Warner-Lambert Company

Background



Origin of the Company

[***Henry and Gustavus Pfeiffer acquired William Warner & Co. in 1908 and later
on the name of the company changed through many acquisitions and mergers.]


WLs origins can be traced to 1856 when William Warner opened a drugstore in
Philadelphia. After 30 years of experimenting with the formulation of pharmaceutical
products, Warner closed his retail store and began a drug manufacturing business.

William Warner & Co. was acquired in 1908 by Henry and Gustavus Pfeiffer.
Gustavus later wrote we changed thinking locally to thinking nationally. For the
next 30 years the company made many acquisitions and by 1939, had 21 marketing
affiliates outside the United States and several international manufacturing plants. The
largest acquisition was Richard Hudnut Company, a cosmetics business, which was
eventually sold in 1979.

Acquisitions & Mergers
[***The company acquired and mergers many companies through many years and
build a large transnational MNC with higher sales and growth throughout the
world.]


During the 1950s and 1960s, the company continued to make acquisitions, both in the
United States and overseas. In 1952, the company, now known as Warner-Hudnut,
acquired Chilcott Laboratories, a pharmaceutical company founded in 1874. In 1955,
with sales at $100 million, Warner-Hudnut merged with the Lambert Company to
form the Warner-Lambert Pharmaceutical Company. The Lambert Companys
largest-selling product was Listerine mouthwash, a product developed in 1879.

In 1962, American Chicle was acquired. American Chicle was formed in 1899 with
the consolidation of three major chewing gum producers. The Halls cough tablets
brand was acquired in 1964. In 1970, Schick wet-shave products were acquired. Also
in 1970, WL merged with the pharmaceutical firm Parke, Davis, & Company (Parke-
Davis). Parke- Davis was founded in 1866 in Detroit. In the 1870s, Parke-Davis
collaborated with the inventor of a machine to make empty capsules for medications.
This established the fore- runner of WLs Capsugel division, the worlds largest
producer of gelatin capsules. In 1901, Parke-Davis introduced the first systematic
method of clinical testing for new drugs. In 1938, Parke-Davis introduced the drug
Dilantin for the treatment of epilepsy and in 1946, began marketing Benadryl, the first
antihistamine in the United States. In 1949, Chloromycetin, the first broad-spectrum
antibiotic was introduced.

Overall Sales & Growth
[***I n 1990, sales growth occurred in both the U.S. and international markets and
in all worldwide business segments. About 52 percent of company sales were in the
United States.]

The 1980s was a period of restructuring for WL. During the decade, the company
divested more than 40 businesses, including medical instruments, eyeglasses,
sunglasses, bakery products, specialty hospital products, and medical diagnostics. The
divested businesses accounted for $1.5 billion in annual sales but almost no profit. In
1991, WL had operations in 130 countries and of its 34,000 employees (down from
45,000 in 1981), nearly 70 percent worked outside the United States. WL had 10
manufacturing plants in the United States and Puerto Rico and 70 international plants
in 43 countries. Over the previous five years, WLs earnings grew 15 to 20 percent
annually. In 1990, sales growth occurred in both the U.S. and international markets
and in all worldwide business segments. About 52 percent of company sales were in
the United States.


Warner-Lambert Business Segment
[***Warner-Lambert Company had three core business segments.]

In 1990, WL had three core business segments: ethical pharmaceuticals,
nonprescription health care products commonly referred to as over-the-counter
(OTC), and confectionery products. Beyond these segments, WL had several other
product sectors: empty gelatin capsules for the pharmaceutical and vitamin industries,
wet shave products, and home aquarium products.

The Ethical Pharmaceutical Industry

The Market Share

[***Seven markets accounted for about 75 percent of the world market, with the
largest single market, the United States, accounting for about 30 percent of the
total.]


The ethical pharmaceutical industry involved the production and marketing of
medicines that could be obtained only by prescription from a medical practitioner.
Seven markets (United States, Japan, Canada, Germany, United Kingdom, France,
and Italy) accounted for about 75 percent of the world market, with the largest single
market, the United States, accounting for about 30 percent of the total. The
pharmaceutical industry was very fragmented, with no single firm holding more than
a four percent share of the market. The five largest firmsMerck (U.S.), Bristol-
Myers Squibb (U.S.), Glaxo (U.K.), SmithKline Beecham (U.K.) and Hoechst
(Germany)accounted for less than 15 percent of world market share.

