After reading the case study and other available information carefully, compose an
08-081 November 4, 2008 Biocon India Group Archana Kalegaonkar, Richard Locke, Jonathan Lehrich \"Earn as you learn.\" For 25 years this unofficial philosophy had served Biocon well. Starting out in the enzyme business in 1978, the Bangalore-based firm had gradually expanded into the pharmaceutical industry. Expertise in manufacturing enzymes led to mass production of generic drugs, which in turn gave Biocon the experience to establish Syngene, a subsidiary contract research organization (CRO) serving the global pharmaceutical market. At each stage Biocon had built on both its recently developed capabilities and the political, biological, intellectual, and financial benefits of the Indian environment to move into new areas of opportunity. By early 2003, Biocon had parlayed earning and learning into a firm that boasted 800 employees and annual revenues of US$75 million. Yet the time had come to consider whether this growth model was reaching its limits. In the eyes of Biocon India Group's Managing Director, Kiran Mazumdar-Shaw, Biocon's newest subsidiary, Clinigene, seemed an ideal way to capitalize on the company's technical strengths by offering services in clinical trials. There was concern, however, that Clinigene could also be an enormous distraction, consuming precious resources in an area in which Biocon had little direct experience. Moreover, if Clinigene did prove profitable, its very success could be a Pyrrhic victory: the subsidiary could rapidly outgrow its parent and damage the company's hitherto collaborative culture. The growth could even sidetrack Mazumdar-Shaw and Biocon's directors into pursuing a possibly futile dream of creating one of the only fully integrated drug discovery and development companies in India. Yet if Biocon chose not to pursue the promise of Clinigene, it might be trapped forever in the brutally competitive generic pharmaceuticals market, unable to tap its potential as an innovator. Springboard, pitfall, or detour: Mazumdar-Shaw knew that the shareholders expected her to predict Clinigene's and Biocon's future correctly, and soon. This case was prepared by Archana Kalegaonkar (MIT Sloan MBA, Class of 2003) under the supervision of professor Richard Locke, and revised by lecturer M. Jonathan Lehrich. Copyright 2008, Massachusetts Institute of Technology. This work is licensed under the Creative Commons AttributionNoncommercial-No Derivative Works 3.0 Unported License. To view a copy of this license visit http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. BIOCON INDIA GROUP Archana Kalegaonkar, Richard Locke, Jonathan Lehrich The Indian Pharmaceutical Industry The Indian pharmaceutical industry had been shaped to a great extent by economic policies since independence in 1947. Initially, pharmaceutical multinational corporations (MNCs) from Europe and the United States dominated the local market. In the 1960s, India's government established local bulk drug manufacturers Hindustan Antibiotics Ltd. and India Drug and Pharmaceuticals Ltd. to compete with the MNCs' overseas bulk-drug operations for supplying local formulation plants. In 1970, the government passed two regulations that affected the pharmaceuticals industry: the India Patent Act (IPA) and the Drug Price Control Order (DPCO). The India Patent Act prohibited \"product patents for any invention intended for use or capable of being used as a food, medicine, or drug or relating to substances prepared or produced by chemical processes.\"1 As a result, any drug on the market could be reproduced without retribution. The Drug Price Control Order gave the Indian government the authority to set prices for drugs sold on the local market. Starting in its earliest days, the industry experienced phenomenal growth. A combined bulk drug and formulations output of 168 Rs. crore2 in 1965 grew to 19,737 Rs. crore 35 years later, an annual growth rate of 15%. Roughly two-thirds of the output stayed in the domestic market, which by the year 2001 was also growing at 15% annually. The remaining one-third - 6,631 Rs. crore - went to the export market, which had a 21% growth rate.3 By the beginning of the 21st century, over 20,000 pharmaceutical companies were operating in India. Fueling these companies and their export market was the global pharmaceutical industry's trend toward outsourced research, development, and manufacturing. Facing slimming pipelines and escalating costs - an average of US$800 million to bring a new drug to market - major pharmaceutical firms increasingly saw outsourcing as the best, perhaps only, way to boost speed, reduce problems faced during regulatory processes worldwide, and cut costs by 30% to 35%.4 Revenues for clinical research companies worldwide in 2000 were estimated at $7 billion and expected to grow at 30% per year.5 When choosing to outsource, global pharmaceutical firms tended to focus on three areas of the drug discovery and development value chain (see Exhibit 1): Research and development (R&D). Drug discovery usually required considerable quantities of particular molecules with which to experiment. A contract research organization (CRO) could make target and even custom molecules to order. Clinical trials. A drug typically went through four phases of clinical trials to determine whether it worked consistently, for a large population, without toxicity or major side effects. (See 1 \"Intellectual Property Rights in India\
