Scitech for
biotechnology-based products.
Torrent has also a number of
collaborations in the area of
research and development with

academic institutions and
research centres.
8. Zydus High Zydus has entered into a
number of marketing alliances
mainly to gain access to new
products and technologies. The
company has in all about twelve
alliances with international
companies. These alliances
would extend the company’s
therapeutic coverage in
important chronic disease
areas in nephrology, cardiology
and haematology. Zydus has
also entered into a strategic
alliance with South Korea’s
leading fir m KGCC for
hepatitis-B vaccine based on
recombinant technology. The
company has also a number of
marketing and distribution
alliances with international
diagnostic companies for
exclusively marketing their
products in India through
Zydus Pathline.
9. Sun Pharma Low Sun has a major strategic alli-
ance with the Michigan based
Caraco Pharmaceuticals to
penetrate the tough yet remu-
nerative North American
generic formulations market.
Caraco has a US FDA ap-
proved facility. Sun through its
equity based joint venture gains
a beachhead. The company has

also a marketing and distribu-
tion alliance with Korea’s
leading pharmaceutical com-
pany – KGCC for marketing its
range of immunoglobulins in
India.
10. Ipca Low Ipca has all the attributes of an
ideal partner of a strategic alli-
ance. Manufacturing facilities
that are approved by interna-
tional regulatory authorities.
Established brands and
customer franchise. Strong
presence in two therapeutic
areas. The company has yet to
capitalise on these to the
fullest extent.
11. Kopran Medium Kopran, in its race to reach the
critical mass in the domestic
formulations market has en-
tered recently into a strategic
alliance with Glaxo, the British
drug major in India for market-
ing its respiratory products. The
company hopes to sharpen its
focus on the respiratory seg-
ment with this alliance. Kopran
has also entered into an impor-
tant alliance with DDSA of the
UK to market its off-patented
generic formulations in the UK
and the European Union. The
company is also actively plan-
ning two more alliances – one
in the US and another in West
Asia.
12. Orchid Low Orchid has a manufacturing

tie-up with two domestic firms
for manufacturing some for-
mulations. This agreement
is for the short term–until
Orchid gets its formulation
plant commissioned.
Evaluation Criteria # 8: Internationalisation of Business

Internationalisation of business for Indian drug firms is no longer a
matter of choice. In the product patent era, every company needs to
be research oriented. Pharmaceutical research is expensive and risky.
The costs of developing a drug have gone up phenomenally. The risks
and costs of developing new drugs cannot be borne by any one national
market. One has to graduate from exports to internationalisation of
business like Ranbaxy has.
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.

1. Ranbaxy High Ranbaxy is way ahead of its com-
petitors even in international
operations. It is the largest
exporter of pharmaceutical for-
mulations and bulk drugs from

India. The company’s revenues
from international operations
accounted for over half of its
total turnover of Rs. 13.3 bil-
lion in 1998. The company has
been viewing the world as its
market and operates in every
major market in the world.
The company has structured its
international operations in a
unique manner by dividing the
whole world into four regions,
each headed by a regional
director. There is a global mar-
keting division, which provides
strategic support from its cor-
porate office in Delhi. The
marketing offices and manu-
facturing bases, strategic
alliances, joint ventures and
marketing teams spread across
the world. Over 400 people of
different nationalities work in
the company’s various interna-
tional markets. It has truly
acquired an international
culture.
2. Dr. Reddy’s Medium The DRL group’s revenues
Labs from exports in fiscal’ 97 were
Rs. 2.56 billion. The company
has shifted its focus from mere
bulk drugs exports to the value
added activity of marketing
branded marketing of branded
generics in a number of
international markets. The
company has been a pioneer in
terms of exporting technology

and intellectual property as well.
The company has entered into
a landmark agreement with
international companies
like Novo Nordisk and
Debio Pharma for taking their
new molecules developed
at Dr. Reddy’s Research Foun-
dation (DRF) to further stages
of development and
commercialisation. Cheminor
Drugs has set up a new state-
art-of-the factory dedicated to
the production of generic for-
mulations of off-patent drugs
for the North American and
European markets. The com-
pany has entered into strategic
alliances with Pharmaceutical
Resources Inc. and Schein
Pharma in the US for this
purpose.
3. Cipla Medium Cipla has started an aggressive
pursuit of international
markets to exploit the oppor-
tunities that the liberalised
economy and the post-GATT
era have to offer, though
somewhat recently. The com-
pany has recorded an export
turnover of Rs. 1.1 billion
in 1998. Cipla’s strategy to
internationalise the business is
through the strategic alliance
and joint venture route with
local partners. Cipla will pro-
vide the technology and prod-
ucts and the foreign partners

will be responsible for
marketing.
4. Lupin Medium Lupin is the second largest
exporter, along side the
group of pharmaceuticals
from India. Lupin has forged
a number of strategic alliances
to exploit the exploding gener-
ics market in North America,
Europe and Japan. Lupin has
also about to acquired recently
Eli Lilly’s cephalosporins’ plant
in Puerto Rico as part of its
strategy to enter the North
American generics market for
off-patent cephalosporin for-
mulations. Lupin has achieved
an export turnover of Rs. 1.55
billion in 1997.
5. Wockhardt Medium The present export revenues
(1997) of Rs. 445 million of
Wockhardt are not indicative
of its true potential and capa-
bilities. The company has
made two strategic acquisitions-
Acumed in the US and Wallis
in the UK to exploit the rap-
idly growing generic market
for off-patent drugs in North
American markets.
6. NPIL Low Exports contributed only six
per cent to its total sales during
fiscal’ 97. The company is
pursuing the alliance route to
boost its exports. The
company has recently signed

two joint venture agreements –
one in the area of bulk drugs
with La Porte, the European
firm and the other is with
Siegfried of Switzerland
for off-patent generic
formulations to enter the
generic markets in the US and
European Union.
7. Torrent Medium Torrent has been a major
exporter in the past mainly due
to its huge exports to the
former USSR. After the disin-
tegration of the USSR and the
consequent process of liberalisa-
tion of CIS countries, exports
to these markets have become
very difficult. The companies
that were heavily dependent on
these predominantly institu-
tional markets for their exports
had found it extremely difficult
to adapt to the changing
market scenario.
8. Zydus Low Exports do not contribute
currently to total sales. The
company is pursuing the
strategic alliance route to boost
its exports too. Its recent joint
venture with BYK Gulden for
of Pantoprazole covers select
international markets in
addition to India. The
company’s new manufacturing
facility near Ahmedabad
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
has exported Rs.1.16 billion

worth of pharmaceuticals that
comprise bulk drugs and generic
formulations. It has a supply
and marketing arrangement
with a multinational in Europe
for some of its intermediates.
US FDA and UK MCA have
approved Ipca’s manufacturing
facilities at Ratlam.
11. Kopran Medium Kopran’s export turnover in
1997 was Rs. 1.39 billion. It has
been one of the leading export-
ers of pharmaceuticals from
India. Kopran has been trying
to focus on exporting generic
formulations and is planning
some strategic alliances and
joint ventures in the US, UK
and other key international
markets in this regard.
12. Orchid Medium Orchid is a 100 per cent export
oriented unit specialising in oral
cephalosporin bulk substances.
The company has also devel-
oped sidenafil citrate to
viagarize its performance and
has received permission from
the Drug Controller of India
(DCI) to export the same.
Orchid has achieved an export
turnover of Rs. 1.83 billion in
1997. The company has also
been active in developing anti-
viral drugs to diversify its
product portfolio.
Evaluation Criteria # 9: Intellectual Capital

In an open economy that is increasingly stock market oriented, one
tends to look at indicators with greater relevance to day-to-day
investment. A company may have a high but unproductive asset base.
Likewise, sales turnover alone does not mean much unless it is
remunerative. Finally, the profits generated have to be perceived by
the market to be of an enduring nature. When all these factors fall in
place, the firm enjoys a high market capitalisation.
Market capitalisation assumes greater importance when a company
decides to raise finance in the global market. Accurate pricing of the
shares of a company, which in turn is a function of the total market
capitalisation of the company becomes very important in a competitive
environment. Moreover, the Government of India would allow only
companies with high economic performance and market capitalisation
to approach international investors.
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

1. Ranbaxy High Ranbaxy is clearly the most valu-
able pharmaceutical company
in India. It is also the undis-
puted leader in the Indian
pharmaceutical industry. Only
in the domestic formulation

business, it is ranked second –
next to the industry leader
Glaxo.
The company has recorded a
sales turnover of Rs. 13.33
billion in 1997–98. Its average
market capitalisation during
the year has been Rs. 34.27
billion. The company is one of
the 100 most valuable
corporate houses in India,
across all industries. The
company’s net profit margin in
the year has been stable at 14
per cent of sales, one per cent
up over last year. Net profits,
however, showed an increase
of 16 per cent over the pre-
vious year. The company’s
P/E multiple is a healthy
21.4 per cent.
2. Dr. Reddy’s High DRL has brought significant
Labs credit to the country in its re-
cent licensing agreements with
two international firms, Novo
Nordisk for further develop-
ment and commercialisation of
the molecules developed at its
research foundation – DRF.
The company has renewed its
focus on its formulations
business and growing at a
significantly higher rate-three
times more than the industry
average. The company’s
turnover during 1997–98 was
Rs. 3.35 billion. When you
factor in Cheminor’s turnover

