XIMB_D_Group 2_Dr Reddys Lab Presentation.pptx

XIMB_D_Group 2_Dr Reddys Lab Presentation.pptx

1. U113190 Aniroodh Ganeriwala U113191 Arjun Agrawal U113192 Ashish R Jena U113193 Guneet Singh U113194 Bhabani S Lenka U113195 Avinash Kumar U113196 Bibhu Prasad U113197 Chiranjeeb Mohanty U113198 Chitrali Nag Dr. Reddy’s Laboratories Ltd : Chasing A Daring Vision

2. Introduction & Briefing Dr Reddy’s Laboratories is a global pharmaceutical company based out in Hyderabad. Dr. Reddy's Laboratories develops and manufactures branded and unbranded generic drugs and bulk pharmaceutical ingredients. Its stable of products includes ulcer medicines (branded product Omez is a leading seller ), antibiotics, antidepressants (generic version of Eli Lilly's Prozac), pain relievers, diabetes treatments, and cardiovascular drugs. Dr . Reddy's Laboratories also makes generic biotech products

3. Introduction & Briefing (Contd.) Its custom pharmaceutical services unit provides contract discovery, development, and manufacturing services to other drug makers The firm sells its products in more than 100 countries through direct sales entities and third-party distribution partners . Its total sales in year ending March 2013 was $2,127.7 mn . The growth is 14.6% year-wise (2012-13 data) In the same period its net income was $307.9 mn and income growth was 12.1%

4. Industry Classification

5. Industry Analysis – Porters 5 Forces Model 5 SUPPLIER POWER Low to Moderate High no of suppliers At times, use of single supplier as sole source for particular material Delay in supplying materials hampers their ability to deliver products BUYER POWER Moderate to High For generics and OTC drugs its high Need to keep buyer’s satisfied otherwise will risk to lose to competitors For some of the patented and Life saving drugs buyer power will be moderate BARRIERS TO ENTRY Moderate to High High no. Of legal procedures and licences High capital requirement for mfg, supply chain & R&D Low success ratio in R&D Patent issues Barriers are moderate in case of generics as R&D expenses are low Exports require high regulatory clearances THREAT OF SUBSTITUTES AND COMPLEMENTS Moderate to High For R&D intensive drugs threat is moderate For generics and off patent drugs threat is very high Alternative medicines like auyrveda , Unani posing threat COMPETITION Very High – Generics , Very Low - R&D Intensive High competition across companies for generics Very less differentiation points in generics Price discounting and margin pressures in generics For patented drugs it acts almost as monopoly 5

6. Strategic Groups in the Indian Pharma Industry Applied R & D Basic R & D Local Branding Global Branding CIPLA Torrent NOVO NORDISK Glaxo Smithkline SANOFI-AVENTIS DR. REDDY’S LAB RANBAXY Generics In ternational Formulation Domestic Formulation TORRENT CIPLA

7. Generics Overview Major players – Sun Pharma , Ranbaxy, Dr Reddy’s, Cadilla , Cipla India to become 10 th largest market by 2015 with market size of US$ 20 bn ~ US$50bn ~ US$90bn Increasing Genericisation Value of Drugs going off patent US$bn US$bn

8. Generics Continued Key growth drivers Significant patents expires through 2011 Government priority to rationalize healthcare costs Cost Competitiveness Key Challenges Foreign currency fluctuations Increasing costs and cost of capital

