Biocon India Case Study

DEPARTMENT OF MANAGEMENT SUDIES, IISC
BIOCON INDIA GROUP

Marketing Case Study
Under the Guidance of
Prof. R. Srinivasan
Submitted by:
Appoorvaa Singh
Anurag
Dhiraj Gangaraju
Manoj Reddy
Submitted on:
3/1/2017
1) What are the advantages and disadvantages of starting and operating a
pharmaceutical firm in India?
Answer 1)
Advantages:
Advantages of starting and operating a pharmaceutical firm in India are manifold,
especially for domestic players. These advantages can be clubbed under the following
broad heads :
High quality work force : India has several well-renounced research institutions,
that produce quality PhD graduates in the field of biology and chemistry every
year. Examples include IISc, NCBS, CCMB, CDRI, etc. The relative expensive of
hiring these Indian graduates is much lower that the cost of hiring PhD graduates
from universities and research institutions outside India. Apart from this, India also
produces a substantial number of pharma- science graduates. Indians also score in
terms of being able to speak English.
Indian patent laws : In the 1970s, the Indian government implemented the acts
Drug Price Control Order (DPCO) and India Patent Act (IPA). These provided a huge
boost to the manufacturing of generic drugs in India, to the extent that India holds
20% of the global market share in generic drugs.
Diverse population for clinical trials : Clinical trials are a necessary step in the drug
discovery and development chain. Due to its vast population, non-stringent laws
regarding clinical trials, low cost of conducting such experiments and a genetically
diverse population, Indian CROs for clinical trials have become popular with many
MNC pharmas.
Policy support for manufacturing firms : In recent years, the Indian governments
new initiatives like Make in India, older schemes like SEZs, subsidies on raw
material procurement and exports, have made pharma an extremely lucrative
industry to set foot in. The Department of Science and Technology provides
support to research in the fundamental sciences, which has led to the creation of a
nurturing academic environment supporting the industry.
Well established pharmaceutical industry : The Indian pharma industry dates back
to 1947, when it was dominated by foreign players, followed by PSUs in 1960s,
private players since 1970s. With liberalization and changes in the patent policy,
there are now more than 20,000 pharma companies in India. The Indian pharma
industry ranks 3rd in the world terms of volume and 14th in terms of value.
Huge domestic market : Domestic market in India is valued at $13.8 billion.
Besides, India is a major exporter of low cost generic drugs.
Low cost operations : Pharma operations, especially R&D, are much cheaper in
India and China compared to USA, Germany, Canada.
Foreign investments : New policy allows 100% FDI under automatic route in
greenfield pharma, and up to 100% (75% automatic & 25% govt. approval)FDI in
brownfield pharma.
Disadvantages :
Weak patent laws : The product patent laws apply for a limited period of time,
after which the products come in the generic domain.
Ethical issues in clinical trials : significant proportion of the population is
uneducated, holding clinical trials on such people entails many ethical questions.
It can lead to tarnishing of the company image. In the highly competitive Indian
pharmaceutical industry and the effects of social media vigilantes, image
tarnishing can lead the company to incur significant losses.
Highly competitive market : there are already more than 20,000 domestic players
in the domestic market.
Entry of international players : Since the 2005 product patent act, more MNCs are
looking at India as a viable investment location due to the low cost of
manufacturing, high quality work force and substantial domestic market.
Price cap on drugs : The DPCO act puts a price cap on the drugs sold in Indian
markets.
Capital intensive industry : As a company tries moving up the value addition chain
of the drug discovery, development and marketing chain, the capital investment
involved becomes substantial.
2) Is the Indian CRO market attractive?

Answer 2)
Contract Research Organizations are firms that perform research and development
related tasks on the behalf of other organizations.
The Indian CRO market was and is extremely attractive. The 2002 prediction of Indian
CROs share in the global market was predicted at 20%.
The reason for the lucrativeness of CROs in India was that the outsourcing of critical R&D
tasks to CROs based here was low cost, work produced was of high quality, the workers
spoke fluent English making communication much easier compared to other countries
like China, thus freeing the parent company to concentrate on its core competencies, at
a more optimum level of utilization of resources.
Indian CROs are focused primarily on serving the need for bio-equivalence and bio-
availability studies in market, which constituted the low-to-medium segment of the value
chain. In the 2000s, few companies offered services in clinical trials. A large, well
established pharma company like Biocon could very well leverage its name and
reputation to lure pharmaceutical MNCs into outsourcing critical and sensitive, higher
valued clinical trial work to Clinigene.
In India, very few pharma companies had their own CROs at the time, compared to
foreign countries. Some examples include Lotus Labs, Instas LAMBDA, Zydus Cadilas
B.A Research Centre. This thus represented significant first-mover advantages in a
high potential, rapidly growing market.
3) What is the best way for Biocon India group to expand?

