DRL Case Analysis

8/12/2019 DRL Case Analysis

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Prepared By: Group 3

Prabin Paudel

Shailesh Lamichhane

Govind Sah

Urmila Malla



(API)

M/S Cheminor Drugs Ltd.

1984





Problem:

Balancing the *two business models :

Maintain the image of Generic led business (short term), &

Transform into drug discovery led business for long term to

form a Global drug company.

Producing profits today and invest in future growth.

Managing interconnected synergies; organizational expansion &People issue.



Active Pharmaceutical

Ingredients (APIs)

Drug discovery research

Dr. Reddy’s Research

Foundation (DRF)

Discovery researchfacility for R&Ddeptt.s of otherdrug discovery

companies

Branded

Generics

DRL

BUSINESS

synergies

Profit Centers

Cost Centers



In 1970s, Indian government had open the

gate for Process Patent regime.

Manufacturer can produce the formulation of

the patented drug, if the process differs the

original drug/ innovator.

Opportunity: offering same formulation withthe similar efficacy at the affordable (lower)

cost.



Personal investment : $ 40,000

Borrowings from Banks : $ 120,000

Total Investments : $ 160,000

Supplier of active ingredients for other

drug companies

Advantage: Can control the backward

support for the supply of active ingredientsto product formulations – long term

leverage



DRL started manufacturing

formulation and selling under its

brand name.

Problem of many ‘me-too’ drugs in

the segment.





Started in 1993 – focus on drug discovery. ( research lab in Hyderabad and

discovery research lab in Atlanta, Georgia)

Separate entities – separate core competencies – Profit centers.

DRF: Employee – 200 (split into 30-40, each focusing on distinct

therapeutic area)

Fresh PhDs

Talent pools from Universities – „spirit of excellence‟ – scholarships

Incentives: Good Salary + Stock options + Financial sponsor for

national & international workshops/ conferences

Motivate to pursue doctorate



Aurigene Discovery Technologies – separate Service entity –

undertaking outsourced discovery assignments of other drugcompanies (research facilities in Boston & Bangalore).

Working in collaboration with R&D departments of other drugdiscovery companies.

Purpose: Build competencies–

drug discovery process amongclients including Dr. Reddy’s Labs .

Advantage: Knowledge enhancement based on variety of researchassignment and can align with the corporate knowledge which can

be leveraged for long run to access regulated markets.



Opportunities: growth

segments.

Thrust areas: Bulk actives &

branded formulations - Generics

Threat: Entry barriers in

the form of stiff

domestic competition.

Focus for future: Shared

risks.

Business domains

Bulk actives &branded formulations

Generics

► Ranbaxy (both

domestic & global

presence) – can compete

due to deep pockets and

rich research knowledge

► Cipla (strong in

domestic market but

started making marks in

foreign markets) – not a

serious threat in near

future for foreign

markets

► Teva (Israel)

– competence in

respective

domain backed

by R&D

support.

► Novartis

Generics

(Swiss) – known

player with

global presence

► Mkt share:

total 11%



Source of funding : Financial capital market Purpose:

Diversification into Vertical & Horizontal integration Expanding generic business &

Drug discovery infrastructure

Financial Instruments for funding: GDR (Global Depository Receipt) issue in July 1994 -

$ 48 million ADR (American Depository Receipt) issue in April 2001-

$ 115.5 million Total funds raised = $ 163.5 million

Used for: Generic Markets: market building and penetration

Drug discovery & research: infrastructure and hiring knowledge

pool



All the three entities brought under same

roof – 2000.

New „Logo‟ and „Brand identity‟ identified

for the Corporate brand. New Vision :

“ To become a discovery led global pharmaceuticalcompany”.