The Growth of the Pharmaceutical Industry

[***The company had a rapid growth during the year of 1987.]

The pharmaceutical industry was also highly profitable. Between 1986 and 1989, the
industry ranked first in the United States on both ROS and ROI. With new medical
advances on the horizon and an aging population in the developed countries, the
industry was expected to continue growing steadily. However, significant challenges
were facing the drug companies. The cost and time to develop new drugs had grown
substantially. The drug development cycle from synthesis to regulatory approval in
the United States was 10 to 12 years. The average development cost per drug was
$230 million (up from $125 million in 1987), with various phases of testing and
clinical trials accounting for about 75 percent of the cost.






Risk in the Pharmaceutical R&D with Solutions
[***Though the company faced several risks regarding product renewal, they have
overcome with it by creative strategies.]

There was significant risk associated with pharmaceutical R&D. It was estimated that
for every 10,000 compounds discovered, 10 entered clinical trials and only one was
developed into a marketable product. Of those brought to market, only about 20
percent generated the necessary sales to earn a positive return on R&D expenditures.
In 1990, the FDA approved just 23 new drugs, 15 of which were already approved in
Europe. Nevertheless, R&D was the lifeblood of the industry, as explained by a senior
WL manager:

Product renewal is critical. Firms must continue to generate a stream of new products.
These need not be blockbusters. The key is new products. Eventually, each of these
products will become a generic [unbranded] product so in any given year, there must
be a certain percentage of new products.

If a firm did come up with a blockbuster drug, the rewards were enormous. New
drugs sold at wholesale prices for three to six times their cost. ZantacTM, an ulcer
drug sold by Glaxo, had worldwide sales of $2.4 billion in 1990. This was Glaxos
only product in the top 200 best-selling prescription drugs. TagametTM, a competing
ulcer drug produced by SmithKline Beecham, had 1990 sales of $1.2 billion.


Pressures to loosen down the price
[***The growing use of price controls and restricted reimbursement schemes in
international markets was reducing the flexibility of the drug companies to recoup
R&D investments.]

Two other challenges faced the drug companies. Spiraling health care costs in the
major markets were putting increased pressure on the drug companies to hold down
their prices. The growing use of price controls and restricted reimbursement schemes
in international markets was reducing the flexibility of the drug companies to recoup
R&D investments. Finally, there was competition from generic drugs once a patent
expired. Legislation passed in the United States in 1984 made it very easy for generic
drugs to enter the market after the patent on the original drug expired. In the United
States, 50 percent decreases in sales were not uncommon in the first year after a
patent expired. In Europe, the degree of generic erosion was not as dramatic because
once a branded drug was on a list of officially sanctioned drugs eligible for state
reimbursement, a long lifespan for the drug was reason- ably certain.


Different Structure in Different Countries
[***Consumers in France and Spain paid about 72 percent of the EC average and
in I reland and the Netherlands, prices were about 130 percent of the average.]

Although the chemical compounds of the major drugs were the same around the
world, the pharmaceutical industry structure varied tremendously from country to
country. In Europe, each of the 12 EC member states had different regulations for
registering, pricing, and marketing drugs. Government health care systems paid for a
majority of the consumer cost of drugs and the prices of drugs were fixed in
negotiations between the drug companies and the government. The result was
different prices in different countries and a growing problem with parallel imports.
Consumers in France and Spain paid about 72 percent of the EC average and in
Ireland and the Netherlands, prices were about 130 percent of the average. Most
European governments had the legal authority to force the transfer of a drug patent
from one firm to another, in the event that the firm with the patent was unwilling to
manufacture the drug.

Consumption of Drugs
[***There were also national differences in the type and amount of drugs
consumed.]

There were also national differences in the type and amount of drugs consumed. In
France, the consumption of drugs was the highest per capita in the world. In Japan,
physicians made most of their income by dispensing drugs. Moreover, the Japanese
government allowed high prices for breakthrough drugs in order to stimulate medical
innovation. As well, many of the drugs used in Japan were unique to that market. For
example, several best selling Japanese drugs dilated blood vessels in the brain, on the
unproven theory that this reversed senility. In other parts of the world, the lack of
controls over intellectual property made it very difficult for drug companies to
operate.

Warner-Lamberts Pharmaceuticals Business
[***The companys Pharmaceuticals business was expanded based on the selling of
drugs, increase in the drug shares, increase in the R&D business.]

