Dr Reddy's Laboratories: Growing Pains
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Case Code: BSTR403 Case Length: 16 Pages Period: 2006-2011 Pub Date: 2012 Teaching Note: Not Available |
Price: Rs.500 Organization: Dr. Reddy's Laboratories. Industry: Pharmaceuticals Countries: Global; India; US; Europe Themes: International Management, Corporate Strategy, Strategy Implementation |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
About DRL
DRL was founded in 1984 by Anji Reddy, an entrepreneur and scientist. In 1986, it became a public limited company and started exporting drugs. It became the first Indian company to export APIs to Europe. The formulations operations started in 1987 and the company obtained its first FDA approval for the drug Ibuprofen. In 1988, DRL acquired an API manufacturing company, Benzex Laboratories, to boost its API business. During the 1990s, DRL consolidated its position in the domestic formulations market through aggressive product launches as well as acquisitions...
Business Segments
The company's Global Generics business included branded and unbranded prescriptions and over-the-counter (OTC) pharmaceutical products. The branded generics portfolio comprised over 200 products in the areas of gastro-intestinal, cardiovascular, pain management, oncology, anti-infectives, pediatrics, and dermatology. Brand generic drugs like Omez, Ciprolet, Nise, Enam, Ketorol, Exifine, and Cetrine were the leading brands in several markets such as India, Romania, Venezuela, Russia, and the Commonwealth of Independent States(CIS)...
Key Markets
The company manufactured and marketed medicinal products in over 100 countries with its key markets being the US, Russia, and the CIS countries, Germany, India, the UK, Venezuela, South Africa, Romania, and New Zealand. The company had representative offices in 16 countries and third-party distribution setups in 21 countries as of 2011. In 2010-11, DRL generated 81% of its revenues from the international market while the remaining came from its domestic market, India...
DRL's Problems
In 2009, DRL lost more than 50% of the money it had made in the preceding five years. In the fourth quarter ended March 31, 2009, its profits dropped by 3.76% to Rs 1,561 million. DRL had written down US$290 million against betapharm, resulting in a quarter loss. It did not launch new products in the Indian market unlike its competitors and thereby lost its position as one of the top ten pharma companies in the domestic market in the year 2008-09...
Betapharm Acquisition
In February 2006, when DRL acquired betapharm, analysts felt that it had taken a big gamble, especially in the context of DRL's declining sales in the US generic market and the litigation costs it was incurring in the country. Despite reports that the German government was about to change regulations to force down prices of drugs, DRL went ahead with the deal. A few months after the acquisition, the entire backdrop of the German generics business changed drastically...
Problems in the US Market
During the third quarter ended December 2009, DRL's revenue from North America more than halved to Rs.3 billion compared to Rs 6.7 billion a year earlier. According to the company, US revenues were impacted due to the company's voluntary decision to recall four products from the US market in September 2009 following concerns about the size of the pills which were found to be above the stipulated standard size norms. Moreover, the lapse of the marketing exclusivity period of its generic version of GSK's Imitrex (Sumatriptan) in August 2009 affected sales. In addition, lawsuits against DRL in the US courts over alleged patent infringements were piling up...
Mexico FTASCO
In July 2011, the FDA imposed an import ban on products made at the company's Mexican plant Industrias Quimicas Falcon de Mexico SA de for violation of current good manufacturing practices (CGMP). Earlier in November 2010, FDA inspectors visited DRL's facility in Mexico and found non-compliance with the manufacturing practice norms for APIs...
Fatal Accidents
Bad fortune continued to dog DRL as a string of accidents broke out across its Indian manufacturing facilities in Hyderabad. The accidents, in which four contract workers lost their lives, put a question mark over the safety practices at DRL. In December 2010, two workers lost their lives and two were injured in a nitrogen gas leak at the company's bulk drugs facility on the outskirts of Hyderabad...
Losing Ground in the Domestic Market
DRL's domestic formulations business showed a dismal performance with monthly sales in India increasing at a slower pace than the industry average in the fiscal 2010-11. In the quarter ended June 2011, sales in India increased by just 6% to US$66 million...
The Road Ahead
In 2011-12, DRL expected its performance to be driven by growth in the North American generic business and other emerging markets. The company planned to launch about 12 products in the US market in the fiscal and invest Rs.8 billion for expanding some of the manufacturing facilities in India and the US...
Exhibits
Exhibit I: Stock Price Chart of DRL
Exhibit II: DRL's Q1 Consolidated Income Statement
Exhibit III: Top Ten Players in the Indian Pharma Industry
Exhibit IV-A: Global Pharma Sales by Regions (2010)
Exhibit IV-B: Top 10 Global Therapeutic Classes by Sales (2010)
Exhibit V: DRL's Consolidated Income Statement (2011-2007)
Exhibit VI: DRL's Consolidated Balance Sheet
Exhibit VII: DRL-Consolidated Business Wise Performance
Exhibit VIII: Q1 FY12 Revenue Mix by Segment
Exhibit IX: Top 10 US Therapeutic Classes by Spending (2010)
Exhibit X: Top 15 Companies in the US by Prescriptions
Exhibit XI: DRL's Revenues from the Top10 Brands in India
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