Dr. Reddy’s Laboratories (Dr. Reddy’s)



PRODUCT

DIVERSIFICATION

Diversified into no. of APIs –

manufactured & sold in Indian

& 50 foreign destinations

INTERNATIONAL

EXPANSION WITH

BRANDEDFORMULATIONS

(2000) Industry leader in three branded

formulations (therapeutic areas):

► Pain management, Gastroenterology &Cardio-vascular

GROWTH IN GENERIC

BUSINESS

► Also started makingneutraceuticals, women’s healthcare,

styptics & dental care

► Diversifying into diagnostics &

instrument business (Medical

Equipments)

BUILDING DRUG

DISCOVERY CAPABILITIES

► Enter into R&D based domain

► Build formidable marketing chain –

(2000) 1,500 MRs for national detailing

network for reaching prescription

doctors



6 factories for manufacturing active ingredients – as per

FDA standards.

3 formulation plants – manufacturing branded

formulations.

Supply chain network : 2,000 stockists; 1,00,000 retailers in

India; and exporting channels for over 50 foreign

destinations.



East European Countries

South-East Asian Countries

Latin American Countries

Target markets: Russia, China, Brazil & Mexico

DRL’s

Foreign

Target markets



Generic drugs represents $ 40 billion market in 2001

Growing at 10 to 12% per year.

Reasons for growth: Pressures on govt.s in US, Europeancountries & Japan – reduce healthcare costs.

Drug price competition & Patent Restoration Act – 1984(US) – Waxman-Hatch Act – allow the access to active

ingredient of original patent drug (getting off-patent) – fileregistration before patent expiry – removing the leap period ofmarket entry.

Market scope: $ 30 billion post 2005.



Waxman-Hatch Act also permits:

Generic players to file for Abbreviated New Drug Applications

(ANDAs) – generic versions of all post 1962 patented drugs. 5 year exclusivity for innovator (New Chemical Entity or NCE

block) – generic player can file for patent challenge – criteria:bioequivalence same as of patent drug for approval – 1 yearbefore off-patent (Paragraph IV application).

Overall cost: Bioequivalence study cost ($ 5,00,000 to $ 2million) + Market operational costs.

Factors for investing in ANDAs: predictability of success orfailure is low and timing of entry is slow.

Risks: Application processing delays, regulatory changes and

R&D failures. Drug prices in exclusivity period – 60-70% of original drug &

after exclusivity – entry of competition – 15-20% of peak price.(Timing of entry is crucial)

Cost advantage: 57% (foreign mkts) – 76% (india) of patent

company.



New opportunity domain: Specialty drugs

Generic drugs sold under company‟s own brand unlike

conventional generics being sold under molecule name.

Growth prospects & distinct from original patent drug –

offer improved/different version of original compound(NDDS) – better dosage/compliance/convenience) – niche

market – need aggressive marketing to prescribers for market

entry.

Overall costs: Clinical Trial on patients - $ 10 to 30 million +

cost on detailing (US).

Pfizer‟s blood pressure drug „Norvasc‟ (US).



Initial focus: Diabetes and similar other therapeutic areas.

Reasons: less competitive; low entry barriers; nascent knowledge

domain. Trials process – expensive and risky

Concentrated on pre-clinical trial stage; costing $ 10 million

Strategy adopted: risk sharing – out-licensing clinical trials like Anti-diabetic molecules – Novo Nordisk & Novartis.

Collaborative research like NDDS for Chronic obstructive Pulmonary disease

(COPD) – UK based Argenta Discovery.

Balaglitazone – Denmark based Rheoscience.

Nine NCEs pipelines covering four therapeutic areas: diabetes,metabolic disorder, anti-infective & cancer (different competencies,

market structures, regulatory framework, disease patterns, prescribers

preferences, diff. promotional efforts etc.)



2002 – Operations & Sales offices in 60 countries

Subsidiaries in US, Brazil, UK, France, Holland & Singapore.

US share in overall revenues were higher.

† Market size : $245 billion market of $500 billion global

market in 2005-06 . International vs Domestic revenue sharing: 2:1

Huge generic growth prospects – post 2008 - $ 82 billion

formulation market getting off-patent globally.



Value created in India; realised in US andother markets.

Managing across cultures

Across geographies

Separate time of entries

Sustaining the competence in each fourbusiness models; extracting optimum from all

geographies.



Documents

DRL Case Analysis