BPSM STRATEGIC MEMO

Prepared & Presented by: Group B7

Kunal Kumar Singh (PGDM 12024)Samanvitha Mahen (PGDM 12040)

Indu J (PGDM 12091)Akilan P (PGDM 12123)

Sharanya L S (PGDM 12139)Rheetam Mitra (PGDM 12156)

Shreetha (PGDM 12176)

quits investing in R&D in India

Your 01

• Novartis is a Swiss multinational pharmaceutical company based in Basel, Switzerland, ranking number two in sales (46.806 billion US$) among the world-wide industry in 2010.

• Novartis is a full member of the European Federation of Pharmaceutical Industries and Associations (EFPIA), the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) and the Pharmaceutical Research and Manufacturers of America (PhRMA).

Novartis

02

• Novartis was created in 1996 from the merger of Ciba-Geigy and Sandoz Laboratories, both Swiss companies with long histories.

• Novartis has its major bases for R&D in Basel (Switzerland), Hyderabad (India), Shanghai (China), and Cambridge (USA).

Novartis (Contd.)

03

The Novartis Saga: a timeline

1997: Novartis files a patent application in India for its drug Gilvec

August 2009: Novartis approaches the Supreme Court of India

Jan 2006: The Patent Controller in Chennai denies Novartis a patent

May 2006: Novartis challenges the Indian government and four other companies in the Madras High Court

2005: India introduces the Indian Patent Act preventing frivolous patents

Aug 2007: The Madras High Court rules against Novartis’ case

June 2009: The Intellectual Property Appellate Board rejects a fresh appeal

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Your 04

R&D Myth

Total expeenditure incurred by Novartis India in 2012 was Rs. 800 crores.

R&D

India’s drug production is of over Rs. 100,000 crore.

Revenue

Novartis’ turnover is a little over Rs. 1,000 crore. Out of the total expenditure, Rs. 29

lakhs was for R&D,Which constitutes to be around one per cent Which is around 0.03 per cent.

Your 05

R&D strategy Applied R&D Basic R&D

Strategic Group of Novartis Sun Pharmaceutical, Cipla, Dr. Reddy's Laboratories GlaxoSmithKline,  Pfizer, Novartis

Strategic Group

Your 06

Ethical dilemmas Drug pricing and marketing, Role of intellectual property rights and patent protection Moral and economic requisites of research

Sales team - bribing stockist Massive discounts to push sales Drug for free on some occasions, up to 20% discount Fired the sales man who generally follows the strategy formulated by the top

management

Ethical issue in Novartis

Your 07

Board of Directors Four Directors - Executive and three Non- Executive 50% of the Board - Independent Directors

Audit committee Provisions of Clause 49 of the Listing Agreement and Section 292A of the Act External and Internal Auditors Information access from records

Corporate Governance in Novartis

Your 08

Remuneration Committee Criteria of payment of Managerial remuneration

Shareholders’/Investors’ Grievances Committee Shareholders’ and investor complaints/grievances

Means of Communication Quarterly, half-yearly and annual results of the company are published in

newspapers.

Corporate Governance in Novartis

Your 09

Employees’ point of view Restricted Shares and Tradable Options granted under “Select” plan

Benefit Plans for post-employment benefits -Provident Fund, Gratuity, Leave Encashment, Non-Contractual Pension Plan and Post-retirement Medical Benefits

Long Service Awards

Stakeholders’ Strategy

Your 10

Society’s point of view

Fight against leprosy

Donation of cash and drugs worth 15 million RMB - earthquake-stricken Sichuan 

Challenge to reduce and formulate price based on country’s economy

Stakeholders’ Strategy (Contd.)

Your 11

Patent law

Applied to all inventions, whether mechanical, pharmaceutical or electronic, the int

erpretations of patent law made by government patent granting agencies and court

s are very subjective.

Licensing

Licensing involves the approval of a product for sale in a jurisdiction. It is controlled by Central

Drugs Standard Control Organization under the ministry of health department, Indian

government.

Pharmaceutical policy

Your 12

SWOT Analysis

Threats

1. Increasing obsolesce of technology2. Competition from peers

Weakness

1. Case regarding Indian patent laws also created a problem for the brand2. Company’s image was affected due to the unethical advertisement3. No formulation for children; only one formulation is available4. Failure of Galvus to position Novartis in the Diabetes market

Opportunities

1. High market growth rate due to increasing rate of diseases2. Venture into health needs in under-developed and poor countries3. Broad-based medical innovation (in technologies and businesses)

1. Market leader in terms of sales (Has a global reach in over 140 countries)2. Core businesses in health care sector3. Wide range of products in pharmaceuticals, vaccines, consumer health, generics and animal health4. Well established Research and Development5. Strong brand image

Strengths

Your 13

SPACE Matrix

Sl. No. Financial Strength (FS) Rating1. Growth of Net Worth @16.34% 6

2. Growth of Market Cap @ 18.46% 6

3. Debt-Equity Ratio of 0.00 since March ‘09 4

TOTAL 16

Sl. No. Industry Strength (IS) Rating1. India is poised to become Pharma-hub of the world 6

2. Increase in medical expenditure 5

TOTAL 11

Your 14

SPACE Matrix (Contd.)

Sl. No. Environmental Stability (ES) Rating1. Change in Patent rules -4

2. Broader and stronger consumer base -6

TOTAL -10

Sl. No. Competitive Advantage (CA) Rating1. Worldwide patents -4

2. R&D -6

TOTAL -10

Your 15

SPACE Matrix (Contd.)

