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