9. New Drug Discovery and Product Development Process

10. SWOT Analysis of Dr. Reddy’s

11. DRL’s Strategic Goals Longer Term (6-7 years) Mid Term (3-6 years) Today

12. DRL’s synergies Profit Centers Cost Centers

13. Revenue and Growth

14. Financial Analysis Company has a very high current ratio, which indicates good liquidity position. However it also indicates that the company is not using current assets efficiently . Capital gearing is decreasing over the years , which shows the cautiousness of the company . Dividend pay out ratio also has come down over years , which may not be good for financial prospects of the company . The company is sitting on a huge pile of cash of $158 million , which can be invested otherwise to get long term(expansion) as well as short term(current investment) benefits for the company. The R&D expenditure at 7.6% of revenue falls short of global standard of 12-16% and addition of new patents has also come down from high of 18.3% of revenue. Company needs to allocate more and more resources to R&D to position itself as a drug discovery Pharma company and also to give cover from TRIPS .   1999 2000 2001 2002 2003 Current ratio 1.13 1.02 1.18 5.03 4.87 Debt equity ratio 1.11 1.41 1.26 0.23 0.23 Debt equity ratio(long term debt) 0.182 0.250 0.191 0.003 0.002 net margin -2.74 3.59 6.76 29.99 19.55 return on equity -3.97 6.11 14.16 31.84 18.76 Dividend payout ratio - 49.0% 18.0% 11.4% 5.5% Cash inflow 3005 -1707 100660 47044 Net addition of intangibles 31386 435 10083 9164 Net addition as % of Revenue - 18.31% 0.18% 2.83% 2.33% R&D as % of revenue 4.06% 4.45% 4.64% 4.52% 7.61%

15. Dr. Reddy’s Dilemmas How can we be imitator [in the generics business] and an innovator [in the discovery business] at the same time? How can we be forge out licensing alliances with large pharmaceutical companies [in the drug discovery business] and at the same time challenge their patents around the world [in the specialty and generics businesses]?

16. Research Paper : On Choices of Innovation Strategy of Chinese Pharmaceutical Enterprises from Perspective of ‘Wise Pig Game’ - Shuzhen Chu, Zhijun Han - Economics & Management School, Nanjing University of Science and Technology Concept of Imitated Innovation - Pha rmaceutical enterprises should insist on the combination of imitation and innovation, and aim at manufacturing products with “higher technologies, better curative effects, higher added values, and new forms”, and decreasing the costs of products. Emphasize the high-tech research and the new-form research of imitated medicine, which can consume less material and possess higher quality, being safe and effective . How to do it? Construct a perfect information management system and obtain useful information timely and rightly. Building an information system for technological research and development that can help to collect information from relevant researching programs, institutions and relevant regulations , laws, and patent materials in other countries that can collect, process , analyze, transfer, and communicate information and an effective feedback mechanism for evaluation of innovation , what can provide with information support for the whole process of enterprises’ technological innovation .

17. Deal with the relationship between imitation and copy properly. Pharmaceutical enterprises’ imitated innovation is to absorb others’ successful experiences and lessons by learning from their innovative thoughts and activities, introduce and interpret the core technologies and technological secrets, and make improvement . Merge and purchase is a main way for cooperative innovation. In the long run, the cooperation after pharmaceutical enterprises’ merge and purchase will undoubtedly inspire innovation. Horizontally merge and purchase : Economy of scale i.e. a decrease of production cost and a increase of return per unit in certain enterprise due to enlarging production scale Vertically merge and purchase : Enterprises in one merge and purchase action locate in different stages of production and circulation. They connect with each other by materials’ production, supply, processing , and sale. Mixed merge and purchase

18. Recent Trends in Pharma Industry & Dr Reddy’s Contribution Indian pharma has experienced a boom and it has reached $20bn in 2013 from $6bn in 2005. It is expected to grow to $55bn by 2020 ( McKinsey&Co report) It is growing at the compounded rate of 14% per annum. But recently Indian pharma industry is grappled with quality issue and US FDA has imposed several restrictions on import of Indian drugs. Increasing recalls, warning letters and import alerts to manufacturing facilities of domestic drug makers have raised concerns about the manufacturing practices followed by Indian companies. 

19. US FDA imposed ban on Dr Reddy’s Mexico plant in 2011, after FDA chastised the plant for failing to validate API testing method and hygiene issue, which was alter lifted after a year. Post this, DR Reddy’s has never faced any issue and is growing at a phenomenal rate of 26% YOY (2012-13 data). Dr Reddy’s (66.86 bn INR) has already surpassed Ranbaxy (63.03 bn INR) and has become the 2 nd largest Indian Pharma company after Cipla (Net sales=69.77 bn INR). By 2020, it is expected to be the number one Indian pharma company.

20. Dr Reddy’s Infrastructure & Capabilities

21. Dr Reddy’s Infrastructure & Capabilities (Contd.)