drl and beta pharma whole deal

8/2/2019 DRL and Beta Pharma Whole Deal

http://slidepdf.com/reader/full/drl-and-beta-pharma-whole-deal 1/19

The Betapharm AcquisitionDRL's norganic Growth Strategy n Europe

We see ctur inuestnxent in betapharm as a hey strcltegic initicttiue towards

becoming a mid-sized global pharmaceutical company with a strong

presence n all heypharmaceutical murket* betapharm hds creoted a strong

growth platform and is well positioned for the future and we are loohing

forwarcl to partner with them in building q strQtegicpresence in Europe,l

- Dn K Anji Reddy'

Choirman,

Dr. Reddy's Lqborcttories Liruited, in Mqrch 2006.

Not only is Dr Reddy's non-existent n Germany, but the marhet has deep-

rooted sales crnd.distribution networhs that mahes inorganic expansion

there tough and expensiue or an outsicler2- Saion Muhheriee,

Research Analys| Brics Securities,'t in July 2006.

"Dr. Reddy's Buys German Co betapharm for Rs. 2,250 cr Biggest Overseas

Acquisition by an Indian Pharma Co," www.blonnet.com, Febr-uary17, 2006.

Khozem Merchant and Andrew Jack, "Reddy's Seesbetapharm Deal as Panacea,"

www.financialexpress'bd.com,July 08, 2006.

B cs Secudties Limited is an Indian-basedsecudties firm and s paft of JV Gokal

Group. It offers services in equity, debt and commodity brokering,portfolio

management,depository acilities, and distribution of third-party products (Soulcel

www.bricssecudties.com).

@ 2006 The Icfai Center for Management Reseafch (ICMR). Alt Rights Reserved. For accessingand procuring the casestudy

loe on to www.ecch.cranfield.ac.uk r www.icmrindia.org



The BetapharmAcquisit ion:DRL's norganicGroMh Strategy n Europe

DRL Gains a Foothold in Europe

on February 15, 2006, Dr. Reddy's Laboratories Limited (DRL), a leadingIndian pharmaceutical company, acquired the fourth-largest genericlpharmaceutical company in Gcrmany, betapharm ArzneinriLtel GnrbH

(betapharm) from the 3i Group PLC' (3i) for uSg570 mn (c4g0 mn). Thesale deal also included the "beta

institut for sociomedical esearch GmbH,,(beta Institut), a non-profit research institute founded and funded bybetapharm to conduct research on issues rerated to social aspectsofmedicine and health management. The .cquisition was hailed as the biggestoverseas acquisition made by an Indian pharmaceutical company.

The synergies from the acquisition were expected o benefit both DRLand betapharm. Through this acq'isition, DRL courd get immediate accessto the German generic rnarket, the second-largestgeneric market in theworld after the US. Germany also accounted fol 667rof the generic marketin Europe (Refer Exhibit I fcr.a list of the major generic markets in Europe).The acquisition was expected o help DRL gain a s trategic presence n theEuropean market as the generic drug market in Europe was expectecl oshow strong growth due to r is ing publ ic hearthcarecosts. t was alsoexpected to help DRL re:rlize its arnbition of becoming a uS$1 bn mid-sizeglobal pharmaceutical company by 2008.

Exhibit: MaforMarketsorGenericsnEurope

Country Ceneric Market Size(i n € bn)

Cermany 4.8

UK 2 . 8

France 1 . 6

Nether lands 0 .6

Spain 0 . 6

Italy 0 . 5

Sotrco:"DRL'sA[)ar,,

"Busine;sworro,

lvlarch20,200('

combined with competitive manufacturing costs will heip further developour position in the German market

and offer an entry platform for theEuropean market . I ts extensive and wel l - recognizedcorporate sociairesponsibi l i ty act iv i t ies perfect ly f i t wi th our successfu l corporatephilosophy and business model. we see Dr. Reddy's as our partner of choiceto build a successful oint future and continue betapharm's growth andsuccessstory."u

Lrene|rc clrugs (or Generics) are ei ther copies or thc basic fbrm oi ' :r propr ietary

betapl-rarm was expected to bencfit fromthe acquisition as t would be able to adclmor.eproducts to its portfblio and gpow at a much

fas te r ra te in Germany . Bes ides , theacquisi t ion would help i t to ut i l ize DRL'sglobal product development and marketinginfrastructure to expand its presence in theEuropean marke t in the long run .Dr. Wolfgang Niedermaier (Niedermaier) .

CEO of betapharm, commented, "Dr.Reddy,s

impressive pipeline of generic and innovativeproducts and i ts high qual i ty standards

drug (or "brand-named")drugs produced by o larg" mult inational . F ' ; . " ; " ; ; r " .

Lipitor is the brand name of Atorvastatin by pharmaceutical maior pfizer h-rc. Anvothe. drugs wi th the same composit ion (Atorvastatin) made by other companie-rare cerlled senorics.

3i Group PLC is a private cquity trnd venture capital firm based ir-r he uK. lli sr:rnosibr investors in industry (Source: www.en.wikipedia.org)."3 i

Sells Betapharm to India-based Dr . Reddv,s Labs,', www.3i.com, Febmary f6 , 2006.

Case Fol io 6 1 February 2007



TheBetapharmAcquisition:DRL's norganicGrowthStrategy n Europe

DRL was founded by

Dr. Anji Reddy in 1984 in

the South Indian city

of Hyderabad

Thou-gh DRL was not the highest bidder, it clinched the deal largely

due to the perceived synergies between thr: two companies. DRL's strong

commitment to corporate Social Responsibility (cSR) initiatives too helped

swing the deal in its favor as betapharm identified with such initiatives

through the activitiesconductedby beta Institut.

However, some analysts were of the opinion that DRL had paid too

much t6 3i for the acquisition as the value of'the acquisition was estimated

to be mrtre than three times the annual salesof betapharm. Their argument

was strtngthened by the fact that another Indian pharmaceutical major,

Ranbaxy Laboratories LimitedT (Ranbax5'),which had also aggressively

competed for the acquis i t ion and was a pre-sale favor i te to bag the

betapharm deal, pulled out at the last minute quoting

the high price. DRL, however, ustifred the premium price

saying that the advantages rom the acquisition were

manifold. A few alsoexpressedheir doubts as to whether

DRL could leverageany benefi ts in the short-term as

betapharm was reportedly emerging from a lean period.

A few months after the acquisition, there were already

early signs of trouble, as the Economic Optimization of

Pharmaceutical CareAct (AWVG) took effect in Germany

on May 1, 2006.Though the act was expected o increase

the scope for the use of'generic drugs, it also put some

pr ice caps in place, which affected the margins of

betapharm. Anaiysts opined that the payback to DRL

from this acquisition wouid take a f'ewyears

longerthan

previously expected. t was reported that DRL, which had plans fbr more

acquisitions in Europe after the betapharm acquisition, had shelved its

plans of any further acquisitions in Europe.*

Background Note

Dr. Reddy'sLaboratories Limited

DRL was founded by Dr. Anji Reddy (Reddy) n 1984 in the South Indian

city of Hyderabad. Reddy, who hailed from an agricultural family, had a

keen interest in chemical engineering and obtained a doctorate in that

discipline in 1969. He worked for a short while as a scientist with the

state-owned pharmaceutical company, Indian Drugs and Pharmaceuticals

Limi ted ( IDPL). in i ts researchand developmentdiv is ion. Reddy was

known for his entrepreneurship even before he established DRL. In fact,

he was involved in fc lunding and managing two companies, uni loids

Limited and standard organics Limited, during the period 1976 to 1984,

prior to establishing DRL.

