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Dr.

Reddy’s Labs

CASE
ANALYSIS
COMPANY’S

SNAPSHOT
Patent Expirations - Trends
New drug discovery and development
process
DRL’s strategic goals

M/S Cheminor Drugs


Ltd.
(API)
1984
DRL’s strategic goals cont…
DRL Revenues (By Product line)
DRL Revenues (By Region)
DRL Strategy Overview by
Division
DRL Strategy Overview by
Division cont…
Issues before Dr. Reddy’s
Problem: Labs
► 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.
DRL’s synergies
Active Pharmaceutical
Ingredients (APIs)
Profit
Centers

DRLDrug discovery research


Branded
BUSINESS Dr. Reddy’s Research
Generics
synergies Foundation (DRF)

Discovery research Cost


facility for R&D
deptt.s of other Centers
drug discovery
companies
Government Regulation: Patent
Regime
►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 with
the similar efficacy at the affordable (lower)
cost.
STAGE 1: APIs Business
► 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 2: Branded
Formulations
► DRL started manufacturing
formulation and selling
under its brand name.
►Problem of many ‘me-too’
drugs in the segment.
STAGE 3: BULK ACTIVES
► 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. Reddy’s 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. Reddy’s 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: growth Business domains
Bulk actives & Generics
segments. branded
 Thrust areas: Bulk actives & formulations
branded formulations - ► Ranbaxy (both ► Teva
domestic & global (Israel) –
Generics
presence) – can competence
► Threat: Entry barriers in compete due to in respective
deep pockets and domain
the form of stiff rich research backed by
domestic competition. knowledge R&D support.
► Cipla (strong in ► Novartis
► Focus for future: Shared domestic market butGenerics
risks. 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
► 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
Formation of Corporate Brand
► 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
pharmaceutical company”.
Dr. Reddy’s Laboratories (Dr.
Reddy’s)
1990s: DRLs Parallel group
PRODUCT strategy
INTERNATIONAL
DIVERSIFICATION EXPANSION WITH
Diversified into no. of APIs – BRANDED
manufactured & sold in FORMULATIONS
(2000) Industry leader in three
Indian
branded formulations
& 50 foreign destinations (therapeutic areas):
► Pain management,
Gastroenterology & Cardio-
vascular

GROWTH IN GENERIC BUILDING DRUG


BUSINESS DISCOVERY
► Also started making CAPABILITIES
neutraceuticals, women’s ► Enter into R&D based
healthcare, styptics & dental
domain
care
► Build formidable marketing
DRL’s 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.
DRL’s Target Markets

DRL’s
Foreign
Target
markets
East European Latin American
Countries Countries
South-East Asian
Countries
Target markets: Russia, China, Brazil & Mexico
Generic Market
► 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 cont…
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 cont…
► 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).
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.)
DRL’s Global Empire
► 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.
Global Challenges
►Value created in India; realised in US
and other markets.
► Managing across cultures
►Across geographies
► Separate time of entries
► Sustaining the competence in each
four business models; extracting
optimum from all geographies.
Global market entry
1st
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)
European Market
► 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
Familiarity/ Indian US Europe Latin
America unfamiliar
► Demographics

► Psychographics

► Cultural

► Legal/Regulatory

► Technological