35112833 dr reddy betapharm an ideal acquisition (1)

8/8/2019 35112833 Dr Reddy Betapharm an Ideal Acquisition (1)

1/26


2/26

DealDeal


3/26

Oth er BiddersOth er Bidders

RanbaxyWockhardt

Nicholas P irama lZydus Cad illa

RanbaxyWockhardt

Nicholas P irama lZydus Cad illa

Ind ian

TevaSand ozSanofi Avent isTur kish compan iesPr ivate equ ity p layers.

TevaSand ozSanofi Avent isTur kish compan iesPr ivate equ ity p layers.

Globa l


4/26

Be t ap h armBe t ap h arm

4 th largestgener ics co. in

Germany

3.5 % share of German Pharma

Mar ket

Gross t rn over of 164 m illion

Beta Brand Emp loys 370peop le

Excellentrelat ionsh ips

w ith customergroups

Revenue growthof 26% over thepast five years

Leader inCorp orate Social Resp ons ibility


5/26


6/26

P erfec t P h arma Acquisi t ionP erfec t P h arma Acquisi t ion

How strong is the buyer?

DRL was Indias leading Pharma Company but was medium sized by global standards

How is the deal financed?

DRL paid through Debt & internal accruals. So no Equity

How well does the purchase complement the buyer's operations?DRL & Betapharm have common core competency - Genrics

How informed is the purchase?

DRL had no previous interaction with Betapharm.


7/26

Limi t a t ions in IndiaLimi t a t ions in India

Higher for trad itiona l therapeut ic segmentsRelat ively lower for lifesty le segment.Supp ly

Very h igh for certa in therapeut ic segments. Will change aslife expe ctan cy, litera cy increases.Demand

Licens ing, d istr ibut ion netw ork, patents, p lant appr ova l byregu latory auth ority.Barr iers t o entry

Distr ibut ors are increas ing ly push ing gener ic pr odu cts in abid to earn h igher marg ins

Barga ining p ower of supp liers

Current ly pr otected by the DPCOBargaining p ower of cust omers

Very fragmented. Top 300 =85% of sales va lue.Consolidat ion is likely to intens ifyComp etition


8/26

Access t o th e German GenericsAccess t o th e German Generics

Germany is the Second-largest gener ic mar ketafter U SA

Highest leve ls of use forpatent free drugs inEur ope

10% of the cost of thedrug payab le by thepat ient (up t o 10)


9/26

S t ra t egic presence in th e EuropeS t ra t egic presence in th e Europe

35% of the t op se llingpr oucts patent

exp ired

EU governments havestarted t o pr omotegener ic med icines

Potent ial for cost-effective med icina l pr ovision in the off-patent mar ket

Growth in Centra l &Eastern Eur opean

countr ies (70%volumes & 30% va lue)

Ava ilab ility of affordab le gener ic med icines is majorbudgetary factor


10/26

DRLDRL -- M&AM&A

Be ze L bs1988American Reme ies1999Chemin r Dr ug s2000BMS Labs & Mer idian He althcare2002

rigenesis2004

Roches API2005


11/26

T h e mo t ive T h e mo t ive

To enter t op10 pharma cosof the w orld,

drugd iscovery isnecessary

DRLs corefocus is

resear ch m in14 % revenues

Scale isimp ortant t o leverage the

infrastru cture& capab ilities

Success fu l gener ic

acqu isitionsfor cash flows

Acqu isition -Trigenes is,

Roches APIp lant


12/26

M iscellaneousM iscellaneous

DRL become aUS$1 billion

globa l pharmaco. by 2008

DRL's str ongcomm itment

to CSRinitiat ives

Divers ificat ionfrom US to

Eur ope


13/26

Be t ap h armBe t ap h arm Ideal Acquisi t ionIdeal Acquisi t ion

Internat iona l growth was requ iredTo become a g loba l Pharmaco

Due t o str ong gr owth in Gener icsEur ope was the m ost covetedtarget

Captur ing a mar ket share in Germany w ou ld berequ ired

Germany -se cond largestgener ics mar ket in the w orld

Cou ld be levered t o create a presen ce in ent ireEur ope

Also the locat ion of Germanyin the heart of Eur ope

Excellent estab lished d istr ibut ion channe l wou ldbe a ne cess ity

But t o estab lish onese lf inEur opean mar kets

B etapharm ideal acquisition Target Which meant a cqu isition wasnecessary


14/26

V alua t ionV alua t ion


15/26

V alua t ionV alua t ion -- S ummary S ummary

C ase Value ($ Million)

Base $333

Opt im istic $64 0

Pess im istic $205

Wo rst Scenar io $138


16/26

P os t DealP os t Deal


17/26

F inancingF inancing

A mount Weighted COC C ost*(1-t) Wt. COC

Inter nal 200 35% 13. % 13. % 4. %Debt 370 65% 2.1% 1.4% 0.9%T otal 570 5.7%


18/26

S ynergy S ynergy

D istribution High ly fragmented mar ket and Un organ ized se ctor Redu ce the e fforts needed t o estab lish (Ident ificat ion,

Promotion, In cent ives)

Redu ce Genera l & Adm inistrat ive costManufacturing The manu factur ing cost in Ind ia is 50% less than the g loba l

average Sour ce Betapharms bus iness from Ind ia to redu ce the

COGSP ipeline R&D costs can be redu ced cons iderab ly (ar ound 35%) Number of pr odu cts laun ched per year w ou ld increase


19/26

S ynergy S ynergy

B randing Brand Beta Globa l Presen ce

P resence Entry into Germany Centra l & Eastern Eur opeize

DRL was ab le to rea ch the $1Billion s ize due t o th isacqu isition Leverage its gener ic bus iness t o grow in Drug

d iscovery


20/26

W h a t W en t W rongW h a t W en t W rong

The Econom ic Opt im isat ion ofPharma ceut ical Care Act (Germany, May2006)Pr ice caps in p lace - affected the marg insof betapharmRedu ced pr ices by 15-25%Longer than expe cted payba ck - otherp lans she lved


21/26


Betapharm revenues grew by 3% over thelast 2 years

Pat ients use med icines end orsed by the irSick Funds (Regu lat ion)Supp ly Cha in pr oblems

Salutas (C ontra ct manu facturer, Germany)term inates contra ct


22/26


Lack of demand in GermanyStr ict regu lat ions aga inst outs our cing

Curren cy Fluctuat ionsDelay in appr ova l of Betapharm pr odu ctsin p ipe line

No pr odu ct appr ova l for DRL's pr odu ctmanu factured in Ind ia


23/26

W ri t eW ri t e -- DownDown

Y ear A mount (INR)

2006-2007 177 crore

2007-2008 236.1 crore


24/26

T h e Road A h ead T h e Road A h ead

Planned sh ift of pr odu ction to Ind iaGood p ipe line of FTF opp ortun ities

Cont inu ous strengthen ing of buy ingpower of Insuran ce compan iesEBIT marg in expans ion n ot going t o be

visible over sh ort t o med ium term


25/26

C onclusionC onclusion

As of now, the dea l seems t o be a failure andDRL w ou ld have been better of w ithoutBetapharm

Prem ium pa id Excess ive m isp laced opt im ism Inadequate due d iligen ce

Failure t o account for Externa l env ironment r isks She lving of other p lans


26/26

T h ank You T h ank You

35112833 dr reddy betapharm an ideal acquisition (1)

Documents