dr. reddy’s laboratories ltd investor presentation, june 2010 meet/100124_20100722...global...

Dr. Reddy’s Laboratories LtdInvestor Presentation, June 2010

Safe Harbor Statement

This presentation contains forward-looking statements and information that involve risks, uncertainties and assumptions. Forward-looking statements are all statements that concern plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact, including, but not limited to, those that are identified by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects” and similar expressions. Risks and uncertainties that could affect us include, without limitation:

� General economic and business conditions in India;

� The ability to successfully implement our strategy, our research and development efforts, growth and expansion plans and technological changes;

� Changes in the value of the Rupee and other currency changes;

� Changes in the Indian and international interest rates;

� Allocations of funds by the Government;

� Changes in laws and regulations that apply to our customers, suppliers, and the pharmaceutical industry;

� Increasing competition in and the conditions of our customers, suppliers and the pharmaceutical industry; and

� Changes in political conditions in India.

Should one or more of such risks and uncertainties materialize, or should any underlying assumption prove incorrect, actual outcomes may vary materially from those indicated in the applicable forward-looking statements. Any forward-looking statement or information contained in this presentation speaks only as of the date of the statement.We are not required to update any such statement or information to either reflect events or circumstances that occur after the date the statement or information is made or to account for unanticipated events.

1

� Overview

� Global Generics

� Pharmaceutical Services and Active Ingredients� Pharmaceutical Services and Active Ingredients

� Proprietary Products

� Looking Ahead

2

Purpose:

Providing affordable and innovative medicines for healthier lives.

Strategy:

Leverage industry-leading science & technology, product offering and

customer service with execution excellence.

3

� Global pharmaceutical company focused on active pharmaceutical ingredients

& custom services, generics and proprietary products.

� Amongst the largest Indian pharmaceutical companies � Revenues of U.S.

Overview

$1.56 bn in FY2010 with a CAGR of ~ 25% over the last decade. Proportion of

international (ex-India) revenues at 40% in FY2000 moved up to 82% in FY2010.

� Strong vertically integrated portfolio of businesses, geographies & products.

4

1,510

1,250

1,365 1,563 Revenues [USD Mn]

Built the foundations for a strong business. Moved up the value chain. Strengthened

capabilities. Achieved scale and global presence. Growth aided by acquisitions.

The Last Decade

183 234

338 380

463 447

546

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

� Germany & Mexico acquisitions

� Authorized generic launches

All figures converted at respective year’s USD to INR convenience translation rate.5

Integrated Business Model

Pharmaceutical Services & Active Ingredients

• FY10 Revenue mix 1/3rd

of total

Global Generics

• FY10 Revenue mix 2/3rd

of total

• Finished dosage

Proprietary Products

• Focus on building sustainable and profitable branded innovative of total

• Amongst the leaders in supply of generic APIs globally

• Customers include generic manufacturers, innovator companies

• Finished dosage businesses in distribution-driven as well as doctor-driven markets

• Strategic ‘focus’ on key large markets � North America, India, Russia / CIS, Germany

branded innovative business

• Efforts in new drug discovery, differentiated formulations & biosimilars

6

Our Strengths

� Industry leading chemistry skills which has resulted in several niche product

opportunities (eg: fondaparinux, fexofenadine-pseudoephedrine, omeprazole mg)

� High vertical integration (~75% of APIs sourced internally), global leader in DMF filings

(375 global DMFs as at March 2010)

� Critical mass of base business in key growing markets

(India, Russia & CIS, North America, Europe)

� Maximizing value opportunities through large partnerships (GSK Alliance) and

successful history of monetizing IP

� Emerging biosimilars play

7

� API manufacturing : India – 6, Mexico – 1, UK – 1. All US FDA approved.

� Finished Dosages : India – 6 out of which 2 USFDA approved manufacturing US – 1 approved by US USFDA

� Biologics Facility : India - 1, audited by multiple regulatory agencies

Infrastructure

� Custom Pharma : 3 Technology Development Centers – 2 in India & 1 in Services Cambridge, UK

� R&D Centers : State-of-the-art Integrated Product Development Organisation [IPDO] Facility & NCE facility in Hyderabad, IndiaAurigene facility in Bangalore, India

8

Key Performance Highlights

� Focus on identified markets in Global Generics � led to a strong base business

performance in FY 10. Growth well-diversified across key markets of North

America, India and Russia.

� Leading EBITDA generating player in India pharma (adjusted EBITDA of $ 356 mn in

FY10, 23% to revenue) � reflects the benefit of scale & operating leverage.