Answer 3)
In the context of the case study timeline (2000), Biocon India lacked presence only in the
animal studies and clinical trials segments of the typical drug development and
discovery value chain.
The senior board was on the look for more opportunities to expand, preferably in line
with their philosophy of earn as you learn, with the ultimate goal of making Biocon a
fully integrated drug discovery and development company.
Short-term :
The first most logical direction to expand in, thus, was the field of clinical trials, with the
setup and expansion of Clinigene. Biocon was still a long way from developing its own
original drug formulations, but developing expertise in clinical trials through contracts
from other organizations would only serve Biocon well in the long term, when the time
was ripe for the development of their own formulations.
Biocon had three alternatives regarding the working of Clinigene:
As a subsidiary that took low value work from other organizations, thus making it
less capital and effort intensive to setup and maintain. As and when the need
arose, and relevant capabilities were developed, Clinigene could pick up higher
value work. But the pharma industry was growing at a rapid pace, especially in the
services outsourcing sector. Not capturing the opportunity fully would not provide
a substantial return on the investment and pain involved in setting up Clinigene,
which was already 2 years old in 2000.
As a subsidiary that provided the whole gamut of clinical trials services, which
would entail considerable capital investment and attention from the senior
executives. The counter to this passive-aggressive expansion was that it would
divert attention from Biocons core competencies of drug manufacturing and
marketing. The strain could possibly also have a detrimental effect on Biocons
carefully nurtured work culture which it counted on as an essential building block
that helped Biocon grow from strength to strength. But setting up such a
subsidiary would help Biocon capture profits from the rapidly growing
pharmaceutical services outsourcing sector. In the highly competitive
pharmaceutical industry, it would also help Biocon rapidly develop the capabilities
to launch their own product. Overall, the possible benefits of this alternative
seemed to outweight the risks. The expansion to clinical trails from BE/BA could be
spanned out over a period of 2 years.
Just 5 years down the line, in 2005, the Indian Government would bring in the
product patent law which would make the launch of self developed drugs an
extremely attractive option for well established Indian pharma companies like
Biocon, and bring in more MNCs willing to outsource the entire drug discovery and
development process to India.
Acquire a company that was already working in the field of clinical trials. This
seemed like a viable option, but the time and resources to be consumed in finding
and negotiating with a suitable company, and then moulding it according to
Biocons work culture reduced the attractiveness of this option.
The second direction was to develop an animal testing facility.
Long-term :
Biocon should look beyond Syngene and Clinigene in the long term for expansion,
and focus on innovation and build upon its core competencies
Look out for Strategic Partners in developed countries to boost the revenues, by
breaching untapped international markets
Partnering with incubators and research centers
Consciously try to build a brand
Start work on the development and release of its own drugs and formulations. This
was not a viable option for the short term because of the resource intensiveness
of the process, and the DPCA and IPA acts.
Setting up operations in other states of India to benefit from the attractive sops
provided by different states for the pharma industry.
Overall though, in the short-term, passive-aggressive expansion of Clinigene, with
carefully crafted plans to take care of all contingencies, seemed to be the way forward
for Biocon.
4) What is the best way for Biocon India group to expand, and what factors
should it consider?
Answer 4)
In the context of strategic growth, the best way to begin expansion was for Biocon to
broaden the sphere of operations of Clinigene, thus establishing its foothold in the entire
value-added chain of the drug development and discovery process. The ultimate goal
was to come out with its own innovative drug formulations. For this, developing
capability in clinical trials, apart from BE/BA testing, was a must. Regarding the particular
case of Clinigene, the best strategy for expansion seemed to be :
Draft out a policy framework in the next one year for clinical trials, taking care of
all legal and ethical issues, while Clinigene works in the low-medium segment of
the value chain to maintain market presence and to sustain itself.
Start recruitment of people who fit in the work culture, with a goal of 2 years to
allow the new recruits to acclimatize. Clinigene was already 2 years old in 2000
by 2002, it could have a substantial work force in place.
For the next 2 years, develop expertize in low-medium segments of the value
chain (BE/BA testing, animal testing, legal expertise in approval and launch) by
taking on as many projects as possible without compromising on quality.
Start recruiting qualified staff for clinical trials, and scoping for clinical trial
projects from existing clients.
Lobby for complementary drug development and clinical trials laws
Factors Biocon should consider :

Public image and ethical issues : Biocon holds a legendary status of sorts in the
perception of Indian public. Pharma by its inherent nature raises quite a few moral
and ethical questions in its operations. Through careful positioning in the public
eye by targeted image enhancing campaigns, highlighting the Indian-ness of the
company and its focus on sustainable value, and corporate social responsibility
initiatives, Biocon should strength its public perception and hence provide a
cushion in case Clinigene bombed. Biocon should also take care of its positioning
as a drug producer, and not a service provider, through strategic public marketing.
Organizational culture : Expansion of Clinigene posed questions on whether
Biocons carefully nurtured work culture faced any threats. Clinigene was already
2 years old at the time. Biocon should thus focus on hiring more people for the
next two year period, while Clinigene established its market footing.
Expertise divergence to Clinigene : To avoid other operations of Biocon from
suffering due to increased focus on Clinigene, the expansion should be begun
gently. In the beginning, a small team of executives sould be assigned exclusively
to Clinigene. Clinigene would continue working in the low-medium segments of the
value chain, while an expansion plan was drafted and required manpower and
projects were scouted. This would take 1-2 years. Within 2 years, Clinigene
operations would be sustainable enough and organically growing to run on their
own without significant attention of the senior executives being diverted from
other major operations.

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DEPARTMENT OF MANAGEMENT SUDIES, IISC

BIOCON INDIA GROUP

2) Is the Indian CRO market attractive?

3) What is the best way for Biocon India group to expand?

Factors Biocon should consider :

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