Rur]bu*y t-uburatorics Ltd., based in New Delhi, India, is the largest pharmaceutical

company in India. Establ ished in 1961, Ranbaxv now expo|ts i ts plodr.tcts o ovcr

70 countr ies with ground operations in 25 countr ies an d manulactur ing fat: i l i t ies

in sevencountr ies including the us. For the yeal ended December 31, 2005, i ts

global levenucs were US$1,178 mn.

t l Chitt i Pantulu,"Reddy's Faces Bctapharm Blip," u 'ww.dnaindia com, October

9 , 2006 .

C a s e F o l i o 6 2 Februarv2007



BusinessStrategy

In 1986, DRL became a public limited company ancr started exportingpharmaceutical drugs in the same year. The formulations operations startedin 1987 and the company ob ta ined i t s f i r s t US Food and DrugAdministrationlr (USFDA) approval for the drug Ibuprofen. In 1ggg. itacquired a bulk drugs'0 manufacturing company,Benzex Laboratories pl't.

L td. , to boost the bulk drugs business. Dur ing the 19g0s, ndia wasdependent on imports for its requirements of bulk drugs. However, therole played by DRL and other major Indian pharmaceuticar c'mpanreshelped change that. By the 1990s, ndia had becomeself-reliant in bulkdrugs and the bulk drug industry had becornean export-oriented sector.

The ear ly 1990s saw DRL embark .n an aggressive nternat ionalexpansion with its products making their way to several internationalmarkets such as Russia, Europe, and bhe Far East. In 1993, Dr. Reddy'sResearch Foundation (DRF) was established o realize the vision of the

company to discover new drugs and not just rely on reverse engineeringthe drugs discoveredby other companies.The establishment of DRF madeDRL one of the few pharmaceutical companies in India to have an activedrugs discovery program. In 19g7, DRF achieved a majormilestone when it out-licensed an anti-diabetes moleculethat it had developed to Novo Nordisk AS.u This wasthe f i r s t i ns tance of ou t - l i cens ing by an Ind ianpharmaceutical company. And it was considered as aIandmark in the Indian pharmaceutical inclustry as itwas believed to have started the evolution of Indianpharmaceutical companies from being mere imitators of

drugs discovered by other companies into drugdiscoverers.This accomplishment also enabled DRL torealize its objective of becoming a vertically integratedglobal pharmaceutical company.

The company con t inued to g row w i th seve ra lacquisitions, the most important being the acquisit ion

In 1986, DRL becante a

public limited eontpany

and started e.rporting

pharmaceuticq,t drugs ir t

the sante vear

of cheminor Drugs Limited in 2000 that helped the company become theth i rd- largest pharmaceut ica l company in Ind ia. In 2000, Reddy USTherapeutics wa s established in the US to conduct target-based drugdiscovery. n 2001, DRL became the first Indian pharmaceutical

companyas well as the first Asian pharmaceutical company outside Japan to belisted on the New York Stock Exchange (NYSE). It also launched its firstgeneric product, Ranitidine in the US market in the same year.

DRL's first overseasacquisition was that of BMS Laboratories Limitedof the UK, in 2002. In the same year, DRL also acquired Mer id ianHealthcare of the uK. By 200b, it had consolidated ts position further

The us Food and Drug Administration (FDA) is a us gou"ir'r-".,lug.n"y *tri"h itresponsible for issues such as the determination of safety and effect iveness ofdrugs or drug devices for human or animal use (Source: wwwmedterms.com).

Bulk drugs are the chemicals that become the drug's active ingredient.Novo Nordisk AS is a Denmark-based healthcare company specializing in diabeticcare. The company is also a leaderr n other areas such as homeostasis mana€iement,g rowth hormone therapy a nd hormone rep lacement therapy (Source :www.novonordisk.com/about us.aso).

I

Case Fo l io 63 Februarv 2007



The BetapharmAcquisition:DFtL'sriorganicGrowthStrategy n Europe

Exhibitl: DRL'sOverseascquisitions

Company Name Country Year of

Acquisition

BMS Laboratories imited UK 2002

Meridian Healthcare Limited UK 2002Trigenesis USA 2004

Roche'sAPI div is ion Mexico 2005

Sr:u ce w. dr ecl Jy cont

with two morc acquisitions(Refer Exhibit II for DRL's

overseas acquis i t ions and

E xh ib i t I I I f o r DRL ' s

r e v e n u e m x b y r e g i o n .

DRL a l so en te red in to

agreements w i t h severa l

compan ies t o marke t o r

license its products and the

Exhibitl l: DRL's evenue ix byRegionRs.mn)*

2005-06il Others

i l# Russia Olher

countnes t the

formt 'rSovietUnion

Europe

Norlh America

l nd i a

8,272

1 7 6

3,984 2,676

* Asofjuly24,2006U5$1was pproximatelyqual o Rs. 6.935

Adaptedfrom DRL'sAnnual Repon, 2006; tuw.dneddylcont

molecules developedby it. In 2005, it announced the formation of the frrst

Indian integrated drug development company,Perlecan Pharma. With more

consolidation expected n the research-based harmaceutical sector, t was

expected that DRL, with i ts act ive drug discovery programs, mightconcentrate more on research and licensing of molec ules, and forming

alliances with other companiesL2Refer Exhibit IV for DRL's transactions

with foreign companies n research).

As of 2006, DRL operated in f ive segments:Formulat ions, Act ive

Pharmaceutical Ingredients (API) and intermediates, generics, critical care

and biotechnology,and drug discovery (Refer Exhibit V fbr the company's

value pyramid). The company manuf'actured and marketed medicinal

products in over 100 countries. The company had over 950 scientists

working around the world on its drug discovery programs.

ExhibitV: DRL's ransactionsith Foreign ompaniesn Research

Company Name Natureof Transaction Year of Transaction

Rheoscience Codevelopment and commercializationof

Balaql i tazone olecule DRF2593) 2005

Novartrs Out- l icensine f DRF4158 molecule 2001

Novo Nordisk Litens ing l Ragagl i lazarDRt )725' molecu le 1998

Novo Nordisk Licensingof Balaglitazone DRF 2593) ntolecule 1997

-Source: m,.dreddys.com

rr trbr glob.rl generic companies, an alliance with tl-re Indian pharmaceutical eonrpanit's

w.rs all attlactivc value proposition duc to their relativclv lower manulirctuling costs

and availability o{'technical manpower'. The Indian pharmaceutical cornpanies also

had a significant advantage in terrrns of access to the global clinical rescarch market.

