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Valeant Pharmaceuticals to India
Brian Braley, Justin Lam and Omar Elkhatib
Valeant Pharmaceuticals
• Focuses on neurology, dermatology and infectious diseases• Manufactures pharmaceuticals as well as medical devices
• Canada’s largest pharmaceutical company with $8 billion revenue
• Since 2008 Valeant has been executing many acquisitions to grow internationally
Dermatop
• Topical steroid cream, used to decrease inflammation in skin• Prescription required
• Valeant currently manufactures Dermatop in Barbados
• Prednicarbate also being made in India under different manufacturers
The Main Issue
• Labour in Barbados is comparably expensive to rivals and is unreliable
• Still recovering from recession in 1980’s
• Opportunity for Valeant to save on production costs by looking elsewhere
Identified Driver
• Efficiency Driver: Outsourcing for cheap costs in India• Generic product• Easily accessible materials • Low import tariffs
• Method of Entry: Brownfield • Lease existing manufacturing plant to produce Dermatop
Key Success Factors
• Cheap Costs
• Legitimacy, safety and credibility
• Medical Advancements
Patna, India
• Capital of Bihar province
• Ranked 2nd easiest Indian city to start a business by the world bank (2009)
• 5th fastest growing city in India
Political
• India is ranked 85/175 on the corruption index
• Canada has a 6.5% tariff on imported pharmaceuticals
• Foreigners are not allowed to own immovable property in India• Leases not exceeding 5 years are allowed
Economic
• Indian Rupee is not fully convertible
• Exchange rate has been relatively stable • Any fluctuation will not have a major impact on value of Canadian dollar
• Cheap labour costs• BDS $6.25 = CAN $3.90/hour• INR 192 = CAN $3.81/day = $3.81/9 hours = $0.42/hour
Social/Cultural• Corporate Social Responsibility • Fair wage and good working conditions• Environmental Impact
• Acceptance of imperfection could be problematic• High power distance gives authority
Comparative Advantage
Factor Endowments- Low cost
workforce
- Growing Infrastructure
- English is common, easy communication
Related and Supporting Industries
- Resources, infrastructure and suppliers exist
- Large work force eager to work
Demand Conditions
- Investment driven economy
- Growing middle class/higher education making better management
Strategy, Structure and
Rivalry- Pharmaceutical
industry is seen positively in India
- Competition has led to better innovation
India’s Relative Advantage
• Cheap, plentiful labour of varying skill levels
• Strong indicators of future growth and improvements to support our needs
The Market
• Dermatop is sold to the general public for their use• Quality: no one will buy a low quality medication
• Monopolistic Competition• Many firms with a homogenous product only differentiated by brand name
• Many different brands are often owned by a single company
The Pharmaceutical Industry in India
• Relatively stable, however advances can cause turbulence
• Highly regulated in terms of price, quality and patents
• Estimated to have over 10,000 manufacturing units
• Manufacturing facilities are increasingly complying with International Regulatory Agencies like USFDA & MCC
Industry Competition
Company Revenue in Billions (2013)
Johnson & Johnson 71.3
Pfizer 51.6
Roche 52.1
Valeant 8
Strengths and Weaknesses in India Pharmaceuticals• Strengths• Well developed• Strong manufacturing base• Cost competitive• Labour quality varying from unskilled to extremely skilled
• Weaknesses• Subpar products affects image of all companies• Growing concern over working conditions and wage
Threats and Opportunities in Indian Pharmaceuticals• Threats• Mostly domestic, not related to manufacturing and exporting• China is a threat in terms of exporting and labour
• Opportunities• Significant export potential• Significant potential to supply generic drugs to developed markets
Method of Entry
• Brownfield Entry • Will lease a manufacturing plant for 2 years to begin manufacturing Dermatop
• Acquiring a manufacturing plant in Patna will not be difficult as they are readily available for lease
• Will be able to begin manufacturing right away
Supply Chain
Raw Materials purchased
locally
Dermatop manufactured
Dermatop flown from Patna, India
to Canada
Potential Issues
• Drug contamination
• Backlash against typical Indian labour conditions• USFDA and India are working closely to improve working conditions
• Valeant and Dermatop image being tarnished due to image of low quality drugs being manufactured in India
Corporate Social Responsibility
• Legitimacy
• Public Responsibility
• Labour Issues
Short Term
Lease an appropriate factory for 2 years to manufacture Dermatop
Hire local, experienced semi-skilled labour
Long Term Plans
If 2 year lease is successful, will lease for another 5 years and begin moving other products to production facilities in India and start to
expand operations
The Big Picture
• Valeant is a company who has a vast interest in internationalization• They already have a presence in South Asia• Indian Pharmaceutical Industry vastly growing and has a very bright
future • A presence in India would be great in the long-term for Valeant and
will be key to future success • Starting out with Dermatop is safe and will pave the way for new
products
Q & A