Dr. Reddy's Laboratories Ltd:Chasing a daring vision
Presented by SandeepSanjeev
SarithShailesh
SivaSoumyaSubroto
Agenda
• Milestones• Financials• Situation Analysis• BCG Matrix• Problem Statement• Alternatives• Recommended Action
Major MilestonesYear Milestone
1984 Company incorporated (DRL & CDL separately)
1989 Largest exporter of ibuprofen to US, Spain & Italy
1993 DRF started
1994 GDR issue of $48m
1997 Submits first ANDA for Ranitidine
1998 Out licenses two new molecules to Novo Nordisk
1999 Out licenses one molecule to Novartis
2000 DRL & CDL merged to from Dr. Reddy’s Group
2000 Market capitalization of $1.5 billion
2001 Listed on NYSE – $115.5m ADR issue
2002 Features on Forbes 200 list of small companies
2002 US District Court ruling in favour of Dr. Reddy’s against Pfizer.
Financials 1999 2000 2001 2002 2003
Revenues - India $ 80.09 $ 103.32 $ 121.56 $ 131.57 $ 141.06 Revenues - Overseas $ 63.48 $ 70.08 $ 117.03 $ 229.80 $ 251.77
Total Revenues $ 143.56 $ 173.40 $ 238.58 $ 361.36 $ 392.82 CAGR 29% 31% 50% 10%
Debt-Equity Ratio 1.11 1.41 1.26 0.23 0.23Return on Equity
(3.97) 6.11 14.16 31.84 18.76
EPS (0.06) 0.10 0.26 1.41 1.00
Situation Analysis
• Year Closing 2003– Revenues: $393 million– CAGR: 30% (over last 5 yrs)– Return on Equity: 19%
• Four Parallel growth units in the 1990s– Product Diversification– International expansion with branded formulation– Growth in the generics business– Building of capabilities for discovering new drugs
Situation Analysis
• By 2000, Industry leader within India in pain management, gastroenterology, and cardio-vascular.
• Building its position in neutraceuticals women’s healthcare, styptics, and dental care.
• More than 2000 stockists and 100,000 retailers in India
Situation Analysis
• Operations & Sales offices in over 60 countries• Tapped big markets of Brazil, China, Russia and
Mexico apart from US & Europe• 2002 – International Revenues dominating
domestic revenues by a factor of 2:1 1999 2000 2001 2002 2003
Revenues - Overseas $ 63.48 $ 70.08 $ 117.03 $ 229.80 $ 251.77
Total Revenues $ 143.56 $ 173.40 $ 238.58 $ 361.36 $ 392.82 Overseas % of total revenue 44.22% 40.42% 49.05% 63.59% 64.09%
Situation Analysis
• Generics– By 2001 generics represented a $40 billion market– Favorable economic policies (Waxman-Hatch Act)– Early 2003 – 11 ANDAs approved; Awaiting 23– 76% Cost advantage over the patent holder– Prices typically 60%-70% of the patented drug– Fierce competition from many companies. The
Largest being Israeli Teva and Swiss Novartis Generics
– Bioequivalence study costs $500,000 to $ 2 mn
Situation Analysis
• Bulk Actives and branded formulations– Fierce competition from Ranbaxy and Cipla– High costs of clinical trials $10 mn to $30 mn– Min 200-300 sales representatives needed– Adverse court ruling could be disastrous
Situation Analysis
• New Drug Discovery– Founded Dr. Reddy’s Research Foundation(DRF) in
1993– Developed 10-14 new drug candidates with a
budget of $10 mn– 9 NCEs covering 4 therapeutic areas: diabetes,
metabolic disorder, anti-infective and cancer– Out-licensed 2 anti-diabetic molecules to Novo
Nordisk and 1 to Novartis with high payments.