6,6s3

m,*,4 , 349

2 , 169

Case Fol io 64 February2007



ExhibitV: DR[,sValuepvrarnid

.Source: RI's ,justainabilttyRepoft20O5,,,

vw.dneddys.cont

BusinessStrategy

Statementandcompany had a

DRL had active social init iativeprograms through various entit iessuch as NAANDI Foundat ion .Dr . Rcddy ' s Founc la t i o r r , nc l r heCente r fo r

Soc ia l In i t i a t i ve &Management. The company also hadwt:ll-establishedCSR initiatives andp tLb l i shed annua l sus t a i nab i l i t yreports ReferExhibir Vl for a br ic fnote on DRL's CSR initiatives). Forthe f inancial year 2005_06endeclMz t r ch 31 , 2006 , DRL repor tedrevenues o f €482 .2 mn and netincome (after taxes) of €30.8 mn.r3(Refer Exhibit VI I for DRL's Income

Exhibit VIII for DRL's Balance Sheet). As of.2006, thetotal employee strength of 7,825.

E*!4it Vt:A BriefNoteon DRt,sCSRnitiativesDRLisengagedinvar iousCSRin i t ia t lves.5omesoc ia l 'n 'm

NAANDI Foundation

cslMIt is a public charitable trust supported by DRL. lr is a learning center that promotes social

;[IJJT?.J},',:;|' ff331*coursesnd ',os*'i in o.iatentrepreneurshipo ndividuars,

----%

Adapted f o n tww.d r cddys. ant

It is a not-for-profit everopmentnstitution hat strives or eradication f poverty.DRL,shairmanK An.iiReddywas the founderor tr,,ii'rnliiu,,uu,upportecry orherrike-mindedorporations'he oundation orks ogetherith gouoinments,orporatesndcivirsocietyomprovehe ives f theunderprivilegedlhe ""rpiJv,*r "r DRLareencouragedo contributeoo^cialnitiativeshroughhe,"i"o*"i"f to , (R..ib*6r;."th). DRLcontributesnamount ha tatcheshe contributionsf the emproyees.his .,-runly., .n"nnerized y the foundationoupport ocialnitiatives".'11lrl:fivingtheO,lu1itV1 or.urron n over2,000governmenrchools, nd providingmid-daymeals o ,*na"rpriuit"!"o rudents,reating ustainableocialntrepreneurshipodels, tc .

Dr. Reddy,sFoundationIt isa social rmof DRL haty:llllh""{"d;;,.,p:'":i:fu:lPY;f':i:ili:f',iffi":,',iinli:'f;ff::'::fil:;ilevelopment'ne of the oundation'initiative,helivelihood AdvancementusinesschoolLABS),s gearedowardsh^e nderprivileg.ip""pl" i".ruding schoor ropouts, nemproyec,

ffi[X?yJ:T?].tiiXiif:r:":l:l:.!"d;''ii;;;'s',nt outh,u,uttrl'unrommunirv

*":ru;rili':"'n'y;trri:ji:",iii:i{{ii:S'3i!:lF:iill"i'::::ff;",mechanicstwoand orr-*r,'Jl'^-fultomer.relations'

afes,lealthcare,

urting'uriirt*ce, autc)businesservicesndbuckoffeili?fffr:l:*r"*"cruring,

housekeeping,rirlng, inancial nc t

betapharm Arzneimittel GmbH

betapharm was founded in 1998 at Augsburg city

11dAldreas Striingmann. The foundeis folmerly

(Hexal)ta and betapharm was also run as a part

in Germany by Thomasowned the Hexal Groupof this group. In March

I' r http://www.hooverslrm

' ' T he H e xa l Group founded inmanufacturers in Germany. Inmarkets generic drrrgs (Sourcc:

1 9 8 6 , i s t h e one o f t h e l a r g e s t gener i c d r u gaddit ion to manufactur ing, i t u l .o d"rr" lnp. ur_,iwwwhexal.de).

Case Fo l ioo 3

reoruaryn6oz



TheBetapharm cquis i t ion:DRL"snorganrc rowthStrategyn Europe

txhibit Vll: DR['s ncomeStatement

In Rs. mn (except for per share items) As of March31,2006

As of March

31,2005As of March

31,2004

Revenue 24,267.05 19,519.37 '20,1{ \

J .52Other Revenue,Total

Total Revenue 24,267.O5 19,519.37 20,103.52

Cost of Rr-.venue,otal 1 2 , 4 1 7 . 4 1 9,385.82 9,337.25

Cross Profil r1,849.63 10,1 3.55 10,766.27

Se l ing/Ceneral/Admin.Expenses, otal 8,028.88 6,774.56 6,542.50

Research& Developmenl 2.152.95 2,803.31 1 ,9 9 16 3

Depreciation/Amortization 419.87 349.99 382.86

InterestExpense lncome) Net Operating

Unusual Expense lncome)

Other Operating Expenses, otal 194.02 494.79 199.21

TotalOperatingExpense 22,825."t9 19/808.47 18,055.03

Operating ncome 1,441.95 -249.11 2,048.49

Interest ncome (Expense), et Non-operating 3 O.57 213.80 362.43

Cain (Loss) n Saleof Assets

Other, Net 1 1 4 . 8 0 182 34 t 2 9 . 1 2

Income Before Tax 1,887.32 107.O3 2,540.O4

IncomeAfter Tax 't,628.93 201.31 2,47O.79

Minority Interest -0.08 9.94 3.36

Equity n Affi l iates

Net Income Before Extra. ltems 1,628.86 211.25 2,474.15

Account ingChange

DrscontinuedOperations

Extraordinaryte m

Net Income 1,628.86 211.25 2,474.15

5ou c<:w.f i nance.gx:gl e.corn

2044, 3i acquired betapharm by investing €110 mn in the company. Bernd

Schuler (Schuler),partner in European Buyout Business of 3i served asthe non-executive director on the board of betapharm. betapharm thrivedunder its new owner as several measures were taken to streng$hen tsposit ion in the market. Under its new owner, the company made itstransition from being a subsidiary of Hexal to a full-fledged pharmaceuticalcompany as it was spun off as a separate organization. As a part of thepost-merger integration plan, 3i worked with the management team torevarnp business development. supply management, financial services,andinventory and logist ics management . Though dependenceon Hexalremained for sourcing its products, the company bolstered its own product

pipel ine by forging partnerships wi th independent drug companies,including drug companies in Asia.

betapharm was well-known in German.y for its sales and distributionnetwork. As the company had no manufacturing facilities and.just marketedproducts, the company had a dedicated team of sales personnei targetingspecific groups of customers, such as primary care phl'sici6ns, pharmacists,

February2007a s e Fo l i o o o



BusinessStrategy

Exhibit lll: DRL's alanceheet

ln Rs. mn (except for per share items) Asof March31,2006

As of March

31, 2005As of March

31,2OO4C.rsh& Equivalents 3 , 7 1 2 . 6 4 10,562.t4 10.363.95Short-tenn Inveslments

14.70 160.69Cash and Shon-term nvestmenrs 3,727.34 10,562.24 10,524.64A( ounls Rer ivable Iradc, Nel 5,048.1 4,355.69 1,932.89Receivables Other

lotal Receivables,Net

Total Inventory

5,348. 5 4,35s.69 t,932.89

6,894.71 4,O37.89 3,670.00Hrepatd xpenses

OtherCurrentAssets, otal 4,419.81 2,088.44 1 9 1 2 . 1 7Total CurrentAssels 20,o90.02 21,044.26 20,o39.7OProperty/Plant/Equipment,otal Cross 14,064.00 1154162 11423.51t rOO0wl l l , Ne t 16,634.51

Intangibles, et 17,034.56 2,508.45 2,57 .O1Long{erm Investments 1,222-86 766.96 1 , 0 1 .5 0vurer L0ng-Iermnssets, otal 4,699.79 254.56 283.71TotafAssets | 58.768.07

