These key issues were important to both companies because both wanted to expand, but were facing the challenge of cost in the process of discovering. Drug discovery was an expensive process, with leading firms spending more than 20 per cent of their sales on research and development (R&D). Developing a drug, from discovery to launch in a major market, took 10 to 12 years and typically cost US$500 million to US$800 million (in 1992).
Another point to the importance of the key issue was that both having different business focuses. Ranbaxy was a company driven by the generics business. Lilly, on the other hand, was driven by innovation and discovery.
Once India JV was formed, they were faced with the ministry of health provided limitations on Lilly’s pricing, and even with the margin the Indian government allowed, most of it went to the whole-salers and the pharmacies, pursuant to formulas in the Indian ministry of health. Once those were factored out of the gross margin, achieving profitability was a real challenge, as some of the biggest obstacles faced were duties imposed by the Indian government on imports and other regulatory issues.
Because India JV did not have a distribution network and Lilly not wanting to invest in creating one, Ranbaxy was able to provide the distribution network needed.
Also with the uneasy of the patents dilemma in India,