� Recent launches of fluoxetine 90 mg, amlodipine benazepril and tacrolimus in US

generics market.

9

FY10 Performance

• $356 mn

• 23% to sales• $1.56 bn

RevenueAdjusted EBITDA

10

• 103 launches

• 121 generics

filings, 36 DMFs

• $208 mn

• 13% to sales

Launches & Filings

AdjustedPAT

Adjustments to EBITDA and PAT pertain to one-time charges for impairment and restructuring costs.

Key Balance Sheet Items

Cash & Cash Equivalents

Inventory & Receivables

Property, plant & equipment

Mar 2010 Mar 2009

146 124

563 619

500 465

$ mn

11

Goodwill & Intangibles

Loans & borrowings (current & non current)

Equity & Reserves

311 493

327 438

955 935

o Net Debt – Equity ratio of 0.19 [Mar-10] vs 0.34 [Mar-09]

o Capital expenditure for FY10 ~ $ 92 mn

o Cash flow hedge options of ~ $410 million hedged in the range of 45 to 49

Business Priorities

Create compelling value for customers by

leveraging IP, technology and cost leadership

Improve depth in key markets through portfolio

expansion and supply chain excellence

Calibrate investments to create a self sustainable

model

Global GenericsPharmaceutical

Services & Active Ingredients

Proprietary Products

and cost leadership chain excellence

Partner of Choice Leadership positionin key markets

Viable Proprietary Products business

12

Financial Goals ���� FY13

RevenuesRevenues

RoCERoCE

25%25%RevenuesRevenues

$3 $3 bnbn

13

� Dr. Reddy’s Overview

� Global Generics

� Pharmaceutical Services and Active Ingredients� Pharmaceutical Services and Active Ingredients

� Proprietary Products

� Looking Ahead

14

Global Generics

GenericsBranded Generics

Global GenericsGeographically well diversified with mix of generics and branded generics

North America

Germany UK India RussiaGSK

AllianceCIS,Venezuela, Romania & ANZ

15

Key Priorities:

� Deepening market presence

� Differentiated product portfolio

� Supply chain excellence

FY06 FY07 FY08 FY09 FY10

37

109

199

272

301 Revenue ($ Mn), Excluding upside revenues

Global Generics: North America

Note : All figures converted at the respective years’ average USD to INR rates

Product Pipeline : ANDAs

Cumulative � 158

Pending approvals � 73

Para IVs � 38

FTFs � 12

Upside revenuesexcluded in the

graph

FY07 $413 mn

FY09 $149 mn

FY10 $53 mn

� Ranked #10 with Rx market share of 2.1% in US (Source: IMS Health)

o Amongst the Top 3 market shares in 8 of 17 Rx new products launched in last 24 months

� Portfolio of ~ 45 products, critical mass established

o 22 products � Top 3 positions

o 3/4th of portfolio vertically integrated

� History of successful monetization of pipeline and settlements (fluoxetine, simvastatin, finasteride, ondansetron, sumatriptan, amlodipine benazepril & others)

� OTC business gaining significant traction with launch of Omeprazole Mg

� Louisiana facility: for capacity and platform for Rx/OTC/Government business

Note : All figures converted at the respective years’ average USD to INR rates

16

Opportunities Product Name FY09 FY10 FY11 FY12 FY13 FY14 FY15

Assured 180 daysExclusivity

Product A X

Product B X

Product C X

Settlements/ Go early

Sumatriptan X

Rivastigmine X

Desloratadine(5mg / ODT / Pseudoephedrine)

X

North America: Growing annuity of opportunities

/ Go early(5mg / ODT / Pseudoephedrine)

Finasteride 1 mg X

Amlodipine Benazepril X

Fenofibrate Capsule (43 / 130 mg) Launch date not disclosed

Limited Competition / Difficult to make

Omeprazole Mg OTC X

Tacrolimus X

Fondaparinux X

Fexofenadine Pseudoephedrine X

Product D X

Product E X

17Above list mentions only select of our limited competition opportunities

FY06 FY07 FY08 FY09 FY10

133 155

179 189

226 Revenue ($ Mn)

Global Generics: India

Note : Nos are converted at constant translation rate

Top Brands Mkt. Rank

Omez 1

Nise 1

Stamlo 1

Stamlo Beta 2

Omez-D 1

Razo 1

Mintop 1

Top Therapeutic Areas

Gastrointestinal (Rank #2)

Cardiovascular

Pain

Oncology (Rank #2)

Paedia

Anti-Infective

Diabetology

Dermatology

Dental (Rank #2)