_+ *_ 31,656.06 30,941.71Accounrs rayabte

| 3,790.g9 1,875.98 1,838.50Accrued Expenses 3,083.12 2,490.12 2,468.30Notes Payable./Shorr-termDebt 9 , 2 .46 4,108.57 f , 917 87LUrrenlPor1. l I I Debucapital eares 92s.76 5.92 5.92Other Current iabi l i t ies,otal

1,812.62 613.08 547.71TotalCurrentLiabilities 18,744.86 9,093.67 8,778.29Long-termDebt 20,9t7.1 2 2 . 1 8 23.66CapitalLeaseObligations

Total Long-termDetrt 20,937.13 22.18 23.66Total Debt 30,995.35 4,136.68 3,947.45Deferred ncome Tax 6,346.17 536.26 613.46Minority lnterest

Other Liabilities,Total 468.17 184 . 01 190.52Total Liabilities 46,496,34 9,836.13 9,605,94Redeemable Preferred Stock, Total

PreferredStock- Non+edeemable, Net

Common Stock, Total 378.59 377.81 1 7 7 . 8 1Adort tonatPard-tn apital 10,724.91 10,562.70 10,533.29Retained arningsAccumulated eficit) 11 20179 10,809.8.:l 10,356.62lreasury Stock- Common

OtherEquity, otal -33 .56 69.58 68.05Total Equity 22t27-1.73 21,819.94 21,335.77TotalLiabilities Shareholders,quity 68,768.O7 31/656.06 30,941.71SharesOuts - Common

Stockpriman,

lssueTotalCommonSharesOutstanding 7tr.69 76.54 76.54

).)ource:w.iiltance. gcxtgle.com

Case F o l i oFebruary 2007



TheBetapharmAcquisit ion:DBL's norgani; GrowthStrategy n Europe

etc. The personal sales efforts were also supported by a public relations

program.

betapharm distinguished its product portfolio through its "beta" brand

ancl pr.imarily concentrated on high value segrrrents.Thc product portfolio

of betapharm enabled it to have a strong presence in categories such ascardiovascular,central nervous system, gastro intestinal, etc., which came

under chronic care segments(Refer trxhibit IX for a breakup o{'betapharm's

product portfolio). The prescriptions in these segments were for a long

period o1'time and therefore offered high volumes and good profit margins.

In total, the company had more than 140 different products and the

marketing strategy was more focused on the products that would give

high returns as well as newly introduced products. The company regularly

introduced new products into the market and saw these as one of the keys

to increasing i ts market share, and dr iving i ts revenue growth. The

company was also well-preparedto introduce generic substitutes to brands

whose salesexceeded€10 mn each and whose patents were to expire in the

years leading up to 2010.

As of 2006, betapharm was

t h e f o u r t h - l a r g e s t g e n e t i c

p h a r m a c e u t i c a l s o m p a n y i n

Germany, with annual sales of

€186 mn in 2005 (Refer Exhibit

X for the top four generic drugs

companies in Germany). It was

also the fastest growing generic

company in Germany.growing

at approximately 26 ' / ( Perannum. The company had a

ExhibitX:TopFourGenericDrugs

CompaniesnGermany

Rank Company

I

2

l

4

Hexal ,AC

RatiopharmCmbH

StadaArzneimittel AC

betapharm Arzneimittel CmbH

Source:C Chitti Pan u/u,"Reddy's Faces BetapharmBlip,"

www.d naind a.com,()aober 9, 2006

out of which around 250 employees

(Refer Exhibit XI for key figures forworkforce of about 350 employees,

were dedicated to the sales function

betapharm).

The company also had well-defined CSR initiatives. The non-profit

"beta Institut" was established n 1999 o undertake sociomedical esearch

projects sponsoredby betapharm. In addition to this, beta Institut had

its own research funds to undertake projects related to patient-oriented

ExhibitX:Betapharm'sroductPortfolio

2' lo

1O.7ol o

f C.rrdiovascularystem

'iiffrfii1Central neryous s,vstenr

Castroint('stinal racl and metaLlolsm

Anti- infectives,ystemc

Muscu o-:celetr.rlsysten.)

:iri::Others

Sburce;wvbe.tap harn .cont hn ed c nes.htm

C a se F o l i o February2007



BusinessStrategy

case management , d isease

management , hea l th sys tem

management, and psychosocial

health.1r'

DRL's Acquisit ion ofBetapharm

A Gateway to the Second-Largest Generic Market

When 3i put betapharmup forsale n 2005. t at t racted heinterest of several major pharmaceutical companies around the world,including the wor ld 's biggest gener ic drugs manufacturer, TevaPharmaceutical Industries Limited.r'i Several reasons were attributed for

this interest. rhe most important factorswere betapharm's strong marketinginfrastructure and instant access o the German generic market, whichmany experts believed was very difficult to develop through organic growth.ri

The good value offered bv betapharm played a major part in attractingpotent ia l buyers. Schuler said on the at t ract iveness of betapharm topotential buyers, "We have substantially built value by complementingmany of business functions such as procurement, finance, and controllingand business development.All that has led to an independent companywith a unique positioning representing a clear gateway to German market,which is the second-largestgenerics market in the world. This has really

sparked a lot of trade interest from the players all around the world,particularly from India."', (Refer Exhibit XII for a note on the genericpharmaceut i ca l sec to r in Europe and i t s a t t rac t i veness to Ind ianpharmaceutical companies).

There were several reasons for the interest evinced by the Indianpharmaceut ical companies such as DRL and Ranbaxy, in aL-quir ingbetapharm. one of the principal reasonswas the intense competit ion inthe US generic market that had impacted their profit margins. It wasestimated that the generic companies had previously had margins as highas 25% on the generic products sold in the US, but this had shrunk toabott \c/c as a result of intense competit ion. In addition, an increasingnumber of branded manulacturers were coming out with their own genelicversions once the patents on their drugs expired, making it difficult forthe generic companies.

www.betapharm.com/corporate-sgcial- responsibi l i ty/research-and-developrnent, lbeta- insti tu t. html

Teva Pharmaceutical Industr ies Ltd. is an Israel-based company involved in thed e v e l o p m e n t , p r o d u c t i o n , a n d m a r k e t i n g o f g e n e r i c a s w e l l a s b r a n d e dpharmaceutical drugs. In 2005, the cornperny eported annual sales of US$5.8 bnand had a workforce of'25,000 employees (Source: www.tevapharm.com).

In organic gr-owth, a company gtows by increasing it s output and sales in a gradualmanner. In inorganic growth, a company grows rapidly through mergers andacqursrtrons.

rE "Exce.ptsfrom cNBC - TVlB's Exclusive Interview with Bernd Schuler. partner

of Si Germany, www.india-now.org, February 17,2006.

Exhibit l: KeyFiguresor Betapharm

Founded rr he year r993

Revenue2005) €186 mn

Average evenue rowth(20O0-05) 26<'lo pel

a n n u m

Market share n Cermany

Position n the Cerman genericmarkel

Number of employees(2005)

Compiled frorn variou-{s&rces

3.5 to 4ol,(approx.)