of Rs. 1.6 billion, the total
group turnover would be close
to Rs.5 billion. DRL’s net
profit margin has improved by
10 per cent over the last year
to 14.6 per cent during the
current year. Its P/E multiple
of 24.5 per cent has virtually
doubled over the last year. Its
average market capitalisation
during 1997–98 has been
Rs.7.8 billion. The average
market capitalisation of
Cheminor during the year has
been Rs. 1.56 billion. The
group has been steadily adding
market value and would be
among the most valuable
corporate houses in the Indian
pharmaceutical industry in the
medium to long term.
3. Cipla Medium Cipla has been close on the
heels of Ranbaxy in the domes-
tic formulations market. It is
Ranbaxy’s international opera-
tions that create the big gulf of
difference between the two
companies. Cipla has been one
of the most valuable companies
in the Indian pharmaceutical
industry. The company has
achieved a turnover of Rs. 5.38
billion in 1997–98. Its net
profit margin of 18.9 per cent
of its sales is an improvement
of 27 per cent over the last year.
The company’s average mar-
ket capitalisation is Rs. 13.42

billion during the year. Its EPS
is 50.8, the highest among the
pharma companies in India
during the year. It has P/E
multiple of 17.9 per cent.
4. Lupin Medium Lupin’s shareholder value
has eroded during the year
1997–98, though the company
is no doubt a world leader in
the anti-TB segment. But then,
the segment is price controlled
in India, resulting in very low
margins. The company has
been aggressively planning to
become a vertically integrated
player in the oral and sterile
cephalosporins market. This
would help the company to be
internationally competitive
and help improve its overall
profitability. Lupin has
billion in 1997–98. When you
add the turnover of Lupin
Chemicals, the total turnover
is Rs. 7.35 billion, making it the
second largest pharmaceutical
company in the Indian sector.
The company’s net profit
margin is very low at 3.8 per
cent. Its average market
capitalisation too has been low
for its size and infrastructure at
Rs. 2.54 billion.
5.Wockhardt Medium Wockhardt has been among
the top three in terms of prof-
itability over the years. The

company’s net profit margin
has eroded by 17 per cent over
the last year, mainly due to the
merger with Merind (whose
profitability is considerably
lower). Wockhardt’s net profit
margin is still high by industry
standards at 18.9 per cent.
It has achieved a turnover
of Rs.3.25 billion during
1997–98. The company’s aver-
age market capitalisation dur-
ing the year has been Rs. 7.2
billion. The company, consid-
ering its future plans and track
record, is poised to be among
the most valuable pharma com-
panies in India.
6. NPIL Medium NPIL has notched up a sales
turnover of Rs.5.48 billion dur-
ing 1997–98. The company has
yet to reach the profitability
rates that its size demands. The
company’s average market
capitalisation during the year
has been Rs. 7.54 billion. Its net
profit margin is however, very
low at 4.9 per cent of sales. The
company is currently in the pro-
cess of consolidating and re-
structuring its operations. Its
recent acquisition of Hoechst’s
research centre and the tripar-
tite joint venture with two in-
ternational companies for
bulk actives globally clearly in-
dicate the company’s determi-

nation to make it to the top in
the Indian pharmaceutical
industry. The company would
be able to enhance its market
value considerably in the com-
ing years.
7.Torrent Medium Torrent’s market value has
eroded during 1997–98. Its av-
erage market capitalisation dur-
ing the year has been Rs. 1.68
billion. The company has
achieved a sales turnover of
Rs. 3.72 billion. Its net profit
margin is low at 10.7 per cent
during the year. Its P/E mul-
tiple also needs to improve
from its present 5.7 per cent.
8. Zydus Medium Zydus is still a closely held com-
pany. It is planning to go pub-
lic in the near future. Zydus has
built a sizeable brand equity. It
has a number of marketing al-
liances and joint ventures in
place to fuel its growth objec-
tives. It has built good customer
franchise. It has one of the larg-
est well-trained sales teams in
the industry. It has a large dis-
tribution net work of stockists
and retail pharmacies.
9. Sun Pharma Medium Sun Pharma has been a front
runner in terms of profitabil-
ity right from the start. The
company’s net profit margin
has, however, eroded during
1997–98 by 25 per cent to 18.5
per cent. This is mainly due to

its merger with TDPL, which
has low profit margins. Sun has
billion during the year. The
company’s average market
capitalisation has been Rs. 3.88
billion during 1997–98. Its
P/E multiple needs improve-
ment from its present 6.9
per cent.
10. Ipca Medium Ipca has achieved a sales
turnover of Rs. 2.92 billion
during 1997–98. Its net profit
margin is low at 6.6 per cent
during the year. The company’s
during the year has been
Rs. 1.42 billion.
11. Kopran Low Despite a sales growth of 22 per
cent over the previous year,
Kopran’s net profit margin
declined by 11 per cent during
1997–98 to 10.9 per cent. The
company’s market value too
has eroded during the year. Its
during the year has been
Rs. 2.21 billion, with a sales
turnover of Rs. 3.6 billion. The
company has undertaken a
major restructuring exercise to
sharpen its focus on the value
added formulations business in
India and abroad. This should
improve its profitability in the
medium to long term.
12. Orchid Low Orchid’s turnover during

1997–98 has been Rs. 2.44
billion. The company is a 100
per cent export oriented unit
focusing only on oral and sterile
cephalosporins bulk actives.
The company is diversifying
into other product areas and
also integrating forward into
value-added formulations.
Orchid’s average market
capitalisation during the year
has been Rs. 1.77 billion,
decreased by 11 per cent from
the previous year. Its P/E
multiple is also low at 4.3
per cent.
Evaluation Criteria # 10: Operational Excellence

Implementing a strategy is as important as formulating it in the first
place. Elementary as it may seem, the best of strategies can not produce
even acceptable results let alone the planned ones, if they are not
implemented effectively.
Operational excellence is the firm’s ability to execute its strategic plans.
It spans the entire gamut of functions that a firm is engaged in.
A firm can achieve leadership position in the market place, only when
it excels in its operations. That is a cardinal principle.
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

1. Ranbaxy High Ranbaxy is doing the right
things as well as doing things
right. The company is highly
effective in prioritising its ac-
tion programs. It has an indus-
try foresight that is head and
shoulders above the competi-
tion. That is how and why the
company is more than twice as
big as its nearest competitor in
terms of sales as well as profits.
The company has been meticu-
lous in implementing its game
plans. The company also invests
considerably in acquiring and
developing its managerial tal-
ent. The company’s investment
in its intellectual capital is far
above the industry standard in
India. Little wonder then, that
its managers are more in-
formed than their counterparts
in other companies.
2. Dr. Reddy’s Medium It is “first things first” at DRL
Labs now. The company has decided
to stick to the knitting and
move out of its unrelated diver-
sifications. The company has
got its priorities clear: research,
marketing and people. The
group has been very effective
in implementing its action
plans. Pays adequate attention
to the development of people.
The company has highly quali-
fied and competent personnel.
It invests in modernisation, au-

tomation and information tech-
nology.
3. Cipla High Cipla too, has got its priorities
right. It is highly task oriented
and runs a tight ship. It has a flat
organisational structure. The
company develops its managerial
talent and competence through
a series of assignments. The com-
pany has got very efficient
systems in place. It has a high de-
gree of implementation. There
has been a very high turnover
of people in the recent past, but
the organisation has continued
to grow to the surprise of its com-
petitors because of its proven sys-
tems. Cipla is truly a performing
organisation. Quality conscious-
ness and orientation are very
high across the organisation.
The company is also known for
its effective and quick decision
making capabilities.
4. Lupin Medium Lupin has realigned its priorities
and decided on building on its
core competencies. The com-
pany has seen a very high
manpower turnover during the
recent past. It invests adequately
in developing its managerial tal-
ent now.
5. Wockhardt Medium Wockhardt has been a highly
effective organisation. It invests
considerable effort in human
resources development (HRD).
The company has successfully

implemented all its expansion
plans and projects. The
company’s ability to retain its
talent is very high.
6. NPIL Medium NPIL has clear goals. The
company knows where it
wants go, and knows how
to go where it wants to go.
Effectively implemented all its
acquisitions, mergers and joint
ventures. The group invests
considerably in automation,
modernisation and human
resources development. The
company has to improve its
marketing effectiveness.
7. Torrent Medium Torrent too has been a highly
successful organisation. The
company has moved into
the top ten of the Indian phar-
maceutical industry with break
neck speed. The company in its
quest for size rather than focus
has diversified into a number
of unrelated areas like power,
cables and leasing etc. The com-
pany has, however, been trying
to bring back its focus on its
core competence in the phar-
maceutical business. Torrent
has efficient systems in place.
The company is just about ad-
equate in its HRD activities and
investment.
8. Zydus Medium Zydus is determined to become
a performing organisation. It
has set its priorities right. Bal-

ances its orientation to people
and tasks. It invests considerably
in developing its people. Its abil-
ity to implement and carry out
the company’s action plans is
above the industry average.
9. Sun Pharma Medium Sun has been a highly success-
ful organisation right from the
start. Sun has got its priorities
right from a strategic point of
view. Its ability to strategise far
exceeds its ability to imple-
ment. The company is in the
process of developing efficient
systems to make its operations
effective. The company pays
more attention to acquiring
talent rather than to nurturing
it. The company plans to invest
in developmental effort.
10. Ipca Medium Ipca has implemented its ex-
pansion programs and
upgradation programs effec-
tively. It has concentrated on
technological upgradation till
now, as it is essential to be suc-
cessful in the bulk drug business
internationally. Having
achieved that, the company is
now refocusing on marketing
formulations. Its investment in
human resource development
is just about adequate and
needs to be stepped up.
11. Kopran Medium The company has a strong
presence in bulk drugs. The
company has been shifting its

focus and emphasis on the value
added formulations business.
The company is right now,
planning a major restructuring
process to sharpen its focus on
formulations marketing in India
and abroad. Kopran has been
very effective in implementing
its technological upgradation
and expansion programs.
12. Orchid Medium While Orchid has successfully
implemented all its projects as a
100 per cent export oriented
unit of bulk drugs, its opera-
tional excellence remains to be
tested in the fiercely competitive
formulations business. Branded
generic formulations business is
a different ball game altogether.
Apart from technological supe-
riority, it requires a definite mar-
keting mindset for formulating
strategies as well as executing
them.
The Top ‘Twelve’

