The betapharm Acquisition: DRL's Inorganic Growth Strategy in Europe

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Case Details:

Case Code : BSTR249
Case Length : 19 Pages
Period : 2002 - 2006
Pub Date : 2007
Teaching Note : Available
Organization : Dr. Reddy's Laboratories Ltd.
Industry : Pharmaceutical
Countries : Germany, Europe, India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"We see our investment in betapharm as a key strategic initiative towards becoming a mid-sized global pharmaceutical company with strong presence in all key pharmaceutical markets. betapharm has created a strong growth platform and is well positioned for the future and we are looking forward to partner with them in building a strategic presence in Europe."¹

- Dr. K. Anji Reddy, Chairman, Dr. Reddy's Laboratories Limited, in March 2006.

Not only is Dr. Reddy's non-existent in Germany, but the market has deep-rooted sales and distribution networks that makes inorganic expansion there tough and expensive for an outsider.²

- Saion Mukherjee, Research Analyst, Brics Securities,³ in July 2006.

DRL Gains a Foothold in Europe

On February 15, 2006, Dr. Reddy's Laboratories Limited (DRL), a leading Indian pharmaceutical company, acquired the fourth-largest generic⁴ pharmaceutical company in Germany, betapharm Arzneimittel GmbH (betapharm) from the 3i Group PLC⁵ (3i) for US$570 million (€480 million). The sale deal also included the 'beta institut for sociomedical research GmbH' (beta Institut), a non-profit research institute founded and funded by betapharm to conduct research on issues related to social aspects of medicine and health management. The acquisition was hailed as the biggest overseas acquisition made by an Indian pharmaceutical company. The synergies from the acquisition were expected to benefit both DRL and betapharm.

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Through this acquisition DRL could get immediate access to the German generic market, the second-largest generic market in the world after the US. Germany also accounted for 66 percent of the generic market in Europe (Refer to Exhibit I for a list of the major generic markets in Europe). The acquisition was expected to help DRL gain a strategic presence in the European market as the generic drug market in Europe was expected to show strong growth due to rising public healthcare costs.

It was also expected to help DRL realize its ambition of becoming a US$1 billion mid-size global pharmaceutical company by 2008. betapharm was expected to benefit from the acquisition as it would be able to add more products to its portfolio and grow at a much faster rate in Germany. Besides, the acquisition would help it to utilize DRL's global product development and marketing infrastructure to expand its presence in the European market in the long run. Dr. Wolfgang Niedermaier (Niedermaier), CEO of betapharm, commented, "Dr. Reddy's impressive pipeline of generic and innovative products and its high quality standards combined with competitive manufacturing costs will help further develop our position in the German market and offer an entry platform for the European market.

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1] "Dr Reddy's Buys German Co betapharm for Rs 2,250 Cr - Biggest Overseas Acquisition by an Indian Pharma Co," www.blonnet.com, February 17, 2006.

2] Khozem Merchant and Andrew Jack, "Reddy's Sees betapharm Deal as Panacea," www.financialexpress-bd.com, July 08, 2006.

3] Brics Securities Limited is an Indian based securities firm and a part of JV Gokal Group. It offers services in equity, debt and commodity brokering, portfolio management, depository facilities, and distribution of third-party products. (Source: www.bricssecurities.com)

4] Generic drugs (or Generics) are either copies or the basic form of a proprietary drug (or "brand-named") drugs produced by a large multinational. For example, Lipitor is the brand name of Atorvastatin by pharmaceutical major Pfizer Inc. Any other drugs with the same composition (Atorvastatin) made by other companies are called generics.

5] 3i Group PLC is a private equity and venture capital firm based in UK. 3i stands for investors in industry. (Source: www.en.wikipedia.org)