, l h

3 ? O

Case Fol io 69 February 2007



TheBetapharmAcquisit ion:DFiL'snorganicGrowthStrategy n Europe

Exhibit l : A Noteon heGeneric harmaceuticalsector n ruiop" *a it,Attractiveness o Indian PharmaceuticalCompanies

Du e to rising healthcare osts n Europe,manycountrieswere looking toward genericdrr,rgs sanalternative to costly branded products. lt was reporterd ha t the."Er,rropeo"ni"n.y io , tr.l"Evaluationof Medicinal (EMEA)products, had revised he rulesun,t pro."Jrr"s c?nce'rning negenericdrLrgsmarket n 2006 so as o make t more attractive or genenc companies.By 201 1 patents.fordrugs worth €1 .B

.bn were expected to expire in major generic marketsac'ross ur,rpe uchas France, ermany, th e UK, and ltaly. (ReferTablen for ihe estimated aluesof patents -'xpiringro m 2006 to 20 i l). In Europe,he market or genericswas gro*injJaster than

l l rn lu l b randed drugs , t h u s m a k i n g th e a cq u i s i t i o n o f b e ta p h a r m " n r o r e " a t t r a c t i ve

(ReferTable B for genericdrugsvs . brandeddrugs n different Europeanmarkets).

According o Niedermaier, he peculiarityof the genericcirugmanufacturingsituation n Europewas giving sc<-rpeor acquisitions. t was said ha t the manufactureof generiidrugs had cleclined

TableA: Valueof patents

ExpiringnEuropefrom2006 o 2011*

2006

2007

2008

2009

2 0 1 0

* Estimatedvalues

Source: DR|sADay,"

Businessworld,Ma ch 20, 2006

TableB:GenericDrugs s.BrandedDrugs:GroMh n DifferentEuropean arkets2005)

Markel CenericDrugs

Growth (in %)

BrandedDrugs

Growth (in o/")

U K

France

Italy

Spain

Cermany

3 B

3 5

21

1 3

B

6

4

1 1

5

S u ce "D R!'s D,Dat; "

Businessrvorld, ia ch 20, 2006

in Europedue to policies ha t made the developmentof genericdrugs illegal ev-en o1- esearchpurposesduring th e patent period. Therefore, he companieswere firced-to concluct researchoutsideEurope.The manufacturing nd developmentofihe genericdrugswa s outsourceci o hatth e Europeancompanies could launch them on the first cl iy of pateni expiry. As u i"ru,,, ,nuEuropean ompaniesshifted oward concentrating n the maiketingaspects nd outsourcing heproduction' This enabled companies ike DRL, which had strong manuticturing capabilitie-"s,olook at acquiring European ompanies o enter he new marketsand complemeni th e advantagestheyenjoyed.

According to some analysts,more mergersand acquisitionswere expecterl n th e near future inthe pharmaceuticalmarketsof Europeand the US. The US generic market wa s consicrered sexpensive or Indian companies n terms of acquisitions ReferTable C for th e acquisitionsbyIndian.pharmaceutical ompanies). n Europe,pharmaceuticar ompanies n westein Lrropuuncountries

such as spain and ltaly could be of interest o the Indian companies, as they wereconsidered ess isky and more reasor-rablyr iced. However, the companies' in the eastenrEuropean countries were considered to be lessattractive due to their small populatron anoeronomy size.

Table : Acquisitionsby IndianPharmaceuticalCompanies(fune2003 o lune2006)

lndian

Company

Name

P!,-

Ranbaxy

AcquiredCompanyName

AcquiredCompanyCountry

AcquisitionValue(in USgmn)

Month/Year

of Acquisition

betapharnl Cermany 570 February 006Aventrs France 84 .lanuary004Veratide

(B and)

Cermany I June 005

Terapia Romania 324 June 006

70

1 . 7

1 . 8

2 . O

1 . 7

3 . 1

Cas" rot ;o



BusinessStrategy

Therefore, the Indian companies were compelled to look out lbr newmarkets and new avenues for growth. In such a scenario, Europe, especiallyGermany, being the second-largest generic market afier the liS, oft".udsignificant potential for growth. Alexander Groschke, an Analyst saicl, ,,This

is the right market to accessfbr an Indian cornpany The market is saturatedwith branded generics.You can build from scratch, but that takes lbrever.,,1e

The global ambitions of the Indian pharmaceutical companies werealso said to have played a major part in the extensive tiaaing for

betapharm. Dominic Hollamby (Hollambay), Global Head (pharma andhealthcare practice) at Rothschild,ro said, ,,On

the suppiy side, f.ewcompanies are being divested in the US and Europe. We have worked withseveral large Indian companies and seen their strategies over the last fewyears. Many of them have promoters with a personal stake, who want thebusiness to grow. They are familiar with regulatory markets and conlidentabout acquisitions. Further, Indian capital market is very robust, so capitalis easily available and relatively cheap. Hence, Indian companres areaggressive bidders. In fact, in some recent deals, Indian companies havebeen among the top three bidder.s.,'r1

DRL and Ranbaxy Cornpete for betapharm

,Amongthe_various competing firms from India, the race to acqurre

betapharm had ultimately narrowed down to Ranbary and DRL. lndustryanalysts had predicted that Ranbaxy was the favorite to seal the deal as itwas already present in the German market through the acquisition ofBayer AG's,, generic business in Germany in 2000, and the takeover ofr ' "Dr

Reddy's to tnL" OFebruarv 17. 2006.

Rothschild is a leading international investment bank with offices n more than 40locations worldwide (Source: www.rothschild.com/home/)."Indian

Companies are AggressiveBiclders,,'Basizess Todat, May 01,2006.Bayer AG, heaquartered in Leverkusen, North Rhine_Westphalia,Germany, rs awell-known German chemical and pharmaceutical "o^p"rry fo.rr_rd"an iSOA.

Case Folio 7'l February 007



The BetapharmAcquisit ion:DRL's norganicGrowthStrategy n Europe

betapharm was expected to strengthen its presence n that market. In

2005, Ranbaxy reported sales of US$30 mn in the German generics market.

Moreover, DRL was a late entrant in the bidding process.

Some reports said thal Ranbaxy was very keerr Lo acquire betapharm

and had bid higher than DRL (an estimated €500 mn). There were also

reports that Ranbaxy CEO, Malvinder Singh (Singh), had admitted that

he had bid for betapharm"aggressively" as this acquisition would have

enabled Ranbaxy to gain a strong position in the German generic market.

Moreovcr, Ranbaxy had stated that it was open to acquisitions in order to

achieve its goal of becoming a US$2 bn company by 2008.

DRL Emerges as the Winner

In the end, DRL won the bid for the acquisition of betapharm even though

it was not the highest bidder. In addit ion to the business synergies orboth the companies, heir deep commitment to CSR and DRL's corporate

culture were also said to have been maior factors that tilted the decision

in DRL's {avor.

Niedermaier said DRL and betapharm had a lot in common. He said,"We're both successfullygrowing drug companies,we work in generics,

and both have a working philosophy with :r deep social aspect.We've made

a name fo r ou r se lves in Germany th rough our soc ia l co rpo ra te

responsibilit y, which means that we have intertwined our commercial duty

of producing and distributing pharmaceuticals with our self'-imposed askof helping to improve the care of patient,s here in Germany-and we do

that as a company as well, through our beta institut, a research institute

f 'ounded and funded by us for issues in socia l medic ine and heal th

management. That's from our side. Dr. Reddy's are known in India for

thei r socia l work and through thei r corporate c i t izenship." : ; ;Schuler

further explained,"We think Dr Reddy's is important from both the

business perspective and cultural perspective. It has got a great product

p ipel ine, low-cost , compet i t ive and high qual i ty product ion base. The

company ' s cu l t u re i s based on the t t ' us t o f peop le and hands-on

entrepreneurship.2a

It was reported that DRL had gone into the bidding process after

extensive preparation so as to maximize its chances of clinching the deal.