These top twelve companies account for more than half of the total
sales of the domestic sector in the Indian pharmaceutical industry and
over a third of that of the total pharmaceutical industry in India. The
game plans for competing effectively in the post-GATT era are given
adequate weightage in this qualitative assessment. The degree of
preparedness and the ability to see the future before it arrives are
important factors for achieving success. Here are (Table 16.1) the top
‘twelve’ Indian pharma companies which are having a strenuous
workout to beat the heat out of GATT:
Table 16.1
Ranbaxy
Dr. Reddy’s Labs
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.
Table 16.2
Top twelve: annual sales and exports for fiscal 1997
Company Sales Exports Exports to total

Rs. Million Rs. Million sales (%)
1. Ranbaxy 13,415.9 5,908.8 44

2. Lupin Labs 8,043.1 2,333.8 29
3. NPIL 5,346.4 316.4 06
4. Cipla 5,144.3 736.1 14
5. DRL Group 4,865.0 2,162.3 44
6. Wockhardt 4,021.8 821.5 20
7. Torrent 3,635.7 1,074.9 30
8. Kopran* 3,420.0 - -
9. Zydus 3,382.7 - -
10. Ipca 2,803.1 1,388.3 50
11. Sun Pharma 2,670.2 357.2 13
12. Orchid 2,410.2 2,151.6 89
Total 59,158.43 3,897.1
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
The Next ‘Six’

The next ‘six’ companies that are actively preparing for competing
effectively in the coming product patent regime account for about 12
per cent of the total sales of the domestic sector in the Indian
pharmaceutical industry. They seem to be emulating the leading Indian
pharma companies. Being followers, they have yet to reach the critical
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).
Exports accounted for a third of the company’s total sales during

fiscal’ 97. Aurobindo Pharma is currently exporting its products to more
than 55 countries. The company is setting up two wholly owned
subsidiaries in the US and Hongkong to increase its presence in
international markets.
Having established in bulk drugs, Aurobindo Pharma is now focusing
on formulations.
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.
4. J B Chemicals & Pharmaceuticals

J B Chemicals & Pharmaceuticals manufactures and markets both bulk
drugs and formulations. It is a dominant player in the anti-amoebic
market with its metronidazole bulk drug as well as formulations. Its
Metrogyl (brand of metronidazole) is a leader in the segment. The
company has recorded a sales turnover of Rs. 1.89 billion in fiscal’ 97,
an increase of eighteen per cent over the previous year.
Exports drive the performance of the company, contributing to about
45 per cent of its total sales during fiscal’ 97. The company has a
strong presence for its over-the-counter cough and cold preparation –
Doktor Mom – in the Russian market. In fact it is the second largest
selling cough and cold preparation in the Russian market.
The company’s small volume parenteral manufacturing facility at Panoli
in Gujarat conforms to US FDA standards.
The company is exploring the possibilities of entering into strategic
alliances to tap overseas markets.
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.
Unichem has an impressive bulk-drug portfolio too. It has cost-effective

alternative processes for more than twenty-three bulk drugs. The
company is planning to enter the rapidly growing and lucrative off-
patent generic formulations in the US, UK and the branded generic
market in South Africa. Unichem’s plant at Roha meets US FDA
standards. The company is working on Abbreviated New Drug
Applications (ANDAs) for four products in anti-amoebic and anti-
hypertensive categories.
Unichem has achieved a sales turnover of Rs. 1.59 billion for fiscal’ 97.
Bulk drugs accounted for 12.4 per cent. Exports are not significant at
the moment but can gain momentum once the company’s facilities
are approved by international regulatory authorities like US FDA and
UK MCA.
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.
The Next ‘Six’ – How are they faring?

The next six companies account for about 12 per cent of the total sales
of domestic sector of Indian pharma industry. The details of sales
turnover and exports pertaining to these six companies are presented
in Table 16.3.
Table 16.3
Competing for post-GATT era: The next ‘Six”
Company Gross sales Exports Exports to

(03/98) total
sales(%)
1. Alembic 3,118.5 492.3 15.8
2. Aurobindo
Pharma 2,953.1 939.9 31.2
3. Cadila Pharma 2,380.0 - -
4. J B Chem
& Pharma 1,875.3 736.1 39.2
5. Unichem 1,589.3 60.5 03.8
6. Morepen 1,846.2 255.6 13.8
Total 13,762.43 2484.4 18.1
Survival of the Fittest!

How do you describe a competitive situation like this ? 16,000 companies
fighting for a share in a market that is Rs 160 billion large. That it is
fierce? A rat race? A dog-eat-dog type? Before using any of these labels
consider these facts:
The Indian sector accounts for about 70 per cent of the market and
multinational sector the balance 30 per cent
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”.
Industry experts predict that the number of companies in the post-

GATT era will dwindle considerably. Industry will consolidate itself
during this period. Some would even suggest that the number of
companies operating in the Indian pharmaceutical industry would be
around three hundred by the time dust settles. While it is difficult to
say how many companies would win, how many will survive and how
many will remain as mute spectators, watching these rapid changes,
the portents are clear that the consolidation phase has commenced
and will continue. It is also difficult to predict who will be predators
and who will be the prey. Today’s predators can as well be tomorrow’s
prey to some other larger, more powerful predators, who will be on
the prowl.
Fiercely competitive or not, the market place is ruthless and merciless.
In such an environment only the fittest survive.
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17
TOP OF THE HEAP
Executive Summary
The marketing environment of the pharmaceutical industry

in India is undergoing a radical change. The transition
from the process patent raj to the product patent regime
has not been smooth. About eight companies either have
been already acquired or merged with predator companies
during the last four years. More recently two more companies
are up for sale as they have been declared sick. Close to
one hundred brands and generic products have changed
hands during the same period. The predators continue to
be on the prowl, this time more for brand acquisitions
rather than for company acquisitions.
Competition continues to be at its fiercest for a market
with a size of about $3 billion, growing to $6 billion
within the next four years. 16,000 companies are battling
it out for staking a share. Less than three hundred
companies out of these form the organised sector, which
accounts for almost ninety per cent of the industry’s
total sales. That is the equation of competition for you.
The twelve companies discussed in the previous chapter
are at the top of the heap. How did they do it? What are
the strategies they have adopted to reach the top in such
a fiercely competitive industry? How are they preparing
for the future?
Twelve case studies profile each of these companies and

highlight the basic strategic approaches that these
successful companies have been following to stay
competitive even in the post-GATT era. There are many
invaluable lessons for the discerning reader in these,
whether he is an executive who is shaping the future of
his company, an analyst studying the corporate performance
or is a management student in pursuit of understanding
how companies achieve sustainable superior performance.
Here are the success stories of companies who have reached
the top of heap...
Top of the heap 345
17 TOP OF THE HEAP
1. Ranbaxy: No tail lights ahead, No head lights behind!

Ranbaxy is the only Indian pharmaceutical company with a truly global
out look. It has many distinctions to its credit. Consider these for
example:
 Ranbaxy has moved into the top 100 pharmaceutical companies’
league in the world. It is the first Asian company to achieve this.
 Ranbaxy is one of the top 50 Asian companies that are best prepared
to excel in the global market place of the 21st century, according to a
survey of 4500 listed companies from 14 Asian countries by Arthur
D. Little and Asia Inc. The survey ranked Ranbaxy in eleventh place:
one of only 5 Indian companies in the top 50 and the only
pharmaceutical company in the top 25.
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.
The company is a leading player in the domestic market, with an

undisputed leadership position in the anti-infective segment, which
accounts for almost a quarter of the Indian drug market. Ranbaxy has
achieved a dominant leadership position in the domestic market. It is
more than twice as big as its nearest Indian rival. Ranbaxy’s total
turnover in fiscal 1998 is over Rs. 13.3 billion, whereas the second
largest player in the Indian sector – Cipla has recorded total sales of
about Rs. 5.6 billion during the same period. Ranbaxy’s sales from
international operations alone are more than the total sales of other
pharma majors in the Indian sector.
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
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growing generic drug firm from Israel, there are not many international
generic drug firms that are as vertically integrated as Ranbaxy.

Ranbaxy is a market-driven company. Three of its brands are among
the top ten of the Indian pharmaceutical industry. The company has
12 of its prescription brands among the industry’s top 250. In addition
to its brand building activity in the domestic market, Ranbaxy has also
been investing in a global brand building exercise. It has identified 25
molecules that are going off-patent before 2005. The company is
planning to channelise its integrative power and manufacturing
infrastructure at home and abroad to achieve synergies in building
these into 25 global generic brands.
Structure is another area where Ranbaxy is distinctly different from
other pharmaceutical companies in India. It is trying to shed the typical
headquarters mentality of management and has created four well-
thought out regional headquarters to manage its far-flung business
operations. The four regions are the Americas, with Raleigh as
headquarters, Europe, CIS and Africa with London as headquarters,
India and the middle East with New Delhi as headquarters and Asia
Pacific with Hong Kong as headquarters.
Harnessing the Alliance Power

The company is very well poised to exploit the big opportunity of the
generic markets in the West, particularly the US. It already has approvals
for two products. Ten more ANDAs are awaiting approval. The company
is planning to file ten ANDAs every year and is likely to have an optimum
product portfolio of 35 to 40 generic formulations by 2003. Ranbaxy is
confident of generating a sales turnover of $ 150 million out of these by
2003. To achieve this ambitious objective the company has already
acquired a generic company in the US and has formed, in addition,
strategic alliances with Schein Pharma and HMS to market its generic
formulations. Ranbaxy is already preparing to have a full-fledged
marketing team in the US by the year 2003.
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
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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.
2. Dr. Reddy’s Labs: It’s time to dream again!