Strategic Business Units
• 7 Strategic SBUs– Bulk Actives - High Sales– Branded Formulations - High Sales– Generics - Higher Margins– Specialty - Higher Margins– Discovery - Long Term Driver– Custom Chemical Services - Emerging– Biotechnology and critical - Emerging
care
SBU Level StrategiesGenericsBulk ActivesBranded FormulationsCustom Chemical Services
Specialty
New Drug Discovery
Com
petiti
ve S
cope
Competitive AdvantageCost Uniqueness
Narr
ow
Targ
et
Bro
ad T
arg
et
BCG Matrix• US FDA approved ANDAs in the exclusivity period Generics like Prozac• New Drug Discoveries
• Diagnostics • Critical Care• Biotechnology• Specialty
• Bulk Actives• Branded Formulations• US FDA approved ANDAs after the exclusivity period• India – pain management, gastroenterology, and cardio-vascularLo
wH
igh
High Low
Busi
ness
Gro
wth
Rat
e
Market Share
Problem Statement
• How much emphasis should it place on the legacy business of active pharmaceutical ingredients and generics that have brought the company its current stature, and how much should it focus on future business like specialty pharmaceuticals and discovering new chemical entities?
• How to move up the ladder by investing into the drug discovery business and also produce year-on-year profits at the same time?
Alternatives
• Generics– By 2005 generics represented a $80 billion market– Major Driver of the Profits for Dr. Reddy’s (graph
on next page – indicates that even though other SBU’s did well in 2003, profits went down due to decline in generics)
2001 2002 2003 2005
Generic Drug Market 40000 44000 48400 88564
Dr. Reddy’s Generics Sales 4.99 98.41 93.13 ?
Market Share of Generics 0.01% 0.22% 0.19% ?
Dr. Reddy’s Gross Margins 47.74 59.94 56.62
1999 2000 2001 2002 2003 $-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
Branded FormulationsBulk ActivesGenerics
1999 2000 2001 2002 2003
-10
0
10
20
30
40
50
60
70
Gross MarginNet Margin
Sale
s in
Mill
ion $
Perc
en
tage
Alternatives
• Bulk Actives and branded formulations– Sales Drivers– Growth rate has not been constant – Intense competition and threat of new entrants is
high
1998 1999 2000 2001 2002 2003
Branded Formulations
$ 46.34 $ 55.96 $ 78.60 $ 116.63 $ 131.20 $ 149.13
CAGR 20.76% 40.46% 48.38% 12.49% 13.67%
Bulk Actives Sales $59.05 $ 82.17 $ 88.17 $ 108.20 $ 113.85 $137.85
CAGR 39.16% 7.30% 22.72% 5.22% 21.08%
Alternatives
• Specialty– Offer higher returns– However come at a downside with higher trial and
marketing/sales costs.– Adverse appeal could result in high amounts of
costs without returns– Current Financials do not favor much investment
into Specialty (Costs could be as much as $ 40 mn1999 2000 2001 2002 2003
Sales $ 141.389 $ 171.454 $ 238.583 $ 356.713 $ 392.822
Net Income $ -3.87 $ 6.149 $ 16.129 $ 106.979 $ 76.790
Alternatives
• New Drug Discovery– Cost Advantage with good recent results– Two R&D centers with 200 scientists– Inline with the company vision “To become a
discovery-led global pharmaceutical company”
1999 2000 2001 2002 2003
Sales $ 141.389 $ 171.454 $ 238.583 $ 356.713 $ 392.822
Net Income $ -3.87 $ 6.149 $ 16.129 $ 106.979 $ 76.790
Intangible Assets
$ 48.106 $ 72.863 $ 62.812 $ 62.292 $ 62.338
DER 1.11 1.41 1.26 0.23 0.23
Alternatives
• New Drug Discovery– Can afford to take debt as the company is low
levered– Intangible assets have been relatively constant
over the last 3 years signifying almost no new patent filings
– Can afford to invest further from the profits into new discoveries in low risk phases (small investments like $10 mn)
Recommended Action
• Short Term to Medium Term– Concentrate on Generics, Bulk Actives for the next 2-3
years as they have been the major profit drivers– With current Net Profit Levels venturing into specialty
can await– As company is low levered there is potential to take
debt and invest in the new drug discovery on similar lines of investing in pre-clinical research & other low risk phases
– Check growth of new SBUs to take appropriate strategic action of making it a star or a dog
Recommended Action
• Medium Term to Long Term– Continue with Generics, Bulk Actives strategy– Venture into Specialty after 2-3 years– Invest in other phases of drug discovery– Lookout for any successful laboratory for takeover
to gain Research knowledge/patents (Corporate Relatedness: Transferring core competencies)
– Invest into new SBUs if they turn out to be stars
THANK YOU
Recommended