A 2O-member eam was constituted under the leadership of'VS Vasudevan

(Vasudevan),CFO o1'DRL. The team adopted a methodology for acquisition

which was different from that followed by most Indian firms. Vasudevan

said, "We put up a structured way for completing the process instead of

being tentative and indulgng in endlessnegotiations, somethingmost Indian

firms have a reputation for, especiallywhen striking the large deals."2;

Jr "I3etaph:Lrm in 'Good Mood' af tcr Dr. Reddy's' Takeover '," www2.http: i i lvww2.dw-rvor ld.der. ebruar l ' 16, 2006.

j "FJxcerptsi iom CNBC - TV18's Exclusivc Interview lvith Bernd Schuler, Pal t t ler

of i l i Germany," www.india-now.org, February' 17, 2006.

r- ' "Prescl ip t ion fbl Success," India Todo'r , Apl i l 03, 2006.

Case Folio February 2007



BusinessStrategy

In total' DRL paiclcnlgT.1

for the acquisition out of which tne companvas reported to have paid €g0 mn from its inte.nal .u.h ."ro.uus and theemaining through a loan from citibank.!6 .rheloan from the bank was toe split in two halves, with cach half being accountable n the baranceheets of DRL and betapharm.^The ;;;"", had prior approval

from itshareholders to raise f 'unds from the iarkets fut thi ' "u-our , . 'u.eportedlv not interested n this option. G v prasad (prasad),Vice_chairmanand cEo of DRL, d.escribecl etupha.'. 's acquisition as an ,,accretive,,r;acquisition hat would not impact DRL'; trntto- rine or burden ts earnrngs.e said, "The

acquisition is "urni.rg.*,.";etive. The profit generated f'ometapharm will more tha. pay ro. ir 'ru i"turest costso'acquisitiop.,,:s

However' some industry observers felt that the €4g0 mn paid for thecquis i t ion was too high when compared to the annual revenues o1.etapharm. Reacting. o these .ur."".rr.i p.asad said, ,,Itis not sales alonehat needs to be taken into consideration. you should roox

ut profits,rolitabilitv and earnings before i'teresf depreciatio' and tax (EBIDTA).If'you look at grobal benchmarks r" ."q"i.rti"ns, the multiples are about2 times of EBIDTA. our acquiritio,-roiuntapharm is we, within thatange' of course' it is delinitely not a low-cost acquisition like our Rochecquisition.2r) ut the m.rket is difT'e.e.t this time. It is now brandedusinessand we have the .urtul,_rof,;irt-ui._,,.g1^,' here.,!j jo3 i t ook f i nanc ia l , ud r 1 t : u , i . " th : : r cqu is i t i on f rom Bear S tea l nsnternationar Limited'ir_andsal.oppenl-r.,;,rri,,and regaladvice from oliffordhance LLP'r'rDRL utilized *' " .".,ri"". n? notr."i.ilcr for financiai aclvicehile the legal advice was provided by Freshfields Bruckhaus Derinser.,il

Benefits of the Acquisition

"T:*::*:l:tll:_ool,from the acquisitionwasgertingan jmmediatepresencen the German enericma.ketancthe;;;";,i#rdii- ;il:

:":.:::.: :-ranyoundr:d' r812l;;-;;;;',:";::""in:,';'?fi,i;.ilj,ll".'

iJ.H:::hlsii::Til: ;iil,:i,T,J:il.:::,::::lh" cquiringompanv,sarninger Share tEpS) (Source h;;p;;;;;p;;;.i.,;::;l"

;.lit":TT?:;;ilo"'*'s StillGa're i'rAcq'isitions:Eo,"wwwbronnet.com,

,

on November g.2005. , DRL announced that i t .had-signed a cref ini t iveagrecment torcquir.e Roche,s Ap I busincss "t R;"lr'N;;;ico facility.'

;*:J}|T?l,ro?i"*Ur's sti l l carne c,rAcquisitions:Eo,,,www.blonnet.com.

't rBear Stearns International Limited is a wholl-v_owned subsidiary of T,he Bear Stealnsompanies Inc., one c,f t r . re a.g.r r - "ui ' *" ] i l r " ,r*n f inancial serviccs f i rms ' thev . r ld l t o f fers sr ' : rv ices. inglobal i " ; . - r ; ; ; ; , secur r t res ,and br..ke.age (s.urcc:r , v w . e n . w i k i p c d i a . o r g i w i k i / B e a r

S t e a r n s ) . ,'s Sa l opperrreim is a Gerr.nan-bascd privato b.nk involvecl in asset rna'.gcrnent an dnvestment banking.

i : : i :9ldr*: :" ; ; ; ; . .aged €1123 n of assJts and had work l i r rce ol l l , l60 emplovees (Sour .ce:wwwoppenheim.c ic ) .ricliffbrd chance LL p is.a global la w firm based in L.ndon with 2g offices world*iden Asia,

Europe, and thc Amer ic.s G;;; ; ; ; ;** .c l i f f . rdcharco.com).' r Freshl ields Bruckh: rus .Der inger is one of the reading law f i rms in t r - rewor ld w i thver 28 ol f ices woi ldwide rS^, , r " , - . ." ,r r .1"" , ' i t i " lar ."u,r , , , .

Case Folio73

February 2007



TheBetapharmAcquisition:DRL's norganicGrowthStrategy n Europe

presence to expand in the European market' Analysts said that DRL

acqu i rec l th i spresencew i tho t r tany rna jo r l i ab il i t i e saSbe tapha rmwas

considerecla proiitable company that was consistently pp'owingat a healthv

rate and had a we[-piu.r."a frtu." p'oducts i'troduction program Satish

Reddy,MD and COO ;i DRL, explained' "We looked at its turnover and

Ot"fii"t ifi,t Betapharm has 3'5% market share in Germany; as manv as

370 enLployees, f which there is a strong sales field' fbrce of 200; and 145

brands, with a clea' launch calendaruntil 2009 If'we had to do all this

from scratch, the cosl wourd be prohibitively high... The acquisition was

a market entry strategy for us'"35

Nieder:maiersaid that the betapharm acquisitiorl was-in-line'with DRL's

ambitious global pians' He said'"Our bt'tsinesswas ideally designed or

thc German market with its peculiarities' whether it is the-healthcare

.r . , " rn , product distr ibut ion'or comlnunication design' This is oui '

s t reng th . r r ' " .nu . , ' ' -o i th i scombjna t ion is tha tDr ' .Reddy ,sd idno th ave

a presence in (iermany " ' Despite its population shrinking' the German

h e a l t h c a r e m a r k e t l e m a i n s a n i m p o l t a n t o n e . H e n c e , t h i s c o m b i n a t i o

{its perfectly, life a jigsatt puzzle'There was a gap in Dr' Reddv's global

;;..it, and we perfectly fi t into that picture"'r"