WLs ethical pharmaceutical line was marketed primarily under the Parke-Davis
name. Included in the pharmaceutical sector was Warner-Chilcott, a manufacturer of
generic prescription drugs primarily for the United States. Sales of WL ethical
products were $1.6 billion in 1990, a 17 percent increase over the previous year. WL
ranked 17th among the worlds leading drug firms by turnover.

WLs largest selling drug was Lopid, a cholesterol-reducing drug. In 1991, projected
sales for Lopid were more than $480 million. Dilantin, an antiepileptic drug, had sales
of $145 million and was a worldwide leader in its category. Other leading drugs were
Loestrin, a contraceptive, and Accupril, a cardiovascular drug. Although the FDA
postponed approval of Cognex by asking for more data, WL continued to have high
expectations for the product and clinical testing continued.

The firms drug discovery program was focused on two areas: cardiovascular
diseases, such as hypertension and congestive heart failure, and disorders of the
central nervous system. In recent years, WL had made a major effort to strengthen its
pharmaceutical R&D. Over the past five years, the number of scientists had increased
60 percent to 2,600 and 1991 R&D spending for pharmaceuticals was expected to be
close to $350 million, an increase of 12 percent over 1990. These efforts were
beginning to pay off: WL had several new pharmaceutical products awaiting U.S.
FDA approval.




OTC Industry-An Overview
[***The consumer made the buying decision, although often based on physician or
pharmacist advice regarding OTC products.]

The OTC health care industry was structured very differently than the ethical drugs
industry. With ethical drugs, there was a unique relationship between consumer and
decision maker: consumers paid for the drugs but physicians made the buying
decisions. As a result, the marketing of ethical pharmaceuticals was directed at
prescribing physicians, who were not particularly concerned about prices. With OTC
products, the consumer made the buying decision, although often based on physician
or pharmacist advice. To compete successfully with OTC products, significant
investments in consumer marketing and distribution were required. Some of the
largest drug companies, such as Glaxo, had a corporate policy of staying out of the
OTC market on the grounds that selling directly to consumers was very different than
the medically oriented marketing of ethical drugs.

There were two broad classes of OTC health care products: 1) drugs that were
formerly prescription drugs and 2) health care products developed for the
nonprescription market, such as toothpaste, mouthwash, and skin care products.
Moving a prescription drug to the OTC market required regulatory approval in most
countries. The shift also required marketing expenditures of as much as $30 million a
year and extensive consultation with physicians and pharmacists. Even though a
prescription was not required, many OTC drugs would not succeed without continued
physician recommendations, particularly in highly controlled retail environments like
Germany and Japan. Pharmacists recommendations were also important. When WL
switched the antihistamine, Benadryl, to the OTC market in 1985 after 40 years as a
prescription drug, the company devised an extensive program for pharmacists based
on product samples and promotional literature.


Why OTC is Popular?
[***I n the developing nations, shortages of more expensive prescription products
made OTC drugs very popular.]

Between 1982 and 1990, global demand for OTC drugs grew at about seven percent
annually and was expected to remain strong, particularly with increased pressure to
reduce health care costs. In the developing nations, shortages of more expensive
prescription products made OTC drugs very popular. Among the major types of OTC
products were analgesics, antacids, cough, cold, and sinus medicines, skin
preparations, and vitamins.

OTC in Different Countries
[***The OTC products used differently in different countries. Considering the
Example of Vicks, it had been used differently in different countries.]

The OTC drug industry was even more fragmented than the ethical pharmaceutical
industry, particularly in Europe. According to one report, there were 15,000 registered
brands in the European OTC market but only 10 could be purchased in seven or more
countries. For example, the Vicks-Sinex cold remedy could be purchased in British
supermarkets; in Germany it was available OTC but only in pharmacies; and in
France it was available only by prescription. In Latin American countries where the
state paid for drugs, there was little distinction between ethical pharmaceuticals and
OTC drugs. In the United States, nonprescription products could be sold in any retail
channel. In Canada, the United Kingdom, and Germany, some nonprescription drugs
could be sold only in pharmacies.

Warner-Lamberts OTC Business
[***During 1991, WL planned more than 20 new OTC product introductions in
non- U.S. markets.]

Reflecting the increasing global acceptance of nonprescription health care products,
WLs OTC sales increased 11 percent in 1990 to $1.5 billion. The largest product
lines were Halls cough tablets with sales of $320 million and Listerine mouth- wash
with sales of $280 million. Other leading brands included Rolaids antacid (number
one brand in the United States), Benadryl antihistamine (the number one OTC allergy
product in the United States), Lubriderm skin lotion (number three brand in the
United States), and Efferdent dental products.