Dr. K. Anji Reddy had a dream in the mid-eighties when he founded
DRL – to put India on the bulk drug map of the world. He has helped
many of his scientists master the reverse engineering of process
technology and has achieved phenomenal success in developing cost-
effective processes for many of the new molecules.
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
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
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company has also developed highly cost effective alternative processes

for a number of bulk drugs, making DRL one of the most integrated
among the Indian pharma companies.
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.
The Right Move

DRL is planning to merge two of its group companies – Dr. Reddy’s
Laboratories and Cheminor Drugs. The merger will help the group in
optimising their resources and eliminating redundencies. Above all, it
will push DRL to the 6th position among the pharma companies in
the domestic sector. DRL, after the merger, will be the third largest
exporter of pharmaceuticals from India. It is indeed the right move!
3. Cipla: Capable! Confident! Committed!

If there is one word to describe Cipla’s performance over the years
that is consistency! With a turnover of Rs. 6.16 billion in fiscal 1998,
Cipla has consolidated its coveted position as the third pharmaceutical
company in the Indian market.
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
Zollinger-Ellison Syndrome. In each therapeutic segment the company

offers a range of molecules from conventional to the most modern and
is better suited to offer almost total solutions for a disease management
approach.
The company has an enviable customer franchise in all key prescriber
segments. It has also one of the most efficient and effective distribution
networks with the company’s own depots, stockists and retailers. As
the company is one of the front runners in terms of prescription
generation in the Indian pharmaceutical market, it enjoys considerable
franchise even in the trade.
Cipla has a dominant leadership position in the anti-asthmatic market
in India, way ahead of even the industry leader – Glaxo. It also has a
sizeable share of the antibacterial and anti-infective segment. The
company is among the top seven in the cardiovascular segment. Cipla
has eleven of its brands among the industry’s top 250. All these facts
amply demonstrate that Cipla has been carefully nurturing its brands
and building brand equity steadily in a strategic manner. The company
defends its market share in all its key therapeutic segments with regular
promotion and appropriate new introductions.
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).
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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.
Achievement – A Way of Life!

Cipla has achieved a turnover of Rs. 616.8 million in fiscal 1998. Exports
have grown by 60 per cent to Rs. 116 million. The company’s net profit
too has gone up by 12.8 per cent to Rs. 115 million.
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!
4. Lupin: Leapfrogging into the top league!

Started with the small change of an investment of five thousand rupees
in 1968, Lupin has leapfrogged into the top league in the nineties.
With the recent proposed merger of its group company – Lupin
Chemicals with the flagship company Lupin Labs, the company will
become the second largest company – next only to Ranbaxy – in Indian
pharmaceutical industry.
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.
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 A number of major molecules in the sterile cephalosporin segment

are going off-patent in the next few years.
 There are only three to four integrated players in the world
cephalosporin market.
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.
5. Wockhardt: Working Hard!

Wockhardt and hard work may not be synonymous in a semantic sense,
but they do have phonetic similarities. The ‘sounds’ of ‘Wockhardt’
and ‘work hard’ are pretty close!

Wockhardt has a diversified product portfolio. In the domestic market
it concentrates on formulations. Its top five brands account for half of
the company’s domestic formulations’ sales. Currently, Wockhardt has
a strong presence in the pain management and wound care segments.
The company has restructured its domestic marketing operations to
increase thrust on fast growing therapeutic segments such as cardiac
care, paediatric care and gynaecology. The company has plans to increase
its presence in oncology and gastroenterology segments as well.
Wockhardt has strong presence and ranks second, next only to Core
Health Care, in the ‘parenterals’ market. The company is mainly
competing in the branded intravenous fluids segment.
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.
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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.
Wockhardt! Work smart!

Wockhardt has recorded a turnover of Rs. 4.02 billion in fiscal 98. Its
exports have grown by about 22 per cent to Rs. 820 million.
Wockhardt has chalked out a blue print for succeeding in the post-
GATT era. It has made many right moves, be it focus on select
therapeutic segments, technology upgradation, stepping up of R&D
effort, export thrust and internationalisation process except one:
unrelated diversification to reach the critical mass in terms of turn over.
The company with a view to regaining focus on its core business is
demerging. This demerging will sharpen its focus on pharmaceuticals
and help the company stick to the knitting.
Wockhardt is one of the five Indian pharma companies who are well
prepared to meet the challenges of the post-GATT era. Wockhardt’s
motto? Wockhardt! Work smart!
6. NPIL: Taking over to overtake!

Ajay Piramal entered the Indian pharmaceutical industry in 1998 rather
quietly through the acquisition route. He acquired Nicholas Laboratories
of Sarah Lee Corporation for Rs. 16 million. No one would have
visualized that this small step would mean a giant leap into the top
league of the Indian pharma industry. But, that is precisely what he did
in about ten years time. He steamrolled into the industry’s prestigious
top five by 1998. How did he achieve this? By doing what he knows best
and what he does best, taking over three more companies and a famous
research centre between 1993 and 1998. Here are the details:
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:
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 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.
Size Does Matter!

Ajay Piramal, chairman of Piramal Enterprises in his presentation at a
seminar on corporate restructuring organised by the Federation of
Indian Chambers of Commerce and Industry (FICCI) said, “size does

matter. The organic growth of their pharma group has been at a
compounded annual growth rate of around 50 per cent.”
The pharmaceutical group of Piramal Enterprises is expected to achieve
9.86 billion in sales and Rs. 790 million in net profit for fiscal 98.
Piramal Pharma group is the most integrated pharmaceutical companies
in India. It has a strong either already presence or building one in all
related areas like pharmaceutical formulations, bulk drugs and
intermediates, OTC pharmaceuticals, research and development,
penetrating international markets and clinical research. It has also
been steadily investing in building a strong sales and distribution
network. The sales force has increased from 191 in March 1990 to
2000 in March 1999 (including JVs like Sarabhai Piramal, Reckitt &
Colman.
Ever since Piramal has entered the pharma business by acquiring
Nicholas Laboratories from Sarah Lee Corporation of the US in 1988,
the pharma group has grown at a compounded annual rate of 52.1 per
cent in PAT and 42.9 per cent sales.
What is the secret of this success? The Piramal prescription for success
is: Build state-of-the-art technology, invest in research and development,
boost sales and distribution network, rope in international partners,
seek international listing, get access to global funding.
7. Torrent: Torrential Still!
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.
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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.
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.
Structuring for Success!

Torrent too in its chase to reach the critical mass in terms of size has
gone into unrelated diversifications. It has lost its leadership position
in Neuropsychiatry to Sun Pharma. Its pharmaceutical business having

grown at a torrential rate has started showing signs of exhaustion. The
company realised it quickly enough and started refocussing and
restructuring. The Company to maintain its competitive edge in domestic
market has once again formed three SBUs – Prima, Vista and Psychona
to cater to different speciality segments. Torrent seems to be determined
to stick to the knitting. It’s structuring for success once again!
8. Zydus: The A to Z of Alliance Power!

What is commendable about the Zydus group (Cadila Health Care) is
that it has been able to return to the top five league (a position held by
the undivided Cadila in 1995) in the Indian pharmaceutical industry,
within just four years. The first thing that they have done is to give a
distinct identity to their group. This was absolutely necessary since both
the companies after the division wanted to use and capitalise on the
corporate brand equity of the ‘Cadila’ name. Cadila Health Care group
have chosen the name of the Greco-Roman god – ‘Zeus’ – and spelt it
as Zyus due to proprietary reasons. They have added a ‘D’ in between
signifying the ‘dawn of a new era in health care.’ That is how the new
identity ‘Zydus’ was created by, for and of the Cadila Health Care group,
to paraphrase Abraham Lincoln.
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
The Silk Route

What is the silk route to growth and prosperity of pharmaceutical
companies in these changing times? Acquisitions and alliances of course!
Zydus has chosen this proven path to reach the critical mass faster. In
1996 it took over the loss making Indo Pharma, turned it around and
merged it with the group in 1998, catapulting the Zydus group into the
top 5–6 companies in the Indian pharmaceutical industry. The company
has earmarked Rs. 1.5 billion for acquiring businesses and brands.
Alliances are the engines of growth at Zydus. The company has entered
into thirteen strategic alliances of various types, shapes and sizes at the
last count. Its alliances cover a wide spectrum of areas including
marketing, manufacturing, technology transfer and research in bio-
pharmaceuticals, bulk drugs and dosage forms with leading
international companies.
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.
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
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.
9. Sun Pharma: The Rising Sun!

From a turnover of less than Rs. 1 million in 1982, Sun Pharma has
achieved a sales turnover of Rs. 2.6 billion in 1998. This is indeed a
spectacular achievement by any standard.

Sun Pharma has been a master of Niche Craft. The company has
chosen the path of least resistance (as Dilip Shanghvi, its ebullient
managing director would like to call it) to enter the Indian
pharmaceutical industry in 1982. The road of speciality segments like
psychiatry, neurology, cardiology and gastroenterology, which was less
travelled in the late seventies and early eighties has become the most widely
travelled by the late nineties.
Sun Pharma has been a sort of trail blazer in structuring its marketing
operations around select therapeutic and prescriber segments. The
trend that it has started in 1993 has become today almost an industry
standard. Many companies are making a beeline to start speciality
focused marketing divisions. Sun Pharma is more focused in its speciality
orientation than any other Indian drug firm. It has eight SBUs with a
focus on fifteen different specialities.
SBU Focus segments

1. Synergy Psychiatry, Neurology
2. Symbiosis Psychiatry, Neurology
3. Aztec Cardiology, Diabetology
4. Sun Gastroenterology, Orthopaedics
5. TDPL Gynaecology, Paediatrics, Dermatology
6. Solares ENT, Orthopaedics, Respiratory
7. Inca Anaesthesia, Oncology, Critical Care
8. Milmet Opthalmology, ENT
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.
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.
Ignites the SPARC

What separates Sun Pharma from its peers is that the company has set
up a modern research centre – Sun Pharma Advanced Research Centre
(SPARC) – with a capital of Rs. 50 million in 1992, when the company’s
turnover was only around Rs. 200 million. Sun Pharma was also one
of the first companies to set aside 4 per cent of its turnover for R&D.
Top of the heap 367
Will the Sun Continue to Rise?