• Based on the above internal and the external dimensions, the directional vector coordinates are as follows

– X coordinate = CA Rating + IS Rating = -10 + 11 = +1– Y coordinate = FS Rating + ES Rating = +16 – 10 = +6

-2 -1.5 -1 -0.5 0 0.5 1 1.5 2

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-7

-2

3

8

Your 16

QSPM

Stop investing in R&D India Continue investing in R&D India

Key Weight AS TAS AS TAS

Strength

1. Worldwide R&D 0.2 1 0.2 4 0.8

2. Product range 0.1 3 0.3 4 0.4

3 Brand Image 0.2 1 0.2 3 0.6

Weakness

1. New Patent Laws 0.3 2 0.6 2 0.6

2. Unethical advertisement 0.2 1 0.2 3 0.3

SUBTOTAL 1 1.5 2.7

Opportunities

1. High Market 0.2 2 0.4 4 0.8

2. Purchasing power 0.3 3 0.9 3 0.9

3. Increase spending 0.2 3 0.6 1 0.2

Threats

1. obsolescence 0.1 4 0.4 5 0.5

2. Competition 0.2 1 0.2 3 0.6

SUBTOTAL 1 2.5 3

Your 17

QSPM (Contd.)

• QPSM table clearly indicates that continuing the R&D in India has a relatively higher attractiveness score by comparing the two alternatives based on the key factors both internal and external.

• As calculated above, it is very much evident that Novartis can have huge prospects by trying to capitalize on its strengths and utilize the current opportunities rather than being defensive.

• Also the magnitude of the difference between the grand Total Attractiveness Score clearly indicates the relative desirability of choosing to continue investing on R&D rather than not to invest.

• Considering the growth of pharmaceutical industry and the increased spending of customers, Novartis could have tried to capitalize upon its strong brand image and its wide product range.

Your 18

At Novartis, performance-oriented culture and responsible approach are the foundations of success. They recognize that their business depends on the creativity, dedication and performance of associates. They encourage associates to focus on achievement through collaboration and innovation.

Novartis is committed to equality of opportunity, fairness, work and lifestyle, mutual respect and dignity at work for all associates. Novartis values differences including disability, sexual orientation, race, ethnicity, age, thinking style, gender and religion.

Inclusion establish and reinforces behavioural standard that fosters at collaborative culture and work environment ,which will enable individuals and groups to contribute to their fullest potential.

Top-down and bottom-up approach to absorb the best practices around, adapting with the inevitable changes.

Change Platform

Abosorb and internalize the

change

Diversity and Inclusion

Organisation structure and

culture

Your 19

Methods for Dealing with Resistance to Change

3This approach can be used where people are resisting because of adjustment problems.

Facilitation and Support

This approach can be used where there is a lack of information or inaccurate information and analysis among the individuals in the organisation. Once the objective of the change is made clear then people will often help with the implementation of the change.

Education and Communication

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This approach can be used where the initiators do not have all the information they need to design the change, and where others have considerable power to resist. People who participate will be committed to implementing change, and any relevant information they have will be integrated into the change plan. The drawback of this approach is that if participators design an inappropriate change, it consumes time to rework on the same.

Participation and Involvement

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2

Your 20

Stockholders’ point of view

Novartis should transform itself from pharmaceutical company to become a broad-based

health care company.

They should focus on four high growth segments like eye care, generics, consumer health

and vaccines and diagnostics.

Increase more involvement in medicine for diseases like cancer, HIV, Diabetes.

Strategy for Novartis

Your 21

Stockholders’ point of view

This particular sector is served by few organization like DTIC-Dome, Cytostar-U.

There is a gradual increase in the cancer patients. The company has its medicine for breast

cancer patient like Afinitor. The sales expected from this is 1bn dollar by 2017.

They can manufacture more advanced medicine for lungs cancer and blood cancer as they

are competent in this area.

Strategy for Novartis (Contd.)

Your 22

• business-standard.com. (n.d.). Retrieved from http://www.business-standard.com/stocks/company-overview/243-novartis-india

• chiefexecutive.net. (n.d.). Retrieved from http://chiefexecutive.net/new-growth-strategy-for-novartis

• business-standard.com. (n.d.). Retrieved from http://www.business-standard.com/stocks/company-overview/243-novartis-india

• chiefexecutive.net. (n.d.). Retrieved from http://chiefexecutive.net/new-growth-strategy-for-novartis

• (2011). David, F. R. (2011). . In F. R. David, Strategic Management - Concepts and Cases 13th Edition . Pearson education.

• economictimes.indiatimes.com. (n.d.). Retrieved from http://articles.economictimes.indiatimes.com/2013-06-17/news/40027590_1_stockists-pharma-industry-drug-maker

References

Your 23

• financialexpress.com. (n.d.). Retrieved from ttp://www.financialexpress.com/company_info• indianexpress.com. (n.d.). Retrieved from

http://www.indianexpress.com/videos/business/25/healthy-growth-of-health-care-sector-in-india---/15572

• money control.com. (n.d.). Retrieved from http://www.moneycontrol.com/news/current-affairs/will-fdi-policy-shapefuturepharma-sector_910192.html

• Novartis.com. (n.d.). Retrieved from http://www.info.novartis.com/newsroom/corporate-publications/annual-report-2012.shtml

• smallbusiness.com. (n.d.). Retrieved from http://smallbusiness.chron.com/top-ethical-issues-facing-general-business-community-25417.html

• wikipedia.org. (n.d.). Retrieved from http://en.wikipedia.org/wiki/Novartis_v._Union_of_India_%26_Others#cite_note-43

References (Contd.)

Your 24

Thank You!