During 1991, WL planned more than 20 new OTC product introductions in non- U.S.
markets. It was often necessary to adapt products to local markets to account for
differences in product usage and government regulations. For example, there were
more than 50 different formulations of Halls around the world. Halls was considered
a cough tablet in temperate climate areas and a confection in tropical areas. In
Thailand, Halls had a much higher amount of menthol than in most countries because
Halls was sold as a cooling sweet. In some of the Asian and Latin American
countries, the individual tablet, as opposed to the package, sold a large volume of
Halls. Benylin cough medicine also had more than 50 different formulations, leading
to the question raised by a WL manager: There are not 50 different kinds of coughs,
why do we need 50 different formulations?

The Confectionary Industry


Four Segments

The confectionery industry consisted of four main segments: chocolate products
(approximately 53 percent of the industry), non-chocolate products such as chewing
gum (23 per- cent), hard candy (18 percent), and breath mints (6 percent). WL
competed primarily in the chewing gum and breath mint segments.

Chewing Gum market
[***With the introduction of Wrigleys chewing gum, the companys chewing gum
market plunges and the sales goes high.]

The confectionery industry was highly concentrated on a global basis with the
chewing gum segment the most concentrated. Although WLs American Chicle
Group had once been the leading firm, the largest chewing gum company in 1991 was
William Wrigley Jr. Co. (Wrigley) with $1.1 billion in annual sales in more than 100
countries. Wrigleys strategy had been focused and consistent for many yearssticks
of gum sold at low prices. Wrigleys three main brands, Spearmint, Doublemint, and
Juiceyfruit, were ubiquitous around the world. In the United States, Wrigley had the
largest market share (48 percent), followed by WL (25 percent) and RJR/Nabiscos
Beechnut brands. Canada was the only English-speaking country in the world where
Wrigley products did not have a leading market share. WL had about 55 percent of
the Canadian gum market, compared with Wrigleys 38 percent. A major trend in the
food market in recent years had been toward healthy eating. This trend was reflected
in the shift toward sugarless gum. In the United States, sugarless accounted for 35
percent of the chewing gum market and in Canada, it was 55 percent, the highest
percentage in the world.

Breath Mints
[***The breath mint category was referred to as candy plus because the mints
contained additional breathe freshening ingredients.]

Although most breath mints were sugared confections, the breath mint category was
referred to as candy plus because the mints contained additional breathe freshening
ingredients. In this segment, RJR/Nabisco was the largest firm, with brands sold by
the Lifesavers division holding about 40 percent of U.S. market share. WL brands
held about 36 percent of the market. Tic Tac, a brand produced by the Italian
company Ferrero, had a 12 percent share of the U.S. market. Several other brands
with minimal U.S. sales were strong in international markets, such as Fishermans
Friend, a U.K. product. In other countries such as Germany, Argentina, and
Colombia, there were strong local competitors.

Strong Retail Sales Force
[***There were several factors critical to success in this type of market: display and
distribution, superb value, and excellent advertising.]

Confectionery companies operated on the premise that the majority of sales were by
impulse. There were several factors critical to success in this type of market: display
and distribution, superb value, and excellent advertising. The most important factor,
according to WL confectionery managers, was display and distribution. Thus, there
was a strong emphasis on packaging, on developing a wide distribution base, and on
in-store display. In the United States, Germany and France, confectionery distribution
to the consumer was dominated by large, efficient retailers (such as Wal-Mart in the
United States). In contrast, in Italy, Spain, and Greece, South and Southeast Asia, and
Latin America, the retail environment was very fragmented with many kiosks and
mom-and-pop stores. A strong retail sales force was essential in these areas.

The major challenge faced by firms producing gums and mints was the threat of new
market entrants. Traditionally, gums and mints generated higher profit margins than
other confectionery segments. As a result, other firms in the candy industry, as well as
snack food companies such as PepsiCo were making an effort to penetrate the gum
and mint markets. In many of the developing countries and in particular Latin
America, the imitation of best- selling brands by local firms was a regular occurrence.

The Market Share of Chewing Gum
[***WL had begun seeking niche opportunities in other confectionery segments in
recent years. Sales of WL confectionery products increased five percent to $1.1
billion in 1990.]