DRLcouldalsoincleasei tsproductportfo l ioandsel laVarietyot.genert

drugs in addition to ,ts n*i'tit'g products' betapharm's product portfolio

was rruch more diverse than thal o{ DRL' which had only 105 products

Though there were some common products in a few categories' it was felt ;

that it would .tot afi"ct Jtft"t p*ty' DRL also intended to usebetapharm's ;

regulatoryntiastructut" o opu'la its productlll" lni::*l:"^t",T:J"#;

lr-rut i would not affect either party. DRL also intencted o useDelalrrrarr'D !

regulatory intrastructure to expand its product line through""t.,T:"t"f":i

Niedermaier explained,"We have a vast portfoiio of generic druSs' We

I

have 150 products with d i f ferent act ive pharma ingredients and

combinations. By addinf ".r"*," our portfolio, we can cover major ailments

Iike cardiovascular Jilo'a"" or central '-t"tt 'ottt system Utt"t1:]:-1:

Europe, we have a convergenceof administrat ive act iv i t ies ' even tn

pharmaceuticals and fn"i. -"urt "ting authorization. Dr. Reddy's can utilize I

this for expanding into Europe' We can t"" nt Reddy's capabilitl' to makeI

the products in the right quaiity and amount u"d ut the right time' Our I

experience in t"g-r.t"ti'-t; p'od'lltt' gettingmarketing authorization' and

Imarketing products in specific European """itott-"its and utilizins the

I

available technologies ut bu't ut pot'ibl" *iit utto be useful'"'rtI

The ageing European population coupled with the t"tt"ttt:t- l : l ]] l l

healthcare costs preserttea Onl with an attractive European generlcI

market. The average life span of individuals in Europe was verV hish

thanks to the advances n the health sciences.This r,l,as specially,.'"..jI

a country like Germany, which had one of the rvorld's most advance

healthcare systemsthat resulted in a large and mature healthcare -"lftt;I

It was reported that in 2004' the sales volume of the Pharmaceutica

industry in Germany *t ' gZS'Z b. ' ' rs Wi th an ageing lolulat ion an

r "Our Risk l,s

'r; ..TlrisCombinationFits Perfectly,,, t,tslne.sstl.ot. lr l ,Iay 01, 2006.

t " 'fhis CombinationFits Perfectly" 'Brslrtessu'orld' i tay 0f ' 2006

n 'Ihe Pharmaceuticalndustry in German1""http:i irvx'wv{ade' August zuuD

A-- --F"-b".,*t2o0

Ca s e Fo l io



BusinessStrategy

increased healthcare costs, analysts expected a lurther increase in sales ofgeneric drugs.

It was believed that the g"rowingGerman gJeneric rugs market coupleciwith its huge size ofl'eredan excellent opportunity fbr DRL to make prolits

over a long period of time. That bctapharm did not have any manufhcturingplant was also considered as a benefit as it would ncgate the possibilitv ofretrenchments and allow seamless ntcgration with DRL. At the time oi'the acquisit ion, betapharm was outsourcing thc entire production ancl twas expectedthat the lorv-costmanufa,:turing advantage of'DRL could beutiiized by betapharm to source drugs and market them in Germany areconomical prices.

The st rong market ing inf rast ructure of betapharm of ferec l wel l -es tab l i shed d i s t r i bu t i on channe ls and re la t i onsh ips w i t h doc to rs .pharmacists, etc. Analysts considered hat jt was difficult to build thesechannels and re lat ionships in Germany and would have been almostimpossible fcrr an outsider like DRL. Therefore, the acquisition enableclDRL to acquire a tailor-made rnarketing infrastructu'e to market its genericdrugs by leveraging the brand equity of betapharm. Further, l)RL's owngenerics could be introduced and sold in the German market utilizine themarketing infrastructure of br:tapharn"r.

Commenting on the distribution adr.'antage n an interview, Hollambysaid, " Indian

companieshave a large pipel ine oi products and want apresence n the local markets. So, they are looking at companieswith a

strong distribution capability in thcir respectivemarkets. Local companres,on the other hand, need to be effectively vertically integrated with a supplyof competitively priced products. Hence, oining with the Indian companiesmakes sense."rJe

Another major gain fbr DRL was that with this acquisition, it couldreduce its dependenceon the US generic market. Though the US was amajor market for DRL, as it contributed 16% of the DRL's revenues, hecompany was gradually losing markct share due to increased competitionand some lit igation problems.

The acquisition was expected to give DRL a strategic presence in theEuropean generic market. In fact, DRL justified the premium price paicl o3i because of the st rategic and long- term value expected f rom thisacquisition. Prasad said, "we

are very excited with our strategic investmentin betapharm. betapharm with its diff 'ercntiated businessmodcl has allthe key elements for achieving successn a fast growing genericsmarket inGermany. we strongly believe that this strategic investment will generatesubstantial opportunities for long-term value creation for both companies."r,r

He further said, "Inthe long-term, betapharm would be a vehicle for

launching Dr Reddy's products in the German market in particular, and

' r ' " IndianCompanies are Aggrcssive Ridders , " Brrsinessroor. /d,Mal,

' ' "Dr.Reddy 's Signs Def ini t ive Agrecment with Bi for the Strategic

betapharm," www.drreddvs.com, Februar l , 16, 2006.

0 1 , 2 0 0 6 .

Acquisi t ionof

Case Fo l io February2007



TheBetapharmAcquisition:DRL' s norganicGrowthStrategy n Europe

the European market in general . The R&D capabi l i t ies and low-cost

manufacturing of'Dr. Reddy's,combined with a leading market presence

and a powerful sales organization in Germany, will drive the growth of'

the company in Germany initiallv and in Europe consequently'"t'

fhe acquisition also put DRL in a position to look fbr more acquisitions

of'smaller pharmaceutical firms. vasudevan, who had relinquished his

position as cFo of'DRL and was looking after the European operations of

the conLpany,had said that the company planned to acquire small firms

based in Italy and France in 2006 and that the company hoped to set up

base in at least two new European countries every year'

The acquisition was also said to be a step toward realizing its ambition

ol'becoming a US$1 bn companyby 2008. In an internal communication

sent to the employeesafteracquiring betapharm, DRL said that one of the

reasons fbr the acquisition was to reach the uS$1 bn revenue goal by

2008. The acquis i t ion also increased he revenues of 'DRL by around

us$200 mn, which the company consideredas one of the immediate gains

{rom the exercise.

A Risky Acquisition?

some analysts opined that DRL had taken a big gamble by acquiring

betaphzrrm.The acquisition had resulted in the depletion of DRL's cash

reserves ancl made the company incur a large debt. This could be risky,especially n the context of DRL's declining sales n the US generic market

and the litigation costs t was incurring in the us. Further, DRL's domestic

markel jn India was viewedas not being argeenough o generate nough

profits that would compensate for the decline in revenues from the US

generic market and the litigation costs' Therefore, any problem in the

German market could have a considerable mpact on DRL' s bottom line.

on May I,2006, the Economic optimisation of Pharmaceutical care

Act (AWVG) took effect in Gerntany. This act changed the pricing and

r.eimbursement system in Germany. Though this act increased the scopeof using generic drugs, there was also pressure on generic drug companies

to recluce hei r pr ices. An analyst at a ieading secur i t ies colnpany

commented,"Price cuts on generics n Germany have ranged between

20-30c/(at a time when the overall European pharma market itself has

remained stagnant.""