� Secondary sales trend : Dr. Reddy’s growth of 23% vs. industry growth of 18%. Market Share � 2.2% (ORG IMS MAT March 2010)

� Strengths :

o Strong brand equity with doctors

o Ability to establish new brands despite late launches in the market (Leon, Telsartan, Pecef)

o Emerging leadership presence in niche areas

� Strengthening product portfolio with the introduction of differentiated & niche products (biosimilars like Reditux, differentiated formulations like fentanyl patch, niche products like Strea range of aesthetic products)

o FY 2010 : Launched 62 new products (~ 5% of sales) (Launch History: FY08 – 20; FY09 – 36)

� Tapping the underpenetrated rural markets through introduction of contractual field force18

FY06 FY07 FY08 FY09 FY10

60

79

101

125

152

Revenue ($ Mn)

Global Generics: Russia

Top Brands Mkt. Rank Mkt Share

Nise 1 61%

Omez 1 67%

Ketorol 1 51%

Ciprolet 1 44%

Cetrin 2 28%

Enam 5 7%

Note : All figures converted at the respective years’ average USD to INR translation rates

� Secondary sales trend : Dr. Reddy’s growth of 21% vs. 8% of Industry; Mkt Rank �16th

(Source: Pharmexpert MAT March 2010)

� Customers � Business consolidated with Top 4 distributors > 80% of our revenue

o We continue to tightly control our working capital and customer credit terms

� Portfolio :

o > 80% of portfolio vertically integrated

o OTC & Hospital segment gaining traction � ~ 20% of revenue

o Aggressively pursuing opportunities through various inlicensing deals

� Healthy signs of revival in industry, continuing growth momentum for us. 19

FY07 FY08 FY09 FY10

138 144 151

109

Revenue (Euro Mn)

Global Generics: Germany

3 years back

� Branded market & influence of

doctor equity

� Intangibles/Goodwill � ~ €450 mn

Increasing influence of healthcare insurance companies & tender

20

� Betapharm � 5th largest in volumes among generic companies

� Business model aligning to compete profitably

� betapharm‘s current contribution to Dr. Reddy’s consolidated revenues less than 10%

Currently

� Tender based market with generic

pricing

� Intangibles/Goodwill � ~ €90 mn

companies & tender driven market

Measures initiated to remain competitive in Germany

� Vertical integration to be taken up to 50 -60% by value of our portfolio by end of FY11

� Significant restructuring of the manpower

� SG&A aligned to a tender based model

4

85 4

2

8 7

8

15

54 4

1213

AOK - 1 BKK Spectrum

TK IKK BKK GwQ

DAK - 2 KKH Allianz -

Number of Tenders Won

Non Vert. Int.

Germany : Our Strategy

Judicious Product Selection

� Product diversification by focusing on therapies which have a limited play in the tender market

� Focus on entry into products with difficult formulation process

� Emphasis on timely entry of IP driven products

� Product portfolio to improve the OTC business in the next financial year

Spectrum K

GwQ Allianz -2

Strategic alliance with GSK for Emerging Markets

� Branded Generics & Differentiated Formulations

o Strategic alliance will combine Dr. Reddy’s portfolio of high quality branded pharmaceuticals and

GSK’s extensive sales and marketing capabilities

o The products will be manufactured by Dr. Reddy’s, licensed and supplied to GSK

o Revenues will be reported by GSK and will be shared with Dr. Reddy’s as per agreed terms

� What does this mean for Dr. Reddy’s ?

o Significant opportunity to leverage wide presence of GSK in several emerging markets with minimal

investments

� Latest Update

o Initial shipments made to Mexico in Q4 FY2010. The next set of shipments expected to be made to

Brazil shortly. Till date, more than 50 dossier filings made in various markets under this alliance.

22

� Dr. Reddy’s Overview

� Global Generics

� Pharmaceutical Services and Active Ingredients� Pharmaceutical Services and Active Ingredients

� Proprietary Products

� Looking Ahead

23

FY06 FY07 FY08 FY09 FY10

216

407 413 404 430

Revenue ($ Mn)

Pharmaceutical Services & Active Ingredients

Note : All figures converted at the respective years’ average USD to INR translation rates

� Customers include top generic manufacturers & innovators

o Amongst the leaders globally in generic APIs

o Pipeline coverage of 60–80% of patent expiries in the next few years in the US

� 75% of current API requirement for Global Generics sourced internally

� Custom business model transitioning well to manufacturing services from pipeline services. Two pronged strategy of :

o Product Service

o Technology leveraged manufacturing services(Chiral technology, Steroids, peptides & prostaglandins, General chemistry expertise and Scale up and engineering skills)

Cumulative DMFs : (Mar 10)

o US - 156

o Europe – 90

o Canada – 59

o RoW – 70

24

� Dr. Reddy’s Overview

� Global Generics

� Pharmaceutical Services and Active Ingredients� Pharmaceutical Services and Active Ingredients

� Proprietary Products

� Looking Ahead

25

Proprietary Products: Biologics

Built product development and manufacturing capabilities with a focus on becoming a leading integrated global player in generic biologics.

