Dr Reddy’s Laboratories: Problems in the Mexico Plant

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Excerpts...

In 1984, the US became a lucrative market for Indian companies following changes to the Hatch-Waxman Act in that country. Under this new law, manufacturers of generic drugs no longer had to go through a lengthy period of clinical trials in order to market a generic drug. It also allowed generics companies to challenge the originator companies long before patent expiration and also established a 180-day exclusivity period for the first company to file an Abbreviated New Drug Applications (ANDA) under this provision. Struggling with rising healthcare costs many other countries in the West also formulated similar favorable policies for generic drugs. Indian pharmaceutical companies viewed markets such as the US and Europe as major opportunities. Companies such as Ranbaxy, Sun, and DRL were trying to tap the lucrative US generic market as several blockbuster drugs (with sales of more than US$1 billion per annum) were going off-patent .....

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On November 8, 2005, DRL announced that an agreement had been signed by the company to acquire Roche’s API plant in Cuernavaca, Mexico, including all employees and business supply contracts. It was an all-cash deal with the Indian drug maker shelling out US$59 million for the acquisition, which included working capital as well. Roche, headquartered in Basel, Switzerland, was one of the world’s leading research-based pharmaceuticals and diagnostics companies.......

In June 2011, DRL received a warning letter from the USFDA relating to the plant in Mexico. At the same time it was being probed by the Indian directorate of factories over the alleged safety violations that contributed to the demise of two workers at facilities close to its Hyderabad headquarters......

As Prasad looked out of the window of his office, he could still see no signs of rain. Since 2006, the DRL found itself facing a spate of troubles. The risky acquisition of the German generics company betapharm, patent litigations in the US market, quality problems at its Mexico unit, falling revenues in key markets, and a string of fatal accidents at its facilities were some of the serious issues nagging the company.......

Exhibit I: The FDA Warning Letter
Exhibit II: Consolidated Business Wise Performance of DRL
Exhibit III: DRL’s PSAI Revenues by Regions
Exhibit IV: DRL’s Global Generic Revenues by Regions
Exhibit V: DRL’s Consolidated Income Statement
Exhibit VI: DRL’s Consolidated Balance Sheet
Exhibit VII: Global Pharma Sales by Regions (2010)
Exhibit VIII:Top 15 Companies in the US by Prescriptions