In July 2006,when DRL reported its first quarter earnings. the company

said that acquisitions had contributed us$71 mn to its turnover. However,

it also announced that betapharm had a tough quarter due to the changed

reguiatory environment, whichresulted in a decline in revenues. Prasad

.r,id,,,b"tupharm had a difficult time in the first quarter, primarily on

@cqu is i t i ons ; ( ]Eo ' ' 'www.b lonne t .com.Febr r ra ry1? .2006.

! c t)hitti Pantulu,"Reddy's Faces Betaphann Blip," rvu'w.dnaindia.com. october 9.

2 0 0 6 .

Case Folio 76 February 200



BusinessStrategy

account of the government br inging t rown the reference pr ic ing.a, r lnaddition. we had some one-timu .o.t., such as writing down the value ofthe stocks in the market place. These two factors have contributecr to addpressure on betapharm's working for the first qrrarter-In the "o-,.rg ,rirr.months, we expect to recover from this. Howeoer,p.i"i";h;,been hi t andthis situation wil l continue for thr: balanceport ion of the year.,,r+

some anal.ystsa-lsosaid that large iesearch-based pharmaceuticalcompanres'such as Novart is,+5were prarning to tap trr" 'gn""ri. marketopportunitv. with large manufacturing, fi:rancial, .nd ma.k""ting resourcesat their disposal' these companieswere airning to capture ;;;;", share oi .the generic market by rereasing their o*n gene.i" proclucts. In such irscenar io, i t was bel ieved that i t woulc l be-very ai r r i " r r i -?o. DRL tosignificantlv increase its market share.

{2

Debapratim purhayast ha,

The Ica Ce t e fo Manage , " r, f;:::i "t;:t;;i; ;

Soorya Tejomoortula,

The ct'aiCent..r.or Manage*rrr?;i::lrf ;t;;;f,'

Rajiu Fernand.o,

TheIca Ce e fo .vr nag .r r, o[iil,!':, ryr"r;f

;i

References

1. Dottg Bandow, Sauing pfennige, Costing Liues, uwu.cato.org,March 17, 2005.

2. DRL's Sustqinctbility Report 2005, www.drred,d.ys.com3. Betapharm in

, ' ,GoodMood.' , after Dr. Reddy,s, Taheouer,utuw2.dw-world.de, February 16,2d06.

4. Dn Reddy's Buys Betctphe.rm, www.telegrapJt.indio.cotn,Febrtta,y16, 2006.

5 Dn Reddy's s,uT" Definitiue Agreement with Bi for the strategicAcquisition of betapharm, nlo w.drarecrcry.com, , rorir'"rr', 6, 2 006.6. 3i Sells Betapharm to India-based. Dn Reddy,s Labs, wwtu.Ji.cont,Febrttarl, 16, 2006.

7' 3i sells German compdny Betapharm Arzneimitter in €4g0 mnTransaction, wuw.altassets.net, 'February j6, 2006.

under referencepricing,d."g.;. g.r.,l"'-,1 y phr."rA"s-.i;q,,""r1"r-... G""".ri",

;i$"i.:,-":"lj:."..*,:,-.."listed rogether."a'."r",."""" plices ale so t basedon thei f f e renc e be t w een t h , , , c hc apes t ' " " a ' " r t ^ " " pc ns i v e d ru6 ; s . I nnov a t i v c andherapeutically important d_rugsaro. theoreticallv, excrnpt (Source: Do,,,g Bor,do*lSav ing pfennige, Cost ing Livos,, , . r*rr; ; ; ; ; . ; ; . ; , ' 'Mo..h 17, 200s) .

;ilC,'|:t;rf;lu

bn in Revenues this Year: Dr Reddv's," www.news.mone.ycont.or.com,

Novartis InternationarAG, headqua.tered rt Basel,Switzerrand, s a multination.lharmaceuticalcomplnl ' created n 1996 r.um irr" -" .*"" "r-aig;]cl 'w ."aandoz Laboratories.o"l.-"1.0]l*1i ,

i11.S,iro'1i'euantum, Novartis has a globalarket sharc o1-4.87. asecl n sales1br he l2 mor_rthsndingJune 2005.

Case Fol io77

February 2007



The BetapharmAcquisit ion:DRL's norganicGrowthStrategy n Europe

1 1

8. CR Sukuntar, D^ Reddy's Stii l Game for Acquisit ions: CEO,wuw.blonnet.cctnt, ebruary iZ, 2006.

9. Dn Reddy's Buys German Co Betapharm for Rs. 2,250 cr _Biggest Ouerseas Acquis i t ion by an Indian pharma Co,wwut.blonnet.com, ebnrary iZ, 2006.

10. Dn Reddy's still Game for Acquisitions: cEo, uwtu.blonnet.corn.

1 2

1 r ) .

1.1.1 5 .

t o .

Feb,.uary 17, 2006.

Dr. Reddy's to Tahe ouer Betapharm, uwu.sntartk/ds.thestarrclard..c.ont.hk,,cbruary 17, 2006.

Excerpts from CNBC - TY18's Exc:Iusiue Interuiew ui,th BerndSchulen Pq,rtner of 3i Gennany, tuwtt'.inclia-notr,.nrg,ebnnnt, 17, 2006.

Our Rish is Noro Being Managed, r)tl)LL,redil/:com,March j0, 2006.

DRL's D-Dqy, Businessworld, March 20, 2006.Prescription for Success, India Today, April 03, 2006.

Indian companies are Aggressiue Bidders, Business 'fodar,:Mn'

01, 2006.

17. This Combination Fits Perfectly, Businessworld,,Mctt, 01. 200(;.

18. sopna Dogra, Destinatiott Europe, u)wu.expresspharntaonli e.utnt,Jult, 1-15.2006.

7!). Kh.zent Merr:h.antand Andreu ,Iat:h, Redd.y's sees BetapharmDeo.l as Panacea, wwu.fi.n.o .t:ialexpress-bcl.cot,, ul.y 0g, 2006.

20. To cross $1 bn in Reuenues this year: Dr Redd.y's, u)u)rL,.neu)r tort.av<:on.trol.com,uLv 28. 2006.

21. L-chitti Pantulu, Reddy's Faces Betaphantn BIip, *-*-u.dnoinc!io.con,Or:lobar9. 20A6.

22. DRL's Annual Report, 2O06, u,utu:.drreclcJys.cont.

23. 3i Brohers betapharmq. Deal uith Dr Red.dy's, wutu.3i.crnt, 2006.

21. www.betapha nt..r:onr

25. wwLt.cl ffordchan.ce.cont

26. utw Lu.l.r'reddy . :o t

2 7. tuw u. entea.eu. n htrrts abouttts emeaoue rrt ew. t rn

28. uuw.en.w i,kipedru,.org

29. u;uu:.f inance.google.cont

30. utww.f nnncial-dictionart,.thefi-eed,iclct Lury.cont

i)1 wtuu:.freshfield,s.cont

32. wwu.hoouers.c lm

i)3. tuuttt.oppeilt.cirn.d3 1. u,w u;. t,oc t.ltadt -co rt.

Reference# l4M-2007 02-0702

drl and beta pharma whole deal

Documents