Sun Pharma’s structure of domestic operations should ensure
continuous success. At the same time, it is not going to be as smooth
and as easy. More and more companies with a similar or even greater
resource bases are entering the speciality segments. Competition in the
segments is intensifying.
Although Sun Pharma has been growing rapidly over the years, its
productivity is not in tune with its growth.
If Sun Pharma can focus on consolidation without being complacent
and concentrate on the productivity side of the equation it can continue
to rise and rise. It does not have to see the sunset!
10. Ipca: Improving Constantly!

Ipca has achieved a dominant and formidable leadership position in
the domestic anti-malarial market – both in formulations as well as in
bulk drugs. It has a 40 per cent share of the chloroquine bulk drug
market but margins are low mainly due to price controls and the high
level of competition.
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
approved Ipca’s bulk drug facility at Ratlam in Madhya Pradesh. In

addition, UK’s MCA and Ministry of Health of Germany have approved
Ipca’s formulation plant at Athal in Gujarat.
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.
Research and Development

Ipca has set up three R&D centres (each with a team of 37 people) at
Mumbai, Ratlam, and Indore which are recognised by the Department
of Science and Technology. The company has spent Rs. 31.8 million in
fiscal 98 on R&D.
Moving up the Value Chain

Having established an impressive manufacturing infrastructure Ipca
has achieved the status of one of the most attractive alliance partners
in India for international suitors.
The company is now focusing on formulations business and move up
Top of the heap 369
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!
11. Kopran: ‘Koping Up’ with the Changing Times!

Kopran has emerged as one of the world’s leading manufacturer of
amoxycillin. The company has been traditionally focusing on semi-
synthetic, penicillin-G based antibiotic bulk drugs such as amoxycillin,
ampicillin etc. Amoxycillin accounted for two-thirds of the company’s
bulk drug sales in fiscal 97. Although Kopran is a highly integrated
player in the amoxycillin segment and the molecule is expected to grow
at a CAGR of 10–12 per cent over the next five years, two factors, the
large number of players and over capacities leading to a pen-G glut
world wide, are pulling the prices and margins down. Kopran’s
profitability consequently has been adversely affected.
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-
sensitive bulk drug segment, Kopran is sharpening its focus on

formulations. The company has achieved brand leadership in the beta-
blocker segment with its ‘aten’ brand of atenolol.
Coping with Challenge of the Change!

Kopran has a formidable task at hand. Its margins have come under
severe pressure due to drop in international prices of one of the major
raw materials and intensified competition at home and abroad.
Kopran is actively working out plans to cope with its changing business
environment as a bulk drug company and is preparing to meet the
challenges:
1. Moving up the value chain with renewed emphasis on formulation.
The company has in all created three marketing SBUs to focus on
specific speciality segments.
2. The company is planning a major restructuring of its business. It is
separating bulk drug and intermediaries, pharmaceuticals and R&D as
individual businesses to achieve sharper focus.
3. The company is entering into a number of strategies alliances to
exploit marketing opportunities in domestic as well as international
markets.
Kopran has indeed shown true grit in meeting the challenges of the
changing business scenario.
12. Orchid: In Full Bloom!

Orchid Chemicals & Pharmaceuticals, in a short span of time, has
garnered a 13 per cent share in the global bulk cephalosporin market.
Orchid starting off as a 100 per cent export oriented unit with an
installed capacity of 90 tonnes, has consistently added capacities to reach
the current capacity of 450 tonnes.. This year it will add another 20
per cent.
The company exports most of its production and has a wide reach in
40 countries. The bulk drug market, being highly price sensitive, forces
the company into a volume game to maintain growth.
Top of the heap 371
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.
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
value addition to its customers. And more importantly in making them

perceive the differentiation and value addition!
The company is looking at various options like private placement or
raising funds through offering a stake to a foreign partner, to reduce
the heavy interest burden of Rs. 300 million (estimate for fiscal 98).
Prescription for Success

A detailed analysis of all these successful companies reveals the basic
elements of a winning game plan. The strategic approaches of all these
companies are similar. The differences exist only in terms of:
A. Relative emphasis on certain strategic elements
B. The stage of evolution at which it currently is
C. The levels of knowledge, skills and core competencies
D. The point from which they started the business and strategic
integration process and above all
E. The capabilities to execute and implement the strategic action plans
What is the prescription for success in the post-GATT era? First things
first. It is important to have a clear objective of where the organisation
wants to be in the foreseeable and in the distant future. Then draw up
a blue print for reaching where it wants to reach. Here’s the prescription
for success or the winner’s ‘know-how’ and what other companies are
eager to ‘know how’ the successful companies have been doing it!
1. Reach the Critical mass: Do not just sit there on your laurels. Do
some thing to improve market share, sales and above all profits.
Grow organically. Buy businesses. Buy brands. Buy facilities in India
and abroad. Do something. Do anything to reach the critical mass.
Do it now!
2. Make yourself an attractive partner: To be an attractive alliance partner,
one needs to have a strong marketing infrastructure, a strong
presence in more than one therapeutic area, world class
manufacturing facilities, wide distribution network and good
customer franchise. Once you have all these, it is easier to license-in
new products and technologies from multinationals currently not
having any representation in India. You can keep your new product
Top of the heap 373
pipelines flowing freely with new products even in post-GATT era.

Remember: new products are the lifeblood of any business. They
are not only essential for growth, they are vital even for survival.
3. Increase your R&D effort and investment: It is important to enhance
the process and product development skills of your organisation
even if you want to retain your current position. To accelerate growth
and stay ahead of the competition, the R&D effort has to be at a
much higher level. Process development capabilities can help the
organisation achieve a higher level and degree of strategic integration
into bulk drugs and intermediates. This, in turn, will enable the
firm to achieve greater control on costs, quality and even strategy.
An international generic firm needs to achieve cost leadership in
order to be competitive. Product developmental capabilities will help
create the much needed product differentiation, which is crucial
for success in the fiercely competitive market place. The organisation
needs to have a clear strategy for research to graduate into analogue
research and its own drug discovery program before the window of
opportunity is closed.
4. Step up exports and draw a blue print for internationalisation:
Exports can bring in higher price realisations even in the current
era of cost containment strategies practised by various national
governments. It is important to draw up a clear strategy to gradually
move up the value chain in exports, from exporting bulk drugs and
intermediates to generic and branded generic formulations and to
even innovative products over time. Moving up the value chain
will also involve a movement from markets with weak or no IPR
protection to highly industrialised, hard currency countries with
very strong IPR protection and stringent regulatory requirements.
Again, all this has to be achieved in compressed time if one is starting
now. Buying up a manufacturing facility or an existing generic
business overseas is an alternative to the creation of a beachhead
through a green field venture in these difficult-to-penetrate markets.
5. Use benchmarking as a strategy to excel at operations: Successful
organisations the world over no longer set goals. They benchmark
against the best practices of firms across the board. One needs to
excel in all departments of the game in order to win. Today the basic
knowledge about what strategies should be adopted to succeed in
the post-GATT era is widely known. The degree of insight and

understanding may differ from firm to firm, but the basic strategy is
clear to all. When the strategy is common and broadly understood
what is the most crucial success factor? Operational excellence.
Implementation capabilities. It is the ability of an organisation to
execute its strategy effectively that determines its success or failure.
It is the vital difference between winning and running a race.
Winner’s checklist 375
18
WINNER’S CHECKLIST
Executive Summary
It would be hard to find out a company that can do

business in the ‘product patent regime’ as it did in the
‘process patent raj’.
A few companies have responded effectively. Many are not
able to respond adequately. One reason for the ineffectual
response is that business leaders simply have not
appreciated the rate and pace of change - how the ‘has
become’ is becoming.
The key to success is in anticipating change before it
arrives, and evolve, plan strategies to ride it, to
master it.
The winners’ checklist is about asking some of the
important questions that should signal to a company how
the change is taking place and how much ‘it’ needs to
change.
The major drivers of change are in areas like:
A. Information technology
B. Global perspective for global markets
C. Ethical corporate behaviour
D. Responsibility to society at large, not just share

holders
E. Total customer solutions
Here then, are twenty key questions every business leader
should ask (and answer). Here’s the winners’ checklist.
Check it out!
18 WINNER’S CHECKLIST
The rate of change in the Indian drug industry is so high that

incremental improvements will not work, let alone maximise your
potential. Gone are the days when you could gain a competitive edge by
developing a slightly better way of doing things. The pace of change is
so rapid that it is almost like a gale force wind. If you aim to take a small
step or two you will probably end up going backwards. You need to take
a big step into the teeth of the gale merely to hold your position. To
move forward you have take more than one big step at a time. The
change has to be revolutionary, not evolutionary.
Consider what Gary Hamel said while talking about strategy as
revolution:
“Let us admit it. Corporations around the world are reaching the
limits of incrementalism. Squeezing another penny out of costs, getting
a product to market a few weeks earlier, responding to customers’
inquiries a little bit faster, ratcheting quality up by one or more notch,
capturing another point of market share – these are the obsessions of
managers today. But pursuing incremental improvements, while rivals
reinvent the industry is like fiddling when Rome burns.”
When the usual is no longer usual, a business-as-usual approach is sure
to fail. Moreover, the rate of change offers opportunities for competition
to exploit if you fail to do so. John O’ Keefee, group vice president,
Proctor & Gamble, in his highly stimulating and thought provoking
book on ‘Business Beyond the Box – Applying Your Mind for
Breakthrough Results’ says that, “ too many organisations use the past
as a sofa. The past should be used as a springboard and not as a sofa”.
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
to international regulatory requirements? How many of our facilities

