Dr.reddy Labs Case Analysis MMI

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Patent Expirations - Trends

New drug discovery and development process

DRLs strategic goals


M/S Cheminor Drugs Ltd.


DRLs strategic goals


DRL Revenues (By Product line)

DRL Revenues (By Region)

DRL Strategy Overview by Division

DRL Strategy Overview by Division cont

Issues before Dr. Reddys Labs 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 Managing

profits today and invest in future growth. interconnected synergies; organizational

expansion & People issue.

DRLs synergiesActive Pharmaceutical Profit Centers Ingredients (APIs)

Branded BUSINESS Dr. Reddys Research Generics synergies Foundation (DRF) Discovery research facility for R&D deptt.s of other drug discovery companies

DRLDrug discovery research

Cost Centers

In 1970s, Indian government had open the gate for Process Patent regime.

Government Regulation: Patent Regime

Manufacturer can produce the formulation of the patented drug, if the process differs the original drug/ innovator. Opportunity: offering same formulation with the 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 ingredients to product formulations long term leverage

STAGE 1: APIs Business

STAGE 2: Branded Formulations

DRL started manufacturing

formulation and selling under its brand name.Problem

of many me-too

drugs in the segment.


In 1984, Cheminor Drug Ltd. was formed. Purpose: Selling high quality bulk actives for Western markets specifically US. Active constituent of off-patent drug can be manufactured and sold under different generic name, after satisfying regulatory clauses for manufacturing and marketing. By 1989, Co. become largest exporter of ibuprofen (bulk active salt) to the markets like US, Italy, Spain & Japan.

STAGE 4: DRF (Dr. Reddys Research Foundation)

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

STAGE 5: Outsourced discovery research for regulated markets Aurigene Discovery Technologies separate

Service entity undertaking outsourced discovery assignments of other drug companies (research facilities in Boston & Bangalore). Working in collaboration with R&D departments of other drug discovery companies. Purpose: Build competencies drug discovery process among clients including Dr. Reddys Labs. Advantage: Knowledge enhancement based on variety of research assignment and can align with the corporate knowledge which can be leveraged for long run to access regulated markets.

Business domains: Scenario Opportunities:


Business domainsBulk actives & branded formulations

segments. Thrust areas: Bulk actives & branded formulations Generics Threat:


Entry barriers in

the form of stiff domestic competition.

Focus for future: Shared risks.

Teva Ranbaxy (both domestic & global (Israel) presence) can competence compete due to in respective deep pockets and domain rich research backed by knowledge R&D support. Cipla (strong in Novartis domestic market butGenerics started making (Swiss) marks in foreign known player markets) not a with global serious threat in presence near future for Mkt share: foreign markets

Financing the expansion & diversification Source of funding : Financial capital market


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



Generic Markets: market building and penetration Drug discovery & research: infrastructure and hiring knowledge pool

Formation of Corporate Brand

All the three entities brought under same roof 2000. Logo and Brand identity identified for the Corporate brand. New Vision: To become a discovery led global pharmaceutical company. Dr. Reddys Laboratories (Dr. Reddys)


1990s: DRLs Parallel group strategy PRODUCT INTERNATIONALEXPANSION WITH Diversified into no. of APIs BRANDED FORMULATIONS manufactured & sold in (2000) Industry leader in three Indian DIVERSIFICATION & 50 foreign destinationsbranded formulations (therapeutic areas):

Pain management, Gastroenterology & Cardiovascular


Also started making neutraceuticals, womens Enter into R&D based healthcare, styptics & dental domain care Build formidable marketing


DRLs Manufacturing capacity 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.

DRLs Target MarketsDRLs Foreign Target marketsEast European Countries South-East Asian Countries Latin American Countries

Target markets: Russia, China, Brazil & Mexico

Generic drugs represents $ 40 billion market in 2001 Growing at 10 to 12% per year. Reasons for growth: Pressures on govt.s in US, European countries & 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) file registration before patent expiry removing the leap period of market entry. Market scope: $ 30 billion post 2005.

Generic Market

Generic Market


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 year before off-patent (Paragraph IV application). Overall cost: Bioequivalence study cost ($ 5,00,000 to $ 2 million) + Market operational costs. Factors for investing in ANDAs: predictability of success or failure 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.

Generic Market


New opportunity domain: Specialty drugs Generic drugs sold under companys 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). blood pressure drug Norvasc (US).


Drug discovery led business 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.)

DRLs Global Empire 2002 US

Operations & Sales offices in 60 countries in US, Brazil, UK, France, Holland & Singapore.


share in overall revenues were higher.

Market size: $245 billion market of $500 billion global market in 2005-06. International Huge

vs Domestic revenue sharing: 2:1

generic growth prospects post 2008 - $ 82 billion formulation market getting off-patent globally.

Global ChallengesValue

created in India; realised in US and other markets. Managing across cultures geographies Separate time of entries


Sustaining the competence in each four business models; extracting optimum from all geographies.


Global market entry strategies Acquisition Trigenesis (US Specialty Co.) -2004

$ 11 million. Purpose: Automatic access to niche dermatology domain. Risk sharing across therapeutic domains and across geographies. 2nd Acquisition Roche (New Mexico) 2005 - $ 59 million. Purpose: entry into Mexican market. Well established markets for manufacture & sale of APIs. 3rd Acquisition Betapharm (Germany) 2006 - $ 570 million. Purpose: Market & regulatory access and similar synergies and few new areas. (Table CS 1.6, pg. 809)

Scope due to intense competition by global companies in US. Euro 11.8 billion off-patent in 4 generic markets UK, France, Italy & Germany (largest market size). $14.2 billion market large, generics growing faster than branded formulations Rate of growth equal to US

European Market


Indian America unfamiliar Demographics Psychographics Cultural Legal/Regulatory Technological


Europe Latin