Although historically focused on chewing gum and breath mints, WL had begun
seeking niche opportunities in other confectionery segments in recent years. Sales of
WL confectionery products increased five percent to $1.1 billion in 1990. The leading
brands were Trident (sales of $225 million and the worlds leading brand of sugarless
gum) and Clorets gums and breath mints ($130 million). Other major brands were
Adams brand Chiclets (candy coated chewing gum), Certs (breath mints), and
Bubblicious (chewing gum). Trident was the product WL would likely lead with as a
new market entry. Other brands had regional strengths. Chiclets was a major brand in
Latin America and French Canada but a minor U.S. brand. The strongest market for
Clorets was Southeast Asia.

Overall, WLs confectionery business had its largest market shares in the United
States, Canada, Mexico, and other countries of Latin America. In Europe, the
confectionery business was strongest in Greece, Portugal, Spain, and Italy. The
company also had a strong presence in Japan and Southeast Asia. WLs customer mix
varied from region to region. In the United States and Canada, customers tended to be
adults using products with functional uses, such as breath mints and sugarless gum. In
Latin America, where the emphasis was on fun products marketed mainly to young
people, Chiclets, Bubblicious, and Bubbaloo were leading brands.

Aggressive Marketing
[***Over the previous several years, an aggressive marketing effort in J apan had
established a solid market position in chewing gum.]


Global product expansion had been a key objective of recent years. Outside the
United States, the Clorets brand had become the largest selling confection product.
Clorets was introduced in the United Kingdom and Portugal in 1990 and in France in
1991. The company had high expectations that Trident sugarless gum could be built
into a major global brand by capitalizing on concerns for health and fitness. In China,
where WL introduced its first three confectionery products in 1991, a new
confectionery plant was under construction. Over the previous several years, an
aggressive marketing effort in Japan had established a solid market position in
chewing gum. To increase penetration into the Italian market, a joint venture was
formed in 1990. Alivar, the new company, became Italys second largest non-
chocolate confectionery company.

Organizational Structure

[***WL was organized into four major divisions reporting to the president and
COO, Lodewijk de Vink: Parke-Davis Group, American Chicle Group, Consumer
Health Products Group, and I nternational Operations. All four groups had their
headquarters in Morris Plains, New J ersey.]

The Parke-Davis Group included the U.S. pharmaceuticals operations, the Warner-
Chilcott generics business, and the Pharmaceutical Research Division. The Research
Division, based in Ann Arbor, Michigan, operated facilities in Michigan, Canada, the
United Kingdom, and Germany. Parke-Davis manufactured in three plants in the
United States, one in Canada, and two in Puerto Rico. Warner-Chilcott production
came from a plant in the United States. Parke-Davis was responsible for U.S.
pharmaceutical regulatory affairs.

The American Chicle Group was responsible for the U.S. confectionery business.
American Chicle manufactured in two U.S. plants and sourced from plants in Canada,
Mexico, Puerto Rico, and the United Kingdom.

The Consumer Health Products Group was responsible for U.S. consumer health care
and shaving products. Consumer health care included the OTC pharmaceuticals
marketed under the Parke-Davis name plus other OTC products such as Listerine and
Lubriderm. Products were manufactured in two U.S. locations, Canada, and Puerto
Rico. This group managed a research and development division that performed
research for both the Consumer Health Products and American Chicle Groups. The
division also performed a significant amount of research for WLs international
affiliates.

International Operations was responsible for the manufacture and marketing of WLs
pharmaceutical and consumer products outside the United States. Capsugel and Tetra,
WLs two businesses that were run on a global basis, reported to the International
Operations Group.

International Operations

Superior & Subordinates

[***The general manager, or country manager, for each affiliate reported directly
to one of the geographic group presidents, who in turn reported to the head of
I nternational Operations.]

International Operations was divided into three operating groups responsible for 45
operating affiliates: Asia/Australia/Capsugel Group, Canada/Latin America Group,
and Europe/ Middle East/Africa Group. The general manager, or country manager, for
each affiliate reported directly to one of the geographic group presidents, who in turn
reported to the head of International Operations. Below the geographic group
presidents were staff managers responsible for the lines of business, such as the
Europe/Middle East/Africa head of pharmaceuticals. Geographic group presidents
also had staff functions, like sales and human resources, reporting to them. In some of
the regions, multiple affiliates were grouped together for management and reporting
purposes less than one general manager. For example, the German general manager
was responsible for the Germany, Austria, and Switzerland affiliates. Other grouped
affiliates included the United Kingdom and Ireland; France, Belgium, and
Netherlands; Spain and Portugal; and Italy and Greece.