for manufacturing bulk actives and formulations are approved
already by international regulatory authorities like US FDA, UK
MCA and others? What is the level of preparation required and by
what time frame can we have our facilities approved?
8. What is our R&D infrastructure? What is our investment on
research and development? How does it compare with our major
competitors with the industry average? What are the areas of our
research focus? What is the quality of our scientific talent and
temper? What is our acquisition agenda for scientific talent?
9. Global markets require a global perspective and posture. What is
our stance towards IPR? Do we respect IPR protection even before
it is fully implemented in India? Or do we want to wait till the year
2005 when the product patent regime comes into effect? Companies
like Nicholas Piramal, Ranbaxy, Wockhardt and Zydus, who are
actively seeking strategic alliances with prospective partners overseas
are already entering into licensing and co-marketing arrangements
for gaining access to new products, markets and technology.
Attitude towards intellectual property rights and their protection
is vital to form strategic alliances and build relationships
internationally. One cannot have two different sets of rules – one
for the domestic market and another for overseas markets, when a
company wants to go global.
10. How have we embraced information technology? Corporations in
the new millenium will increasingly reorganise around information
technology. To be competitive, companies must use high-tech tools
of information technology like ERP (Employee Resource Planning),
digitalisation of communication across its units in all its operating
markets and strategic databases of customers. The key questions to
ask are:
What is our investment in information technology? In hard ware?
In software?
 What is our investment in training and development of our teams?
 Are we planning innovative strategies to reach our customers by
exploiting the revolutionary developments that are taking place
in information technology?
 What are our plans to graduate into electronic marketing and

database marketing?
11. Can we thoroughly introspect our leadership and style of
management? Has it changed over the past ten–twenty years? Or
has it remained pretty much the same? If there is change, is the
change marginal, moderate or radical? Have we accepted the idea of
change frequent if not constant?
Here is what Lawrence A. Bossidy, the chairman of Allied Signal
spoke on ‘Reality Based Management’, at The Economic Club of
Washington in June 1996:
“Today’s leaders take nothing for granted. They know that greater
the market share and their margins, the harder other people are
working to take it away from them. Their only hope is a perpetual
sense of insecurity that inspires them to try to discern winds of
change in the market, to come out with new and improved prod-
ucts and services and try to stay two or three steps ahead of their
competition”.
12. Are we providing a climate for nurturing innovation and entre-
preneurship? The large organisation needs to be more innovative
and entrepreneurial. Do we have employees who can make decisions
and accept responsibility? More importantly, do we allow them to
take decisions? Do we empower them?
13. Successful organisations world wide are realising the need to have
less hierarchical, flatter and cross-functional structures. They are
adopting the matrix model of organisation. What is our
organisation structure? Are we like a big pyramid? Are we a more
horizontal organisation? How many layers does our organisation
structure have?
14. What do our employees really think of our company? Are they proud
to work for our company? Do they feel that they are in control of
their professional lives? Do they feel they have it within their power
to make a difference in the success and failure of the organisation?
Are they able to balance the demands of their careers with those of
their personal lives?
15. What is our level of integration? How far are we from becoming a
fully integrated pharmaceutical company? Vertical integration does

give sustainable competitive advantage to a drug firm. It gives the
firm the much-needed control on costs, quality and strategy.
16. Where do we stand in the process of internationalising our business?
Are we still exporting only pharmaceutical substances, drug
intermediates and generic formulations? Do we have a clearly laid
out strategic action plan for graduating from exports to
internationalisation in the next three to five years?
17. How attractive are we as an alliance partner for the prospective
suitors from overseas? Successful companies world wide are switch-
ing from competition to a collaboration mode. Successful
partnership is both a science and an art. To be an attractive alliance
partner, one needs to have:
 A dominant presence in more than one therapeutic segment
 Manufacturing facilities approved by international regulatory
authorities
 Strong customer franchise
 Product and process development capabilities
 Wide distribution network
 Competent medical detailing force
What is our strategy to build and acquire these in the next three to
five years?
18. How responsive are we? What is our speed of response? Andrew S.
Grove, the chairman of one of the world’s most competitive
corporations, says that, “ultimately, speed is the only weapon we
have”. In the international generics business, speed is the critical
determinant factor for success. The ‘first mover’ advantage is vital
even for survival. A 1996 report by Lehman Brothers notes that,
in the US, the first generic entrant can sell at a 30 per cent discount
to the innovator brand, compared to a 75 per cent discount for the
later entrants.
19. How do we benchmark? What are our benchmarking practices?
Whom do we benchmark against? Within the industry? Or across
the industries?
20. How sharp is our customer focus? Are we structuring ourselves

around the customer or we still hierarchical? The winning
corporations today are organising around customer, not the
hierarchy. In today’s fiercely competitive market, it is the customer
who calls the shots. Companies, which can create customer
solutions and total good experience only will succeed. Ted Levitt of
Harvard Business School advised us as long as forty years ago through
his landmark paper ‘Marketing Myopia’ that a thoroughly customer-
oriented management can keep a growth industry growing, even
after the obvious opportunities are exhausted.
Winning Leadership for an Era of Change

Lawrence A. Bossidy suggests four action steps for making a company a
winner in an era of change through effective leadership:
 One, determine the task at hand by honestly assessing where you
stand with customers, employees and competitors.
 Two, articulate a vision of where you want to be and values for how
you want to behave. Set aggressive goals and keep everyone focused
on achieving them.
 Three, fill your company with people who are bursting with energy
and creativity; people with diverse talents, who nonetheless can work
together in a team setting. Give people constant, candid feedback,
and let them know that their highest career aspirations can be fulfilled
at your company.
 And finally, create a culture that is obsessed with customers, and
build your organisation and incentive systems around the interests of
the customer.
Notes 385
Notes
Chapter One Pharmaceutical Industry – A Global Perspective
1. George M. Taber, Remaking of an industry, TIME, September 4, 1995

2. Baring Securities: Global Health Care, Express Pharma Pulse, July 27, 1995
3. M.P. Vinod Kumar, B. Ram Kishore, Pharmaceutical industry: The Count
down begins – Chartered Financial Analyst, September, 1995
4. Bigger Companies for Better Drugs? Lancet, September 2, 1995
5. Jerry Hone, The Rise and Pull of CRO Partnerships, Scrip Magazine,
September, 1994
6. Robert Sallance, Ja’nos Pogany and Helmut Forstner, ‘The world’s
pharmaceutical industries – An International Perspective on Innovation,
Competition and Policy’ (Prepared for the UNIDO), Edward Elgan Publishing
Limited, England, 1993
7. Dr. S.M. Karandikar, ‘Indian Drug Industry after GATT’, MVIRDC, World
Trade Centre, Mumbai, 1994
8. Anne Darbourne,Top Companies in R&D, Scrip Magazine, January, 1995
9. 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
Chapter Two IPR:Folklore and Facts
1. Subhash K. Bijalani, Grant Patent and Grow, The Economic Times,

September 28, 1995
2. ‘GATT Agreements – Final Text of Uruguay Round 1994’, MVIRDC, World
Trade Centre, Mumbai
3. T. Thomas, Drug Industry heading towards an era of consolidation, Speech
delivered at the AGM of Glaxo India, 1996
4. Barrie G. James, ‘The Business War Games’, Penguin books, 1985
5. I.A. Modi, Patent Issues in TRIPS, International conference on Patent
Regime proposed in Uruguay round, New Delhi, September, 1993
6. N.B.Zhaveri,‘PatentsforMedicine’, Indian Drug Manufacturers’

Association, Mumbai, 1998
7. Prabuddha Ganguly, ‘Gearing up for patents’, Universities Press (India)
Limited, Hyderabad, 1998
Chapter Three GATT – A Third World Perspective
1. ‘Industrial Development – Global Report’, 1995, Published by Oxford

University Press for United Nations Industrial Development Organisation
2. Dr. S.M. Karandikar, ‘Indian Drug Industry after GATT’, MVIRDC, World Trade
Centre, Mumbai, 1994
3. Robert Sallance, Ja’nos Pogany and Helmut Forstner, ‘The world’s
pharmaceutical industries – An International Perspective on Innovation,
Competition and Policy’ (Prepared for the UNIDO), Edward Elgan Publishing
Limited, England
Chapter Four Life after GATT in Indian Pharmaceutical Industry
1. Ajay Piramal, GATT and TRIPS are beneficial to pharmaceutical industry

Extract from a speech delivered at the AGM of Nicholas Piramal India
Limited, July 13, Express Pharma Pulse,July 13, Pulse,1995
2. N. Chandra Mohan, GATT and After, Business India, 3–6, January, 1994
3. Jeannie Subramaniam, Taking GATT in its Stride, Business India,
September 26–October 1994
4. Arvind Nair, Unleashing the Indian pharmaceutical industry, Scrip
Magazine, March, 1994
5. Rajesh Garg, Gautam Kumra, Asutosh Padhi, Anupam Puri, Four
Opportunities in Indian Pharmaceutical market, The McKinsey Quarterly
1996, Number 4
6. ORG – MARG, ‘Milestones – Book of Papers’, Pharmaceutical Client
Conference, Mumbai, April, 1998
7. ORG – MARG, ‘Milestones – Book of Papers’, Pharmaceutical Client
Conference, Mumbai, April, 1999
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
Chapter Six Strategic Vision
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
Chapter Seven Reaching the Critical Mass
1. Robin Davison, Hectic year for pharma M&A/R&D partnering, Scrip