Product Portfolio: Strategic focus on 2nd wave biologics

� Products are complex glycosylated proteins requiring specialized competence in development and manufacturing.

� Global brand sales of development portfolio USD 40+ Bn (2008 sales)

• Our portfolio for select emerging markets represents an early entry opportunity

• Continue to work on monetizing US & EU opportunity• Continue to work on monetizing US & EU opportunity

Established Development Capabilities

� Two commercial products – filgrastim and rituximab – launched in multiple emerging markets; extensive patient safety database.

� Four late stage products:

• Highly glycosylated therapeutic protein (Registration phase)

• Pegylated protein (Clinical trials ongoing)

• MAb2 (Clinical trials to start in 2Q)

• MAb3 (Clinical trials to start in 4Q) 26

Proprietary Products: Biologics

Multi-year Investment Plan to Build Integrated Capabilities and Infrastructure

� Current India-based team of 300 to increase to approximately 500 by 2013.

� Several years of proven cGMP manufacturing experience with a history of successful audits including approval for European clinical trial product supply.

� Creation of a dedicated, full fledged, regulated markets-focused development and commercial strategy team based out of the US in 2010.

� Open for the right alliance(s), but not waiting.� Open for the right alliance(s), but not waiting.

� Intermediate scale mammalian cell culture manufacturing plant of 4 x 1000L under construction and will be commissioned in 2011.

� Design and engineering readiness in place for larger scale plant of 4 x 5000L.

Emerging markets focus and early launches create self-sustaining business model with significant earnings impact at corporate level after regulated market entry in 2015.

27

Proprietary Products: Differentiated Formulations and NCE Research & Development

� Hybrid Differentiated Formulations/NCE Strategy anchored around :

� Specialty indications with feasibility to self-commercialize

� Higher conversion from preclinical-to-clinic

� Enabled by core capabilities :

� Strong internal formulation development team focused on oral and topical drug delivery

28

� Strong internal formulation development team focused on oral and topical drug delivery

� Enabling alliances in areas of alternative drug delivery (intranasals, injectables)

� Resulting (from FY 2012 onwards) in an annual output of 3-5 quality clinical candidates in/from :

� High value differentiated formulations programs (US/EU-targeted) in pain, hospital, dermatology

� Complementary NCE pipeline focusing on same indications

� GSK Differentiated Formulations alliance

Proprietary Products Pipeline

AssetPreclinical

testing

GLP tox/IND-enabling studies

Phase I Phase II Phase III

Balaglitazone (NCE)

Onychomycosis (DF)

DRL-17822 (NCE)

Pre-clinical pipeline includes a number of candidates across NCE / differentiated formulations in therapies such as

29

Pre-clinical pipeline includes a number of candidates across NCE / differentiated formulations in therapies such as

dyslipidemia, dermatology, migraine, etc.

Update on balaglitazone

• Encouraging results on the headline data from the first phase III study.

• The trial met its primary endpoint of glycaemic controls (HbA1C and FPG)

• Next steps for additional phase III studies to be finalized after discussions with regulators.

� Dr. Reddy’s Overview

� Global Generics

� Pharmaceutical Services and Active Ingredients� Pharmaceutical Services and Active Ingredients

� Proprietary Products

� Looking Ahead

30

Highlights

FY 11 Guidance : RoCE of 18 – 22%. FY13 Goal : Revenues ���� $3 bn &

RoCE of 25%.

Amongst the leading pipeline of ANDA & DMF filings globally.

Strong & sustained cash flows expected from product opportunities such

as Omeprazole Mg OTC, Fondaparinux & Fexofenadine pseudoephedrine.as Omeprazole Mg OTC, Fondaparinux & Fexofenadine pseudoephedrine.

Attractive Emerging Markets presence with stronghold in two key ‘BRIC’

markets – India & Russia.

Strategic alliance with GSK for Emerging Markets.

Emerging bio-similars play.31

Thank You