Ranbaxy singapore

Ranbaxy’s Future in Sustainable Healthcare
Team B1 – Equilibrium Consulting

Roadmap to Success

Situation Analysis
Alternatives
Recommendation
Financial Impact
Implementation
Wrap-Up

Situation Analysis Alternatives Recommendation Financial Impact Implementation Wrap-up
2

Our Understanding

Your Growth Potential Indian Pharamaceutical
Industry Growth
 India has highest industry growth in $25

emerging markets (12-14% per year)
$20
 India, Brazil, Russia, China

Billions of USD
$15
 Strong profitability potential from
NDDS research and development $10
 New dosage form licensed to Bayer
AG for $65 million $5

 Dependence on generic drugs leads $-
to volatile profitability 2010 2011 2012 2013 2014 2015

 2008: $215.5 million loss due to
inventory write off
12.3% Compound Annual Growth

3

Roadblocks to Success

Threats to Revenue Streams Challenges

Competition Supply Chain
How to move towards sustainability
Increased presence
Challenges faced as a
of generic players
result of
in developed
acquisition
markets
How to achieve higher levels of synergy
Regulator Authorities

Immediate Threat:
How to promote quality control
FDA import ban in the US

4

Opportunity Statement

By introducing Daiichi’s patented drugs into
India, optimizing quality assurance, and increasing R&D
focus on NDDS (Novel Drug Delivery Systems) Ranbaxy
will leverage synergies with Daiichi by addressing quality
control, in addition to taking advantage of all available
opportunities associated with the „Hybrid Business
Model‟. The 7-year implementation of this recommendation
will generate an NPV of $1.5 to $2.5 billion.

5

Categorizing Your Challenges
2 Key Areas

Current Road
Future Growth
Blocks

What can be
Achieving Better
done about Sustainability
Synergies
import ban?

6

2 Key Areas

Current Road
Future Growth
Blocks

What can be
Achieving Better
Synergies
import ban?

Acquire new
Lobby FDA for
producers /
timely resolution
build plants

- +/-
Strengthen
quality control
processes

+

7

2 Key Areas

Current Road
Future Growth
Blocks

What can be
Achieving Better
Synergies
import ban?

Acquire new
Lobby FDA for Supply Qlty Sales/
producers /
timely resolution Chain Mgmt. Mrkt
build plants

- +/-
Strengthen
quality control
processes

+

8

2 Key Areas

Current Road
Future Growth
Blocks

What can be
Achieving Better
Synergies
import ban?

Acquire new Market Growth
producers /
timely resolution Chain Mgmt. Mrkt Market Share
build plants
Revenue Streams

- +/-
Strengthen
quality control
Are we in the right Is our R&D best suited to
processes
markets with the right serve our long-term
products? needs?
+

9

2 Key Areas

Current Road
Future Growth
Blocks

What can be
Achieving Better
Synergies
import ban?

Non-Negotiable Decision Criteria
Acquire new Market Growth
producers /
timely resolution Chain Mgmt. Mrkt Market Share
build plants
Revenue Streams

- +/- Questions our Alternatives need to Address
Strengthen
quality control
Are we in the right Is our R&D best suited to
processes
markets with the right serve our long-term
products? needs?
+

10

Alternatives

What markets? Emerging or Developed Market Mix
What products? Generic or Innovative
Developed Emerging

2 1
Increase generic Increase generic
Alternatives products in products in
USA, Europe, Jap India, South Generic
Generic drugs, an America, Vietna
1 m, China
Emerging markets
Type of
Generic drugs, Products
2 3
Developed markets Market
innovative drugs
Innovative drugs, in countries like Innovative
3 India, South
Emerging markets
America, Vietna
m, China

11

The Path Forward

Generic in Generic in Innovative in
Emerging Developed Emerging

Sustainability +/- - ++

Profitability +/- +/- +

New Synergies - - ++

Actionability + + +

Low level of risk +/- + ++

12

Recommendation

Target

Quality
Control
Committee High

Synergies
Bringing
Innovative
Drugs to Streamline
India R&D Focus

Low Sustainability High

13

Quality Control Committee
1. Optimize Quality 2. Bringing Innovative
3. Streamline focus of R&D
Assurance Drugs to India

 Quality Control Committee Optimization
 Committee currently in place, headed by Mr. Dale Adkisson
 What they do: set internal guidelines

 Take it to the next level:
 Add “honesty and integrity” to corporate culture – Mr. Adkisson should
propose this to the executive board (umbrella term for quality assurance)
 Includes:
 Ethical Research/Data Collection
 Ethical behaviour of sales representatives

 Verification by External Audit group:
 3rd party: make sure that rules/regulations relating to Quality control are being
followed
 Ensures no conflict of interest

14

Move Into India

Why bring Daiichi brands to India?