Magazine, January,1995
2. Jefferey C. Hooke ‘M&A – A Practical Guide to Doing the Deal’,
John Wiley & Sons Inc., New York
3. Namrata Datt, A Suitable Match, Business India, January 27–
February 9, 1997
4. Indranil Ghosh, Just what the Doctor Ordered, Business World,
August 21– September 3, 1996
5. Meenu Shekar, The predator’s New Avatar, Business World, 15–28,
June, 1994
6. T. Surender, Piramal Patents a Formula, Business World, 7–21, July, 1998
7. Igor Ansoff, ‘Corporate Strategy’, Sidgwick & Jackson, London, 1986
Chapter Eight The Marketing Mindset
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
Chapter Nine Upgrading Technology
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
Chapter Ten Focusing on Research
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
Chapter Eleven Integrating Strategically
1. Michael E. Porter, ‘Competitive Strategy: Techniques for Analyzing

Industries and Competitors’,The Free Press, A division of Macmillan
Publishing Co Inc., New York
2. Moira Dower, Integrating to Survive? Scrip Magazine, June, 1994.
3. Indian Pharmaceutical Industry sourcing Directory, Compiled and Presented
by Indian Drug Manufacturers’ Association, 1996–97
Chapter Twelve Internationalising the Business

1. Kenichi Ohmae, ‘The Borderless World’, Collins, London, 1990
2. Indranil Ghosh and Namrata Dutt, The Making of a Multinational, Business
India, June15–28, 1998
3. Shobha Ramaswamy, Lupin raises the stakes, Business Barons, April 30,
1997
Notes 389
Chapter Thirteen Attracting Alliances
1. Rosabeth Moss Kanter, Collaborative Advantage, Harvard Business Review,

July–August,1994
2. Brain Carvalho, A New Prescription for Prosperity, Business World, 6–19,
March, 1996
3. Bharat Ahluwalia, A Pucca Firm’s New Zest For Life, Business World,
January 7, 1998
Chapter Fourteen Intellectual Capital
1. Leif Edvinsson and Michael S. Malone, ‘Intellectual Capital’, Harper Business,

A division of Harper Collins Publishers Inc., New York
2. D.N. Mukerjea, Managing Intangible Assets, Business World,
22 November–6 December, 1998
3. Rahul Joshi and Seema Shukla, It’s All in The Head, Corporate Dossier, The
Economic Times, 11–17 September, 1998
Chapter Fifteen Operational Excellence
1. Ronald G. Quintero, Financial Tools for Strategy Evaluation, ‘Hand Book of

Business Strategy’, Ed. Willium D. Guth, Warren, Gorham, Lamont, Boston,
New York, 1985
2. Seema Shukla, The Cut above the rest, Corporate Dossier, The Economic
Times, 20–26 November, 1998
3. Andy Neely, ‘Measuring Business Performance: Why, What and How’, The
Economist Books, Profile Books Limited, London
4. Sumantra Ghoshal and Meeta Sengupta, Managing Radical Performance
Improvement: Sweet ‘n’ Sour, Corporate Dossier, The Economic Times,
17–23 July, 1998
5. Sumantra Ghoshal and Meeta Sengupta,When Bigger isn’t Better, Corporate
Dossier, The Economic Times, 17 – 23 July, 1998
6. Chris Argyris, Empowerment: The Emperor’s New Clothes, Harvard
Business Review, May–June, 1998
7. Lawrence A. Bossidy, Reality-based Leadership, Lecture delivered at The
Economic Club of Washington, Washington D.C. June 19, 1996
Chapter Sixteen Winners and Spectators
1. BS 1000 – India’s corporate giants – A Business standard Research Beareau

study, November, 1997
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
Chapter Seventeen Top of the Heap: Select Company Profiles
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
Chapter Eighteen Winner’s Checklist
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
Blockbuster Drugs 18 CFTRI 160

Boerhinger Mannheim cGMP 139, 292, 363
104, 105, 305, 341, 358 Cheil 184
Boots 117, 225, 228, 230, 359 Chembio 232
Brand Building 82, 85, 88, 113, 115– Cheminor Drugs
117, 120, 125, 129, 130, 131, 191, 244, 100, 201, 221, 280, 293, 309, 316,
277, 285, 286, 289, 336, 347, 350 335, 351
Branded Generics 45, 46, 60, 84, 206, 291, Cherana 117
315 China Science Resources 233
Brar D.S. 349 Chiral Chemistry 167
Bristol Myers Squibb 7 Ciba 155, 213, 240
Bulk Drug Portfolio 181, 182, 185–190, Ciba-Geigy 213
303, 306, 357, 361, 369, 371 Cifran 118
Burnol 117 Cifran-CT 118
Business Performance 257, 263, 265 Cimap 160
Butalex 233 Cipla
BYK Gulden 107, 142, 206, 233, 318 16, 49, 55, 56, 68, 70, 79, 80, 101, 120,
121, 130, 131, 133, 135, 139, 154,
158, 166, 176, 177, 182, 183, 187,
C 194, 202, 216, 218, 220, 222–224,
236, 246, 250, 267, 274, 280, 286,
Cadila 293, 294, 299, 304, 309, 316, 323,
125, 126, 151, 154, 171, 187, 231, 232 330, 334, 335, 346, 351–354
Cadila Pharmaceuticals 337 Ciplox 121
Calmpose 118 Ciplox-TZ 121
Capacity Utilisation 85 Ciprobid 125
Capital Markets 71 Clamp 50, 99, 117, 350
Caraco Clarimec 232
109, 142, 206, 218, 233, 312, 319, 366 Clinical Trials 10, 147, 148, 152–153,
Carloc 220, 224 157, 164, 215, 229
Caslot 220, 224 Collaboration
CBT 160 50, 51, 58, 151, 167, 212, 216, 218,
CCMB 160 227, 228, 298, 308, 311, 337, 339,
CDRI 154, 160, 161, 217 353, 361, 381
Cefaclor 138, 164, 181, 184, 198, Combutol 122
200, 219, 225 Common Strategic Language 76
Ceff 122 Competitive Advantage
Cefprox 220, 224 68, 70, 71, 144, 180, 185, 191,
Centeon 231 192, 197, 198, 212, 223, 228, 237,
CEPH 225 242, 243, 254, 255, 270, 286, 292,
Cepodem 220, 224 302, 336, 381
CERI 160 Competitive Differentiator 262
Cetrine 221 Confrontation 51
Index 393
Consolidation DMF 134

4, 18, 26, 97, 223, 244, 271, Dolphin 100, 117, 119, 280, 341
302, 342, 367 Domstal 125, 360
Core Competencies Doxt 119, 350
3, 71, 72, 79, 215, 250, 274, DPCO 25, 47
330, 348, 378 Dr. Reddy’s Laboratories 9, 16, 31, 32,
Cost Containment Programs 3 34, 55, 59, 79, 89, 94, 99,
Critical SuccessFactor 250, 336 117, 119, 129–131, 139, 154, 156,
CRO 10 157, 161, 165, 174, 181, 187, 191,
Crocin 117 201, 209, 216, 218, 220, 246, 266,
Crosland Research Labs 341 267, 273, 274, 280, 286, 293, 298–
CSIR 159, 160, 161, 166, 230 299, 303, 308, 315–317, 322, 329,
Custom Synthesis 46, 58, 233 334, 335, 351
Customer Base 65, 94, 131, 286 Duke University 145, 148, 154
Customer Capital 240 Duphar Interfran 117
Customer Focus 115, 382
Customer Franchise 101, 108, 114, 116,
120, 131, 244, 285, 313, 326, 352, E
354, 372, 381
Customer Reach 119 E Merck 49, 224
Customer Satisfaction Economies of Scale 177–179, 186, 194,
239–241, 243, 256, 263, 265, 267 197, 217, 302, 361, 369
Customer Service 67, 69, 126 Elan 10
Customer Surveys 75, 77 Elder 341
Cytran 205, 227 EliLilly
7, 54, 71, 138, 139, 162, 164, 198, 200,
216–219, 225, 308
D Eltocin 189, 128, 290
Empowerment 242, 253, 262, 263,
Daichi 226 265, 353
David Norton 257 EMR 173
DCI 164, 320 Enam 119–121
Debio Pharma 316 ERP 267, 348, 379
Decontrol 56 Esgipyrin 124
Deng Xao Ping 29 Ethyl Corporation 181
Depin 125 Euglucon 229
Deshbandhu Gupta 74 European Union
Design of Experiments 158, 267 16, 52, 56, 98, 144, 206, 207,
Dettol 117, 228 225, 292, 309, 313, 318, 319
Diasys 232 EVA 266
Dilip Shanghvi 74, 126, 365 Evaluation Criteria 271, 272, 278, 284,
Dilzem 125, 360 292, 297, 302, 307, 314, 321, 328
Disease Management Expansion Strategies 97, 100, 102, 104, 106,
16, 106, 123, 126, 127, 219, 290, 352 107, 109
Disprin 117, 228 Extinction Effect 261
F Health Care Costs 2, 14, 18, 52, 214

