Strategic Direction

Emerald Article: Pharma's global karma: Focus on Novartis, Pfizer and Ranbaxy

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To cite this document: (2006),"Pharma's global karma: Focus on Novartis, Pfizer and Ranbaxy", Strategic Direction, Vol. 22 Iss: 1 pp. 5 - 8 Permanent link to this document: http://dx.doi.org/10.1108/02580540610635852 Downloaded on: 14-09-2012 References: This document contains references to 3 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 1482 times since 2005. *

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Pharmas global karma

Focus on Novartis, Pzer and Ranbaxy

he major players within the pharmaceutical industry have long positioned themselves as global players. The economics behind it have been simple. The cost of drug discovery is immense and uncertain. The widest possible global sales are needed to recoup the investment, reinvest in the next generation of research and development, and make a decent prot.

The quiet rise and rise of the Indian pharmaceutical industry is a phenomenon of our age. Yet while some things change some stay the same. With patents providing time limited protection, while proving controversial in the ght against diseases such as AIDS, the mission for all pharmaceutical companies is one of nding the next blockbuster product. The road to success is littered with false starts and initial promise turning to failure. In the Buddhist and Hindu religions karma is the force produced in one life that inuences what happens in future lives. It is a philosophy from which pharmaceutical companies can draw strength. While they keep making the R&D inputs necessary for future success, the path to reward, or even enlightenment, is uncertain at best.

Can Novartis nd more winners?

Motivational theorists will point to the importance of having the occasional success at work to employee morale and performance. Intuitively most of us can see the common sense in that. Cast yourself now in the role of the research scientist searching for breakthroughs in the ght against disease. Many spend their lives pursuing a series of failures as what at one time seems promising does not stand up to the rigorous testing required before a new drug can be brought to market. Now think of the psychology of the investor backing potentially fruitless research. They may be high stakes gamblers, altruistic global citizens, or maybe a combination of both. Swiss-based Novartis are the fourth largest pharmaceutical company in the world by revenues, but have become very successful at having new medicines approved by the Food and Drug Administration (FDA) in the USA. Novartis are the product of the 1996 merger between Ciba-Geigy and Sandoz and represent a merger that has worked. Their success has come at a difcult time within the sector, high prole failures being:
B B B B B

Merck withdrawing Vioxx from the market; Astra-Zenecas new blood thinner being rejected by the FDA; Chirons u vaccine being discredited after contamination; Elans multiple sclerosis treatment being linked to brain tumors; and Pzers warning that expiring patents are hurting sales badly.

DOI 10.1108/02580540610635852

VOL. 22 NO. 1 2006, pp. 5-8, Q Emerald Group Publishing Limited, ISSN 0258-0543

STRATEGIC DIRECTION

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 Pzer, the worlds largest pharmaceutical company by sales volume, has thrived in the environment of blockbuster drugs, but now faces a less certain future.

There is no magic formula for Novartis. Datamonitor statistics reveal that only one in 5,000 to 10,000 early stage drug candidates make it to market. Take the case of PTK787/ZK 222584, thankfully shortened to PTK. In 1995 Ciba-Geigy pharmacologist Jeanette Wood discovered that a compound that had been stored within the company for 40 years had the makings of a breakthrough cancer treatment. The Tufts Centre for the Study of Drug Development has estimated that it takes US$897 million to bring a new medicine to market. The question for the decision makers is when is a risk worth taking? Now innovation is known to break out in all sorts of unusual places, so there being twists and turns along the way will not surprise many readers. With PTK, only the merger and change of CEO made it possible for the research to go ahead at Ciba-Geigy, with fewer resources, it would have been considered to risky. Then it took the personal interest and determination of Wood, a woman in the particularly masculine environment of Swiss business culture, whose cardio vascular research was closed down at the same time as a relative died from cancer. PTK works by slowing the growth of tumors, enabling the patient to live longer, yet its very nature made clinical trials somewhat inconclusive. However there is enough hope from the phase three clinical trials for Wood and her team to keep working on improving it. So ten years after the rediscovery of a 40 year old compound the work continues. Only the merger and the pooling of resources enables Novartis to pursue such breakthroughs across a number of fronts.