Market Mix
 Innovative Drug Producers only
Emerging Developed occupy 5% of the pharmaceutical
industry (will increase to 10%)
Generic
Type of  There is a void in what your group
Products of companies supplies to emerging
markets in terms of innovative
Innovative
drugs

15

Products of Daiichi Sanko

What brands should we focus on?

 Given the rise in lifestyle disease
Rise in Lifestyle

across the Indian demographic a
Disease

market is developing for the
following type of innovative drugs
 Cardiovascular Disease
 Hypertension
 Diabetes
India in 5-10 years

16

Products of Daiichi Sanko


 Benicar (high blood pressure)
 WelChol (reduce cholesterol)
 Effient (heart disease)
 Mevalotin
 Loxonin
 Hirudoid
 Olmetec
 Captopril
 Panipenem
 Cravit
 Evoxac
 FloxinOtic
 Gracevit

17

Pharmaceutical Marketing

3 Key Issues:
 Low level of customer knowledge
 Number and quality of medical reps
 Poor customer acquisition, development and retention strategies

Who to target

 Health care providers
 Medical representatives
 Backbone of entire marketing effort
 Collaboration of “Associations of
Physicians of India” (API)
 Trade booth/medical
fairs/seminars

18

Daiichi-Sankyo Medical Representatives

Addressing Your Medical Sales Representatives

Develop Rapport
Objective Retrain Ranbaxy Sales Reps Salary with Healthcare
Providers
Action  Brand and product knowledge  Compensation  Consistent
Required -based meetings to
 Customer education & retention
build
 Focus on customer service relationships
 5 reps for each region (Delhi,  Drug Samples
Trivandrum, Jalpur, Rohtak)
 Invitation to
Daiichi Medical
Conference

19

Daiichi Medical Conference

Sample Flyer for Doctor‟s Seminar

20

Narrowing Focus of R&D

Objective: Streamline R&D activities to focus mainly on
Novel Drug Delivery Systems (NDDS)

What this
New NDDS methods
accomplishes
 Create synergies in R&D between
Orally Ranbaxy and Daiichi
administered, controlled-  R&D in India is nearly 50% less than
release other countries
Inhalation  Ranbaxy developments will help create
line extension for Daiichi that will serve
to extend their product patents with
Trans-dermal (patches) Abbreviated New Drug Applications
(ANDAs)
 Financial incentive: Ranbaxy can profit
from licensing R&D to Daiichi

21

Projected Sales and Costs
Sales (2015)
Pharmaceutical Market
$60 million $20 billion
$2 billion

Generics Innovative
$20 billion 90% 10% - $2 billion

Other Firms Ranbaxy
97% 3% - $60 million

Costs

Selling, General & Marketing
Transfer Pricing
Administrative Expenses
28% of revenues Expenses
$8.5 million
10% premium
15% of revenues $3 million / year

22

Financial Implications

Net Cash Flows (Sensitivity Analysis)
Assumptions $160

$120

Millions of USD
Growth
$80
12.3% pharmaceutical
industry growth per year
$40

$-
Market Share
2012 2013 2014 2015 2016 2017 2018
5% innovative drug market
share by 2018 $(40)

Base Case Pessimistic Optimistic

Cost of Capital
13%
$1.5 billion $2.5 billion
NET PRESENT VALUE NET PRESENT VALUE
(=6.5 times 2010 Profit) (=11 times 2010 Profit)

23

Implementation
Short Term (present-2012) Long Term (2014 onwards)
Quality Control NDDS
- Core Value - Research and develop Technology
- Quality Control Seminar Quality Control
- External auditing group - Continuation of external auditing and
Innovative Products in India bi-annual visits
- Acquisition of Daiichi products Innovative Products in India
- Establish distribution logistics - Revaluate and extend product offerings

Q4 2011 2012 2013 2014 2015 2016

Medium Term (2012-2014)
Quality Control
- Continuation of external auditing and bi-annual visits
Innovative Products in India
- Training of Medical Sales Representatives
- Daiichi Medical Conference
- Products launch
- Reevaluate and extend product offerings