Heinz Redwood 32, 48
Fact 270 Helio Pharma 222
Falcigo 233 Henry P. Conn 259
Fast Track 174, 255 Hepatitis-B Vaccine 55,
FDC 341 82, 167, 185, 226, 231, 310, 312, 356
FDI 29, 33 Histac 118
Ferring Labs 205 Histamitsu 226
Financial Risk 147 HMO 3, 14, 137
Folklore 21–31 HMR
Fran Tarkenton 260 53, 57, 123, 168, 219, 229, 230, 281
Funnel of Discovery 162 HMS 198, 200, 219, 308, 347
Hoechst Celenase 233
Hoechst Research Centre 82, 228
G HPB 69, 136, 292
Human Capital 240
Gamani Corea 43
Game Plans 55, 63, 68, 72, 74, 78, 329
Gary Hamel 67, 73, 237, 377
Gateways 52, 134, 137, 194, 217, 292
I
GATT 13, 14, 21, 25, 30, 35–42, 45, Ibugesic Plus 121
47,48, 52, 56, 63, 65, 66, 68, ICH 33
72, 81, 96, 131, 142, 156, 174, 208, IDMA 45, 50
231, 233, 245, 249, 269, 270, ImitativeFirms 8
272, 273, 278, 279, 292, 298, 316, INDA 297, 298
333, 340, 342, 344, 349, 357, Indian Patents Act 48, 50, 63, 65
359, 362, 369, 372–374 Indo Pharma 231, 363
GATS 38 Industry Foresight 329, 378
Generic Explosion 14 Infotech 244, 267, 348, 349
Generic Versions 56, 137 Innovative Companies 8
Genetech 9, 55 Insuman 229
Geneva Pharma 56, 218, 222 IntangibleAssets 321
Genomics 19 Intas 341
Glaxo Wellcome 6, 7, 49, 54, 55 Integrated Corporation 9
Glycodin 336 Integration
Gray Market 25 Backward Integration 179
GRD 125 Forward Integration 70, 178, 179,
Green Field 141, 186, 187, 223, 361, 373 186, 190, 235, 278, 284,
Gufic 98, 117, 341 297,305, 307
StrategicIntegration 70, 272,273,
H 302–306, 361, 366,
Habil F. Korakhiwala 81 371–373
Harvard Business School 257 Vertical Integration 175–177, 179,
Harvard University 263 180, 185, 191, 302,
305, 381
Index 395
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
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
Prahalad C. K. 67, 73 Renaissance Strategy Group 257

Prescriber Segments Rennie 228
85, 101, 109, 120, 131, 286, 352, 365 Revital 118
PRI 100, 102, 221, 309 Rich Karlgaard 341
Process Innovation 43, 181, 191 Richard Sykes 163
Process Research 154 Riflux 99, 117, 350
Proctor & Gamble 226, 377 Robert C. Holmes 17
Project 1035 150 Robert Kaplan 257
Proliferation 7, 47, 66 Roce 229, 266
Protec 1, 101 Roche
Protective Armour 63 5, 7, 53, 54, 104, 105, 155, 185, 305,
Proxyvon 123 341, 358, 359
Rotan 221
Rotane 219
Q
Quality Improvement Consultants 158 S
Quintor 125, 360
Quovadis 264 San Carlo 232
Sandoz 53, 155, 240
Sanofi 18, 106, 231, 311
R Saridon 228
SBU 86, 107, 109, 362, 363, 365, 370
R R Medi Pharma 103 Schein Pharma
R.S. Chalapati 158 15, 100, 198, 201, 217, 218, 221, 308,
Radical Research 154 309, 316, 347
Ranbaxy 16, 31–32, 34, 46, 49, 55, 59, Schering Plough 15, 54
73, 78, 79, 89, 91, 94–99, 101, 117, Scholl 227, 311
118, 129, 130, 131, 133, 135, 138, Scitech 231, 311
146, 151, 154, 156–159, 161–164, SCM 254, 255
176, 177, 180, 181, 187, 191–193, Shantha Biotech 151
196–201, 208, 209, 216–220, Shri Dhootpapeshwar 228
223–236, 244, 246, 250, 266, Sidmak 104, 205, 217, 218, 226, 227
278, 279, 285, 293, 297, 298, Siegfried 56, 205, 230, 318
302, 303, 308, 314, 321, 323, 329, Silvirex 118
334, 335, 345, 346, 347–349, Sintofarm 110
354, 355, 364 SmithKline Beecham 49, 117, 234, 266, 368
Ranbaxy–Guangzhou China Limited 198 Solumix Piramal Limited 228
Randall L. Tobias 162 Solvay Pharmaceuticals 16
RBX 2258 164, 298 Solvin 128, 290
Re-engineering 32, 57, 75, 77, 97, 99, 255 SPARC 172, 301, 366
Reckitt & Colman 106, 117, 228, 359, 360 Spasmoproxyvon 123
Reckitt–Piramal 228 SPC 52
Red Category 39 Sporidex 118
Rema Pharmaceuticals 199 Stamlo 119, 120
Standard Organics 119, 280 Tofa 209, 266

Strategic Advantage 184, 204 Torrent 32, 49, 59, 68, 70, 83, 89,
Strategic Objective 81, 83, 85, 208, 272 106, 124, 125, 130, 131, 133,
Strategic Options 156 141, 156, 157, 170, 171, 186, 187,
Strategic Vision 63, 68, 73, 77, 79, 80, 205, 209, 216, 231, 246, 276, 277,
82, 84–86, 89, 99, 269, 271–273, 282, 283, 289, 295, 300, 305, 311,
346, 349, 354, 362 318, 326, 331, 335, 360–362
Strepsils 117 TQM 266, 337
Structural Capital 240 Trika 338
Styptochrome 119, 350 TRIMS 38
Styptovit 119, 350 Triomed 15
Sumantra Ghoshal 253, 265 TRIPS 32, 38, 51
Sumitra Pharmaceuticals 104, 105, 141, 185, Tufts University 154
305, 341, 358
Sun Pharma
16, 55, 59, 74, 83, 84, 85, 89, 95, U
107, 117, 124, 126, 129–131, 172,
187, 188, 206, 233, 236, 246, UK MCA 69, 142–144, 202,
277, 283, 289, 290, 295, 301, 305, 223, 270, 292–294, 296, 297, 320,
319, 326, 362, 365–367 339, 346, 357, 369, 379
Sunrise Scenario 45, 50 Unichem 204, 225, 338, 339, 340
Sunset Scenario 45, 50 Uruguay 37, 39, 40, 41
Swati Piramal 169 US FDA 55, 59, 69, 108, 134, 136–144,
Sweetex 117, 228 200, 202, 222, 225, 233, 270,
Synpac 110, 207, 234, 235 292–294, 296–298, 309, 312,
Syntex 5 319, 320, 338, 339, 346, 356–357,
Synthelabo 18 367, 369, 371
US Surgicals 228
USV 341
T
Tariff Quotas 38 V
Tarivid 219
Tata Pharma 122, 185, 288 Value Addition
TDB 150, 151 23, 139, 162, 178, 198, 372
TDF 150, 151 Value Chain 191, 192, 198, 254, 255,
TDPL 108, 109, 187, 283, 327, 341, 305, 307, 368, 369, 370, 373
365, 366 Value Creation 116, 245
Teva 110, 175, 198, 209, 227, 234, Vent 234
266, 346 Vicks Inhaler 226
TGA 202, 223, 294, 352 Vicks Sinex 226
Theo-asthalin 121 Vision 2020 87
Tie-ups 80, 86, 136, 140, 168, 202, 205, Volini 118
217, 218, 308 Vorin Labs 97, 180
Index 399
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
List of Abbreviations 383

Notes 385
Index 391

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List of abbrevations 383

APEC Asia Pacific Economic Cooperation

IND Investigative New Drug

Panther Publishers Private Limited

All rights reserved. No part of this publication may be reproduced, stored in a

Radically Altered Environment

become contract manufacturers for the large, aggressive marketing companies.

Game Plans for post-GATT Era

1. Recognition of product patents

Action Agenda of Indian Pharma Industry

The world pharmaceutical industry is highly imbalanced.

domestic use as well as for export to developing markets,

The health care industry worldwide is undergoing a radical change.

 Furthermore, many of the products that fueled the strong growth

In addition, pharmaceutical companies in recent years have not been

Company Year $ Billion

1. Glaxo acquires Wellcome 1995 14.3

Pharmaceutical Market – A Global Map

Country/Region Share of Share of

North America 30.9 4

Top pharmaceutical companies — 1994 sales reflecting

Company Country $ Billion

1. Glaxo Wellcome UK 12.0

9. Pharmacia Upjohn Sweden/USA 5.0

The variety of products, which the industry produces, is another

These characteristics, though few, suffice to attest to the industry’s

constraints are becoming increasingly common. Consider for example

New Breed of Research Firms

ventures between academic centres, venture capital entrepreneurs and

 Aging process will be the fastest in a number of developing countries.

Implications of Changing Demographics

reimbursement programs. The reasons for this decision are political as

Demographics and Drug Consumption

GATT and World Pharmaceutical Industry

by 2005. The impending generic competition will bring to bear

Generic Explosion in the USA

MCOs have a vital interest in keeping down the use of expensive

development. Schein has in a recent move, allied with Solvay

Generics in the European Union

Generic Drug Industry Prospects

A Look into the Crystal Ball

as a leader in the region. The initial successes of Indian pharma

Two major reasons why developing countries join GATT: One

countries. About 90 developing countries have very limited

3 GATT – A THIRD WORLD

The seven-year Uruguay round of GATT world trade talks was

within the frame-work of the General Agreement of Trade in Services

Effects of GATT on Developing Countries

Elimination of Non-tariff Barriers

Voluntary Export Restraints

Gains for Developing Countries

Regional Trade Agreements – Blocs or Blockades?

1. NAFTA: North American Free Trade Agreement between USA,

GATT and Pharmaceutical Industry in the Third World

IPR and Pharmaceutical Industry

technological competence and developed the science of process

What will be the impact of introduction of product patents

3. Marketing of branded generics in countries with little

4 LIFE AFTER GATT IN INDIAN

The Indian pharmaceutical industry is one of the most closely

Life Before GATT

Indian companies that manufactured these drugs were, however,