Inconsistent Mix Market Penetration

[***Across all three of WLs main business segments, acquisitions of confectionery
or pharmaceutical firms had accounted for much of WLs international growth. As
a result, most of the international affiliates were dominated by either a
pharmaceutical or confectionery business. The result was an inconsistent mix of
market penetration around the world.]

For example, the German affiliate had 95 percent of its sales in ethical
pharmaceuticals, five percent in OTC products, and no confectionery business. In
Switzerland, WL was a market leader in several confectionery lines. In the affiliates
in France, Italy, and the United Kingdom, pharmaceuticals were dominant but there
was also a reasonably strong confectionery presence. In Spain, Portugal and Greece,
confectionery was the primary sector. In Japan, the largest business was Schick, with
about 65 percent of the wet shave market, by far the highest share in the various
countries where Schick was marketed. The affiliate in Canada was unique in that the
pharmaceutical, confectionery, and consumer health care businesses were all mature,
viable businesses with strong managers in each sector. In that sense, the Canadian unit
was very similar to WLs operations in the United States.

Problems of Country manager
[***The country manager focus more on countries profit rather than companys
growth, but the management had overcome with it by maintaining an international
operational staff officer which will play an advisory role between the Head
Quarters and the country managers.]
The country managers managed a full functional organization (marketing, finance,
human resources, etc.) and were responsible for all WL products marketed in their
country. In most of the affiliates, the country managers background corresponded
with the dominant business sector of the affiliate. According to a senior WL manager:

In our affiliates we have only a handful of country managers capable of managing a
diverse business. Very few managers can move from pharmaceuticals to consumer
products or vice versa. In one Latin American affiliate, we had a business dominated
by confection products. We put in a manager with a pharmaceutical background and
the business failed. In Germany, we have tried several times to expand the consumer
bus ness and failed each time. In Australia, we have problems with confectionery.
Japan is one of the few exceptions. We had a country manager with a pharmaceutical
back- ground who successfully grew a confectionery business.

Because the affiliates tended to be dominated by managers from either the
confectionery or pharmaceutical side of the business, managers involved in the non-
dominant businesses struggled to get resources. As a WL manager commented:

If, for example, you are a confectionery manager in a country with a small
confectionery business, youre treated like the poor stepchild. Because these
managers are not given the resources to grow their businesses, there is a tremendous
amount of frustration. It is very hard to retain good managers because they are not
given the opportunity or the resources to do the things you have to do to be
successful.

To illustrate international operations, brief descriptions of the Germany and Brazil
affiliates are provided.

Germanys Market

[***WLs operations in Germany, Austria and Switzerland were managed from
Gdecke, A.G., WLs German affiliate. WL acquired Gdecke, a pharmaceutical
firm founded in 1866, in 1928. I n 1977, Parke-Davis German affiliate was merged
with Gdecke. Prior to this, Parke-Davis and Gdecke were run as separate
organizations.]

Within Germany, the Gdecke name was far better known than WL. Employees
considered themselves Gdecke employees and the Gdecke name, along with Parke-
Davis, was prominent in promotional literature and corporate communications. In
1991, Gdecke had about 1,400 employees, with 230 working in pharmaceutical
R&D. Gdeckes business was primarily in ethical pharmaceuticals. There was one
sales force for OTC and ethical products because in Germany, the OTC market was
very small. Because prescription drugs were reimbursable, Germans tended to use
drugs that were prescribed by their doctors, even if the drug was available as an OTC
product.

Brazilian Market
[***A strong pharmaceutical business based on Parke-Davis products was also
established in Brazil.]

American Chicle entered the Brazilian market in the 1940s. When WL acquired
American Chicle in 1962, the confectionery business in Brazil was well established
under the Adams brand. A strong pharmaceutical business based on Parke-Davis
products was also established in Brazil. However, the hyperinflation in the 1970s and
the governments attempts to control inflation through price controls resulted in
significant losses in the pharmaceutical business. WL decided to discontinue
manufacturing and marketing pharmaceutical products in Brazil and licensed the
Parke-Davis line of drugs to another Brazilian company. Since the products were
marketed under the Parke-Davis name, WL maintained a close relationship with the
licensing company for quality assurance purposes. The licensee, how- ever, had
complete control over which products to produce and how to manage production,
marketing, and distribution.