24

Risk Mitigation

• Ensures that road blocks like import ban do not occur
again
Quality Assurance • Sets universal standards that can be applied to 11
Optimization plants worldwide
• Pre-emptive action

• Effectively leveraging synergies in: Supply Chain, Marketing &
Daiichi Patented Sales, Quality Control between Daiichi and Ranbaxy
drugs to Indian • No additional learning/adaptation costs
• Existing Products in New Market; established distribution
Market channels

• Expanding range of products/services
Increased focus on • Able to further penetrate both developed/developing markets
(new products)
NDDS (R&D) • Less focus on volatility of reverse engineering

25

3 Key Takeaways

Ranbaxy will:
High
1. Benefit from increased synergies
2. Ensure the sustainability of the ‘Hybrid Business Model’

Synergies
Increase
Introduce Ranbaxy’s
Quality Daiichi’s R&D focus on
Assurance patented Novel Drug Low Sustainability High
Optimization drugs to Delivery
India Systems
(NDDS)
7 year project
Profitable Growth generating
High Quality Products $1.5 to $2.5 Billion
NPV

26

Slide Index
Our Understanding Financial Information Key Challenges
Our Understanding Projected Sales (Pessimistic) Mitigate Import Ban
Roadblocks to Success Synergies
Projected Sales (Most Likely)
Opportunity Statement
Projected Sales (Optimistic) Clarifying Synergies
Alternatives Revenue for Daiichi Sankyo What Provides LT Sustainability
Net Present Value Model
Alternatives Pharmaceutical & India Analysis
Quality Control Costs
Decision Matrix Pharmaceutical Value Chain
Recommendation Details
Recommendation Generic Drug Consumer Profile
The Path Forward NDDS: Why? Patented Drug Consumer Profile
Quality Control Committee Benicar, WelChol and Effient CVD & Hypertension
Move into India Value Proposition: Daiichi Competitor Analysis
Products of Daichii Sankyo Value Proposition: Ranbaxy Why India - Growth of Indian
Pharmaceutical Marketing Population
Synergy Office
Medical Sales Representative
Daichii Medical Conference Pamphlet Externalities
Implementation
Narrowing Focus of R&D Corruption
Detailed Overall Implementation
What is Sustainability in this Context?
Financial Information Detailed Short Term
Why Not Generic? – Ranbaxy Market Implementation – Content
Projected Sales and Costs
Penetration
Financial Implications Detailed Short Term
Incentive for API Implementation – Visual
Implementation Quality Assurance Committee
Hedging
Risk Mitigation
Situation Analysis Alternatives Recommendation Financial Impact Implementation
Implementation Wrap-up
Triple Bottom Line
Wrap-Up
27

 Financial Information

28

Projected Sales (Pessimistic)

29

Projected Sales (Most Likely)

30

Projected Sales (Optimistic) .

31

Revenues for Daiichi Sankyo

 Transfer pricing model

 Ranbaxy purchases
drugs from Daiichi at $70 - $130 million
cost plus 10% premium NPV for Daichii Sankyo

 Ranbaxy is a subsidiary
of Daiichi Sankyo

32

Net Present Value Model

33

Quality Control Costs

Cost Amount
Training Seminar $1,250,000
Information Materials $200,000
Online Media $150,000
Total $1,600,000

• $1.4 million dollar investment into Quality Control

• Funded with cash (currently $550 million in cash and bank balances)

34

 Key Challenges

35

Key Issue: FDA

How to mitigate import ban issue?

Acquire /Build New Implement
Production Facilities Internal Quality
Control
Sustainability - ++
Capability of existing Infrastructure - +
Ease of Implementation +/- +

36

Key Issue: Synergies

How do we effectively leverage synergies between Daiichi and Ranbaxy?

Supply Chain Sales & Quality Control
Marketing
Ease of ++ +/- ++
Implementation
Maximizing Efficiency ++ + +/-
Cost Savings ++ + +
Leverage Industry ++ +/- -
Opportunities

37

Leveraging Synergies .

Secondary Consumer
AIP
R&D Manufacturing
Manufacturing Distribution Sales/Market
& Packaging ing

Ranbaxy leveraging Daiichi’s Daiichi leveraging Ranbaxy’s Daiichi leveraging
investments in R&D: established distribution Ranbaxy’s sales
-Established Patented Products channels (Patented Drugs): representatives
-Product Mix: -Market Knowledge + Access -Marketing/Sales of
-Consumer Knowledge Patented Drugs
-Customer Loyalty
Daiichi leveraging Ranbaxy’s Ranbaxy leveraging
increased R&D focus on drug Ranbaxy leveraging Daiichi’s existing brand equity of
delivery established distribution Daiichi products
-Extending Patents on products systems in developed markets -Product Mix:
-Outsourcing part of the R&D (drug delivery systems): -Awareness/Brand
process -Japanese Market Loyalty

38

Key Issue: Sustainability

What alternative provides a long term sustainable strategy for both Daiichi
and Ranbaxy?

