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Global Strategy for Growth: a Case of Ranbaxy Laboratories

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Global Strategy for Growth: a Case of Ranbaxy Laboratories Journal of Case Research Volume II Issue 01 Global Strategy for Growth: A Case of Ranbaxy Laboratories Padmanabha Ramachandra Bhatt1 “Personally, I feel that companies who constantly innovate to provide better products and services and who can offer superior value propositions to the consumer are the ones likely to command more respect globally than others”2 Malvinder Mohan Singh, CEO and MD, Ranbaxy Laboratories Ltd Indian pharmaceutical industry was worth of $ 8 billion in 2006 and had been growing at an average rate of 8–9 %. The industry was highly fragmented with more than 20,000 registered units and 30% of market was controlled by top ten companies and the rest of 70% by small companies. The Global pharmaceutical industry was estimated at $ 600 billion in 2006. Indian pharmaceutical industry has become more innovative and enterprising with more investment in R&D especially since the WTO agreement was signed. Ranbaxy Laboratories Ltd. was India’s largest pharmaceutical company with revenue of US $ 260 million in the domestic market and $ 1.3 billion in the global market in 2006. In the domestic market Ranbaxy enjoyed a share of 5.1% with nine brands in the Top 100 list in 2006. It is one of the largest ANDA (Abbreviated New Drug Application) filers with US FDA ( United States Food and Drug Administration). The company’s offices have spread over 49 countries with employment of 12,000. It is one of the ten generics players in the world. Three-forth of Ranbaxy’s revenue comes from international sales, with the US alone accounting for almost one third. The range of products covers a wide band of therapies with a total over 5000 SKUs (Stock Keep Units) globally. Ranbaxy’s vision was “To become a research based international pharmaceutical company”. 1 Padmanabha Ramachandra Bhatt, Ph.D., Visiting Professor, Universiti Utara Malaysia Email: [email protected] 2 Ranbaxy’s World, December, 2007 Page | 1 Journal of Case Research Volume II Issue 01 Ranbaxy Laboratories Limited Ranbaxy was founded by Ranjit Singh and Dr. Gubax Singh in Amristsar to distribute Vitamin A and anti-tuberculosis drugs to Japanese Pharmaceutical companies in 1937. The company set up a manufacturing unit in Okahla in 1961, in collaboration with Lepatit, an Italian Pharmaceutical company to produce the patented drug chlorophenicol for typhoid. Later Ranbaxy bought the company in 1967. The company went public in 1973 to establish an Active Pharmaceutical Ingredients (API) manufacturing plant at Mohali, Punjab. When Drug Price Control Order (DPCO) was enacted in India in 1970, the prices of all drugs were stipulated by the Government. As a result, the prices had fallen for all drugs. The company had then started exporting bulk drugs (APIs) to Malaysia, Thailand, Srilanka, Middle-East and Singapore in 1975. In Malaysia, it established a joint venture to manufacture and distribution of formulations. API plant was set up to manufacture antibiotics/antibacterial at Taonsa in India in 1987. Parvinder Singh (1993-1999) Ranbaxy Pharmaceutical Ltd had remained as a small company under Bhai Mohan Singh till 1990. Parvinder Singh wrested the control of the company from his father Bhai Mohan singh in 1993. He was a doctorate in chemistry from the University of Michigan. He joined the company to help his father in 1967. He was a visionary and a forward looking CEO. When Indian Patent Act (1970) came into exist in India, Parvender Singh exploited the opportunities of new patent act to manufacture formulations and generics. The act abolished the product patents for all pharmaceutical and agricultural products and process patents were permitted for 5-7 years. He had invested heavily in setting up a plant in Mohali to manufacture bulk drugs. Parvinder Singh was always ahead of others in the industry. He wanted to make Ranbaxy a global company. He adopted global strategy through acquisition in US, UK and India. He set up a state-of-the-art Research and Development Centre at Gurgaon, India. R & D acted as an engine of growth for the company. In the R & D Centre, he established Chemical Research, Pharmaceutical Research, Fermentation Research, Novel Drug Delivery System (NDDS), and Page | 2 Journal of Case Research Volume II Issue 01 New Drug Discovery Research (NDDR). The company focused on Urology, anti-infectives, respiratory, anti inflammatory and metabolic disorders segments. Bhai Mohan Singh’s initial strategy was to focus on Active Pharmaceutical Ingredients (API).When Parvinder Singh took over the reign, the strategy was shifted to manufacture generics which were off-patents drugs. Parvinder Singh made far reaching changes in the company. He introduced management by self control in the company to facilitate all members of the company to participate in the decision making process. He abandoned top-down policy pursued by his father Bhai Mohan Singh. He set up a stretch target of sales