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Dr Reddys
Laboratories
An Analysis
Submitted By:
Prachi Jaiswal
M024/12
M098/12
SUMMARY
The case talks about Dr. Reddys Laboratories, the third largest pharmaceutical company in India, run up to
acquire betapharm, the fourth largest generic drug manufacturer in Germany. An analysis of the Global and
Indian pharmaceutical industries is given. Globally United States was the biggest pharma market and therefore
every pharma player wanted to enter into the US market through acquisitions or joint ventures. The companies
tried to launch patented drugs in the global markets. The Indian market on the other hand was largely driven by
local manufacturers. Low cost generics were prominent. The generics were the low cost replica of the patented
drugs using less expansive packaging materials. Dr Reddys Lab(DRL) strategically specialized in cardiac drugs
and non-steroidal anti-inflammatory drugs, which were among the top 10 largest therapeutic segments in the
world.
DRL wanted to grow in size and realize its ambition of becoming a US$1 billion mid-size global pharmaceutical
company and focused on two interim goals of increasing revenues by sale of generics and becoming a billion
dollar revenue company. To sustain its growth momentum, DRL decided to go global through acquisitions. It
acquired BMS Group of UK in 2002, Trigenesis of US in 2004, Roches API plant in 2005. Now, DRL has
placed a bid( for the second time) for Betapharm, which has intellectual property and regulatory infrastructure
giving it faster access to European market.
Identification of Problems
The acquisition of Betapharm would mark a change in the companys historical generic strategy.
Acquisition of betapharm would be the biggest ever for DRL till date and therefore the risks were much
higher. DRL was just recovering from financial challenges, so failure would affect the recovery.
There was a cultural mismatch between between DRL and Betapharm. While DRL was a relationship
driven company, managed by consensus at various levels , Betapharm, on the other hand, was a process
driven company having more focus on procedures and protocols. Such cultural differences may create
post-merger bias and could bring down the synergies.
Discounts mandated in the European market as more and more generic drugs were coming, so there
was a pricing pressure to be seen on generics manufacturers. This implies lower sales realizations.
Hence a longer time frame to digest the acquisition.
As Betapharm was already into exclusive contracts implies that post acquisition, the task of
consolidation of manufacturing would not be easy for DRL, post-acquisition.
With the acquisition, DRL would enter the biggest generics market in Europe. It was transforming from
being an enterprise with a commodity mindset and solid manufacturing capability to becoming a frontend organization close to customer.
Planning should be thorough devoid of any planning fallacy so that proper forecasts are there to
estimate time and money needed for integration.
First Contact
Using both the primary and secondary selection criteria makes it possible to bring the search to a close and
begin the next part of the acquisition planning process. This begins with contacting the selected target company.
For each target firm, it is necessary to develop an approach strategy in which the potential acquirer develops a
profile of each firm to be contacted in order to be able to outline the reasons the target firm should consider an
acquisition proposal. Such reasons could include the need for capital, a desire by the owner to cash out, and
succession planning issues.
Negotiation
The negotiation phase often is the most complex aspect of the acquisition process. It is interactive and iterative.
Activities unfold concurrently. It is during this phase that the actual purchase price paid for the acquired
business is determined, and often it will be quite different from the initial valuation of the target company,
which was probably made before due diligence and with only limited, publicly available information.
Closing
In the closing phase of the acquisition process, you obtain all necessary shareholder, regulatory, and third-party
consents (e.g., customer and vendor contracts) and also complete the definitive purchase agreement.
Communication Plans
Employee Retention
Satisfying Cash-Flow Requirements
Employing Best Practices
Cultural Issues
1.
They had to discard trials of ragaglitazar, an insulin sensitizer molecule due to adverse sideeffects and balaglitazone which did not even go through trials
Dr. Reddys lost the bid for specialty chemical amlodipine maleate (Am Vaz) which was a
variation of Pfizers amlodipine besylate to a United States higher court ruling
As a result of such events the sales and profits of Dr.Reddys had taken a significant hit as shown
below:
can
% reduction
2003
19.33
2.51
5.0
2004
18.37
0.319
87.3
Further, in the event of the acquisition Dr. Reddys would have to account for 80 million which will
significantly deplete its cash reserves. Hence, considering these options non-acquisition of Betapharm
be an alternative.
2.
3.
Let us evaluate the pros and cons of the alternatives to identify the one which is best applicable for Dr. Reddy:
Alternative
Pros
Non-acquisition of
Betapharm
Alternative Means of
Financing
Cons
Considering the pros involved in acquisition of Betapharm, with the potential to be a table topper and stretch its
market outside United Kingdom, the second alternative i.e. go ahead with the acquisition of Betapharm with
alternative means of financing seems to be the best alternative.
Final Recommendation
Based on the analysis of the various alternatives as mentioned above our final recommendation would be to go
ahead with Dr. Reddys acquisition of Betapharm but with different terms of financing that significantly has
lesser impact on the balance sheet of Dr. Reddy