Pzer searches for a cure

Pzer, the worlds largest pharmaceutical company by sales volume, has thrived in the environment of blockbuster drugs, but now faces a less certain future. The FDA is investigating links between Celebrex (worth $3.3 billion in annual sales) and Bextra ($1.3 billion) to cardiovascular problems. Their most famous product, Viagara, is in decline and has failed to meet sales expectations. Pzer was the rst of the drug companies to really go for it in terms of aggressive sales and marketing, yet with others following suit are nding it ever harder to get face time with decision makers such as physicians. So is their model working? Projections for them show a slow but steady decline. Chairman and CEO Hank McKinnell points to better opportunities than ever before, in a world where a large number of untreated diseases represent massive potential markets. The difcult bit is to make the necessary scientic breakthroughs with products robust enough to make it all the way to market. And this during a period where Pzers existing patents are beginning to expire, indeed Indian giant Ranbaxy Laboratories is seeking to remove the protection to Lipitor, a Pzer success story, and manufacture a cheaper generic version. While management restructuring, and the encouragement of more bottom-up decisionmaking, is assisting organizational effectiveness, the search for blockbusters continues. Pzer is currently investing $1.3 billion in the acquisition of a biotech company developing an HDL-raising (good cholesterol) drug. For the industrys giant buying potential star products, and the companies developing them, makes more sense than going it alone with time pressing and the clock ticking.

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Ranbaxys generic strategy

The rise of Ranbaxy laboratories from its origins in a chemist shop in Delhi to Indias largest drug maker is a success story to carefully consider. In global terms it remains a relatively small player, with revenues of $1 billion in 2004. It has taken 40 or 50 years to achieve, but such patience is now being rewarded sales revenues only crossed $227 in 1997. The success of Ranbaxy is a product of a strategy of creating intellectual property, expanding markets, and expanding competences through alliances. The elements of their success are as follows:
B

Strategic leadership beginning in 1994 that took the form of strategic thrusts of innovation, globalization and alliances. A clear vision which focused research on the development of drugs for generic markets, new drug development, and new drug delivery systems. Visionary leadership that ensured that the vision of the company was carried through into action and sustained as the competitive context changed. Enabling organizational culture developed to sustain corporate coherence and alignment across international businesses and focuses on different market sectors. Globalization of the business primarily through an aggressive program of acquisition. Strategic alliances used extensively as Ranbaxy seeks to move from being a multinational to a true transnational organization. Innovation, so crucial to compete in the pharmaceutical sector, including drug discovery, exploiting generic markets, collaborating research, and new technologies in drug delivery.

B B

The management process at Ranbaxy has been a sophisticated one based on gaining and acquiring knowledge and taking a consistent view of strategic decision-making. They are in the business for the long haul, yet their growth reveals the short term benets of a clear long term vision.

Consolidation
Consolidation in the pharmaceutical marketplace currently feels like an inevitable, unstoppable force. The R&D costs are massive, the results uncertain, the blockbuster products phenomenon still strong. It has seen, among others, Aventis Crop Science being acquired by Bayer, Knoll Pharma being acquired by Abbott Laboratories and Marion Roussel by Hoechst. For Novartis, the product of a mega-merger, success in introducing new drugs comes from the ability to take greater risks than before, because the new enlarged organization can afford to. For Pzer the acquisition trail provides potential shortcuts to new blockbuster drugs, for Ranbaxy acquisition and alliances hold the key to a still more prosperous future.

Comment
This multiple review article is based on the following papers:

The success of Ranbaxy is a product of a strategy of creating intellectual property, expanding markets, and expanding competences through alliances.

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The dogged scientist, the old lab vial and the quest to stop cancer by David Stipp focuses primarily on the discovery and development of one pharmaceutical product by Novartis, but in doing so provides insight into the whole industry sector. Pzers funk by Amy Barrett is a revealing piece of journalism that will make shareholders just feel that little bit more uneasy regarding the massive gambles and assumptions being taken in securing the companys future. Strategic business leadership through innovation and globalization: a case study of Ranbaxy Limited by B. Bowonder and Nrupesh Mastakar provides scholarly insight into the growth and more growth being experienced by Indias rising pharmaceutical giant. In a quiet revolution a fundamentally aggressive strategy is examined.

Keywords: Pharmaceutical industry, Acquisitions and mergers, Strategic alliances, Research and development

References
Barrett, A. (2005), Pzers funk, Business Week, February 28, pp. 51-8, ISSN 0007-7135. Bowonder, B. and Mastakar, N. (2005), Strategic business leadership through innovation and globalization: a case study of Ranbaxy Limited, International Journal of Technology Management, Vol. 32 Nos 1-2, pp. 176-98, ISSN 0267-5730. Stipp, D. (2005), The dogged scientist, the old lab vial and the quest to stop cancer, Fortune, July 11, pp. 71-78, ISSN 0738-5587.

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