Pharma’s global karma

Focus on Novartis, Pfizer and Ranbaxy

he major players within the pharmaceutical industry have long positioned themselves

T 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 profit.
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 fight against diseases such as AIDS, the
mission for all pharmaceutical companies is one of finding 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 influences
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 find 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 fight
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 difficult time within the sector, high profile failures being:
B Merck withdrawing Vioxx from the market;
B Astra-Zeneca’s new blood thinner being rejected by the FDA;
B Chiron’s ’flu vaccine being discredited after contamination;
B Elan’s multiple sclerosis treatment being linked to brain tumors; and
B Pfizer’s 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 j STRATEGIC DIRECTION j PAGE 5
 ‘‘ Pfizer, the world’s 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.

Pfizer searches for a cure

Pfizer, the world’s 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.
Pfizer was the first of the drug companies to really go for it in terms of aggressive sales and
marketing, yet with others following suit are finding 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
difficult bit is to make the necessary scientific breakthroughs with products robust enough to
make it all the way to market. And this during a period where Pfizer’s existing patents are
beginning to expire, indeed Indian giant Ranbaxy Laboratories is seeking to remove the
protection to Lipitor, a Pfizer success story, and manufacture a cheaper generic version.
While management restructuring, and the encouragement of more bottom-up decision-
making, is assisting organizational effectiveness, the search for blockbusters continues.
Pfizer is currently investing $1.3 billion in the acquisition of a biotech company developing an
HDL-raising (good cholesterol) drug. For the industry’s 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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PAGE 6 STRATEGIC DIRECTION VOL. 22 NO. 1 2006
 Ranbaxy’s generic strategy
The rise of Ranbaxy laboratories from its origins in a chemist shop in Delhi to India’s 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.
B A clear vision which focused research on the development of drugs for generic markets,
new drug development, and new drug delivery systems.
B Visionary leadership that ensured that the vision of the company was carried through into
action and sustained as the competitive context changed.
B Enabling organizational culture developed to sustain corporate coherence and alignment
across international businesses and focuses on different market sectors.
B Globalization of the business primarily through an aggressive program of acquisition.
B Strategic alliances used extensively as Ranbaxy seeks to move from being a multinational
to a true transnational organization.
B Innovation, so crucial to compete in the pharmaceutical sector, including drug discovery,
exploiting generic markets, collaborating research, and new technologies in drug
delivery.

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 benefits 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 Pfizer 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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VOL. 22 NO. 1 2006 STRATEGIC DIRECTION PAGE 7

Keywords:
Pharmaceutical industry,
Acquisitions and mergers,
Strategic alliances,
Research and development
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PAGE 8 STRATEGIC DIRECTION VOL. 22 NO. 1 2006
‘‘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.
‘‘Pfizer’s 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 company’s 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 India’s rising pharmaceutical giant. In a quiet
revolution a fundamentally aggressive strategy is examined.
References
Barrett, A. (2005), ‘‘Pfizer’s 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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