of US $ 1 billion to be achieved by 2004. Ranbaxy set up a joint venture with Eli Lilly with 50-50 partnership to manufacture products of international quality in India in 1993. The joint venture manufactured Lily’s products and marketed in India, Sri Lanka and Nepal. Ranbaxy was benefited in terms of technology and Eli lilly got the advantage of low cost manufacturing. Parvinder Singh looked forward to set up international business in USA, UK, and Latin American countries. He has adopted global strategy through joint ventures and acquisition to achieve sustainable growth. He formed a joint venture Ranbaxy Guangzhou China Ltd (RGCL) in China in 1993 and started manufacturing bulk drugs and formulations in 1995 ( see Table 7). The joint venture manufactured antibiotics, analgesics, cardiovascular and other drugs and marketed all over China. Later Ranbaxy has increased its stake in RGCL to 70%. Its brand cefran was the market leader in China. It acquired Thai Pharmaceutical Company Unicher in 1995 and formed Ranbaxy Unicher Co. Ltd (RUCL). RUCL was importing more than 50% of the products manufactured in India. It has a strong presence in Antiinfectives, Haematinics, Cardiovasculars, Nutritional & GI Tract segment in Thailand and India. Parvinder Singh established a global alliance with Eli Lilly to manufacture and market cefactor in US in 1994. The joint venture helped Eli Lilly to increase its market share of cefactor in USA whereas Ranbaxy was befitted in acquaintance of stringent regulatory requirements of Food and Drugs Administration (FDA) in the USA. Ranbaxy sourced cheap cefactor intermediates to Eli Lilly and Eli Lily in turn marketed cofactor as branded product. Ranbaxy has entered the US market and operated through two Page | 3 Journal of Case Research Volume II Issue 01 subsidiaries Ranbaxy Pharmaceutical Inc( RPI) and Ohm Laborataries Inc, the over the counter drug manufacturer in 1995 ( Table 7). Ohm Laboratory had exceptional FDA approval record. There was immense opportunity to sell generics in Europe. European market is attractive because of aging population and high health costs forcing the goods to open the generics market. Parvinder Singh wanted to exploit huge potential in Europe and keeping that in mind, he set up a subsidiary namely Ranbaxy UK Ltd to sell its branded products in 1996. He acquired another company Rima Pharmaceuticals, the semisynthetic pencillins maker to sell generics products in Europe. His basic strategy was to keep the acquired units as profit centres which helped Ranbaxy to keep acquired firms self sufficient. Also the acquisition process did not adversely affect the managerial culture, openness, self motivation and positive attitude. The acquired centre was given full responsibility of profit and loss of the company. The regional managers were given high degree of autonomy. He had adopted three tier organizational structures. The first tier consisted of senior managers and second tier regional managers and the third country managers. In 1990s, Ranbaxy’s effort was to sell formulations under its own brand name. It wanted to move up from low-margin bulk pharmaceuticals to high margin branded formulations. The major markets for branded generics are Russia, China and other developing countries. However, in US and UK, Ranbaxy focused on formulations rather than branded products because of stiff competition from other major players in branded generics. In UK, Ranbaxy was successful to market branded formulations as it has received approval from Medicines Control Agency (MCA) for many branded generics. Ranbaxy’s manufacturing strength has been established in the field of process development, scaling up and commercialization of APIs, world class generics, and branded generics. It set up world class manufacturing facilities in seven countries viz. India, China, Ireland , Malaysia, Nigeria, US and Vietnam. In Malaysia it set up Ranbaxy Malaysia Sdn Bhd (RMSB) as a joint venture between Ranbaxy and Malaysian shareholders in 1984. A manufacturing unit was set up in Sungai Petani, Kedah to cater the need of Malaysia and Singapore market. Later it has increased its stake in RNSB to 55%. Page | 4 Journal of Case Research Volume II Issue 01 Ranbaxy’s Manufacturing facilities were approved and audited by international regulatory agencies like US FDA, UK MCA, South Africa MCC, and Australia TGA. Parvinder Singh made significant value addition to products efficacy or delivery in its NDDS program. For example, the company made a significant improvement to ciprofloxacin, a Bayer patented drug which cut the required dosage to once a day against several times a day as needed for Bayer’s drug. It later out-licensed the technology to Bayer for $ 65 million and also earned royalties on resulting sales. Ranbaxy has come up with three new chemical entities (NCEs) in the area of asthma, urology and malaria. These were at various stages of clinical development. One entity for malaria has entered Phase II of clinical trials. The molecule was aimed at mainly for the under developing countries.
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