Expand into New Product Line Streamlining
Geographic Regions Development R&D processes
Profitability ++ +/- +
Long-term Growth ++ + +
Core Values + + +
Leverage Industry ++ +/- +
Opportunities

39

 Pharmaceutical and India Analysis

40

The Pharmaceutical Value Chain
Drug
Manufacturer

Pharmacy
Drug
Pharmacy Benefits
Wholesaler
Manager

Health Insurer
/ Medical Staff

Consumer

41

Generic Drug Consumers - India

Demographic Geographic
• Lower income • Rural Areas
• Recent ascension into the middle class • Outer reaches of Urban areas
• Tier 2 Consumers

.

Behavioral Psychographic
• Need for OTC products • Lack of access to healthcare services; lack of ability to
• Basic solutions to prevent symptoms spend on healthcare
• Increased focus:
Neuropsychiatry, Oncology, Cardiovascular, Gastro-
Intestinal,

42

Patented Drug Consumers - India

Demographic Geographic
• Higher Income • Urban Areas
• Middle/High class consumers • Mumbai/Bangalore/Chennai/Delhi
• Tier 1 Consumers

.

Behavioral Psychographic
• Access to hospitals/clinics/healthcare
• Safety
• Western lifestyle diseases
• Brand Names
• Increased focus:
• Quality Assurance
Neuropsychiatry, Oncology, Cardiovascular, Gast
• Prescription based medicines ro-Intestinal,

43

India: Key Health Issues

Cardiovascular Disease

 Heart diseases: number one killer in both urban and rural areas
 Prevalence rates of CVD in rural populations lower than urban
populations
 25% in age group of 25-69 years
 Predominantly 60–69 years

Hypertention Diabetes

 Causes: Urban lifestyle  Life-long incurable disease
 inadequate sleep, cigarette caused by high blood-sugar
smoking, stress levels, lack of levels
exercise
 Hypertension is 25-30% in  41M Indians have it
urban and 10-15% in rural  Expected 74M will have it in
subjects 2025
44

Competitive Analysis

Main Competitor: Cipla
 Prominent Indian pharmaceutical compnay; manufacturing low-
cost anti-AIDS drugs for HIV-positive in developing countries
 product range comprising cardiovascular drugs

Other Competitors: Dr. Reddy’s laboratories, Sun Pharmaceutical

45

Growth of Indian Population

 1.2 billion people Demographic Shifts in India
1600

 1.6% annual growth
1400

 Will surpass Chinese 1200
population in 2025
1000
Upper Class
Upper-Middle Class
800
Middle Class
Lower-Middle Class
Emergence of the 600
Below Poverty Line
Middle Class
400
530 million people will
enter the middle class 200

by 2025 0
1985 1995 2005 2015 2025

46

 Implementation

47

Detailed Implementation
Short Term (present-2012) Long Term (2014 onwards)
Quality Control NDDS
- Core Value - Develop Technology
- Quality Control Seminar - Research
- External auditing group Quality Control
- Identification - Continuation of external auditing and
- Practices bi-annual visits
Innovative Products in India Innovative Products in India
- Acquisition of Daiichi products - Revaluate distribution strategies
- Establish distribution logistics - Extend product offerings

Q4 2011 2012 2013 2014 2015 2016

Medium Term (2012-2014)
Quality Control
- Continuation of external auditing and bi-annual visits
Innovative Products in India
- Training of Medical Sales Representatives
- Begin marketing products
- Daiichi Medical Conference
- Revaluate distribution strategies
- Extend product offerings

Short Term Implementation (2011-2012)
Quality Control Optimization
- Addition to core values
- Approaching Dale Atkinson about approaching Executive Committee of Ranbaxy
- External Auditing
- Searching for/hiring of external “quality auditors”
- Establishing of jurisdiction; responsibilities
- Investigate processes of Ranbaxy plants, make sure they adhere to CQ rules
and regulations
- Quality Control Seminar
- Planning for Seminar; Location, dates
- QC Seminar Follow up
- 2 visits per year by Dale Atkinson and his Quality Committee to Ranbaxy plants
Patented Drugs into India
- Acquiring Products from Daiichi
- Re-training of Sales Force

49

Implementation – Immediate Actions

Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Core Value

Quality Control Seminar

Quality Control Exec. Team: Bi-
annual visits
External Auditing Group
-Identification
- Begin audit

Acquisition of Daiichi products

Establish distribution logistics


Quality Assurance Committee

 How to Implement – Weekend Training
Session:
 2 top level managers from each production
facility
 Away for one weekend; sessions held by
Mr. Adkisson and his group  why is this
important? What impact does this have on
the company (financially and socially)
 Mr. Adkisson and his committee visit plants;
(bi-annually for each plant) check on

51

 Recommendation Details

52

NDDS: Why?
NDDS
- Helps companies build patent fences
- If they develop a new delivery system for an existing drug, and if
they are First-to-File to produce as the original patent runs out,
they can receive marketing exclusivity for up to 180 days

Benefits for Ranbaxy
- Transfer Pricing
- Following a market trend
- Increased number of Indian Generic Pharmaceutical companies going
in this direction
- Mitigates Risk
- Reduces focus on US market; allows Ranbaxy to further penetrate
Indian pharmaceutical generic market
- Sustainability
- Increased variety of products/services offered
- Further penetration of both developed/developing markets
- More to offer both new/existing consumers

53

Why Benicar, WelChol, Effient
1. Quality Control 2. Bringing Innovative
Committee Drugs to India


Drug Addresses Patent Successful
Expiry In Other
Markets
Addresses the
Benicar High Blood 2016 trend of
Pressure increasing
occurrence of
WelChol Lowers 2014 lifestyle disease
Cholesterol among Indians

Effient Heart 2012
Disease

54

Value Proposition - Daiichi

Sustainable innovative
drug manufacturer
Who I Am

Sustainable; financially and in terms of
How I Feel business model + effectively leveraging
demographic trends – part of a mutually
beneficial partnership
HIGH END/NICHE PENETRATION
What I Get

Established Distribution Network, In depth
consumer knowledge, Market/Consumer Access

55

Value Proposition - Ranbaxy

Sustainable generic drug
Who I Am manufacturer

How I Feel Further penetration of the Indian
drug market, taking advantage of
demographic and industry trends –
part of an effective partnership
What I Get

Financial incentives + Increased sales and
market share in the Indian drug market;
Leveraging of R&D synergies

56

Synergy Office

 Will complement our penetration into the Indian market with
innovative office
 Facilitate the logistics behind our recommendation
 Sales and Marketing: Medical sales representatives
 Supply Chain: Use of our distribution channels for Daiichi office
 Quality Control: Coordinating quality control in for Ranbaxy

57

 Externalities

58

Corruption

API
Network

Commission-based
Established, Medical Association
trusted representatives of
network Physicians
of India
(API)

59

What is Sustainability?

Pharmaceutical Industry:
- Sustainability in terms of business model

- Is the “Hybrid Business Model” sustainable in the long term?
- Ensure growth, profitability, and constant innovation

Market Mix
Emerging Developing

Generic
Type of
Products

Innovative

A truly sustainable Pharmaceutical company is present in all four segments

60

Ranbaxy Generic Drug Market Penetration

 Ranbaxy already sells generic drugs in all major developing and
developed pharmaceutical markets
 Entered Japan through the Daiichi Sankyo Espha subsidiary in early
2010

61

Incentive for API

 Provide international industry experience
 Support API’s objective in organizing, promoting
the search in problems relating to the science of
medicine
 Meetings, exhibitions, conferences

62

Hedging

 Ranbaxy currently hedges against all major currencies in the
markets they operate

 Ranbaxy will purchase drugs from Daiichi Sankyo in Japanese Yen

 Ranbaxy should continue to hedge against currency fluctuations in
the Indian Rupee and Japanese Yen using future contracts

63

Triple Bottom Line
 Sustainability in a broader context:
 Additional focus for pharmaceutical companies in regards to
sustainability
 “Health & Safety” of customers and individuals

 Triple Bottom Line:
 PROFIT
 Economic impact
 Is our recommendation profitable for the company?
 PEOPLE
 All the stakeholders, including society at large
 Focus on “honesty & integrity” – improves overall quality for stakeholders
 Positive impact on community by introducing medicine that was previously
unavailable
 PLANET
 Impact on the planet and natural systems

64

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