Question

CASE ONE:

DR. REDDY’S LABORATORIES LTD - CONQUERING THE WORLD WITH AFFORDABLE MEDICINE FOR THE MASSES

Dr. Reddy’s Laboratories Ltd. is a pharmaceutical company based in Hyderabad, Andhra Pradesh, India. The company was founded by Anji Reddy. Dr. Reddy’s manufactures and markets a wide range of pharmaceuticals in India and overseas. The company’s portfolio includes over 190 medications, 60 APIs (active pharmaceutical ingredients) for drug manufacture, diagnostic kits and critical care and biotechnology products.

Dr. Reddy’s is not just a generic company, but an API company with a much broader activity. It is the only Indian company to have significant R&D activities being undertaken overseas. Dr. Reddy’s has enormous capabilities in chemistry, formulation development, manufacturing, environmental management and research. With this depth of capabilities as well as a history of continuous progress, a workforce of more than 12,000 employees, and a global orientation, Dr. Reddy’s represents a company with great potential to become a brand in Western (US and European) markets.

1984–1990: Taking the first steps. In 1984, Dr. Reddy’s originally launched the production of active pharmaceutical ingredients. In 1986, Reddy’s started operations on branded formulations. Within a year, Reddy’s had launched Norilet, the company’s first recognized brand in India. Soon, Dr. Reddy’s obtained another success with Omez, and Reddy’s became the first Indian company to export the active ingredients for pharmaceuticals to Europe. Reddy’s started to transform itself from a supplier of pharmaceutical ingredients to other manufacturers into a manufacturer of pharmaceutical products in 1987.

1991–1999: Expanding and Innovating. The company’s first international move in 1992 took it to Russia, where Dr. Reddy’s formed a joint venture with Biomed. Dr. Reddy’s Research Foundation was established to carry out research in the area of new drug discovery. The focus has since changed to innovative R&D, hiring new scientists, especially Indian students studying abroad in doctoral and post-doctoral courses. In 1994, Reddy’s started targeting the US generic market and in 1997, it was ready for the next major step. From being an API and bulk drug supplier to regulated markets like the USA and the UK, and a branded formulations supplier in unregulated markets like India and Russia, Reddy’s made the transition into generics by filing an Abbreviated New Drug Application (ANDA) in the USA. In the same year, Reddy’s out-licensed a molecule for clinical trials to Novo Nordisk, a Danish pharmaceutical company. Reddy’s strengthened its Indian manufacturing operations in 1999 by acquiring American Remedies Ltd.

2000–2009: Growing Globally. In 2000, Dr. Reddy’s Research Foundation set up an American laboratory in Atlanta which was dedicated to discovery and design of novel therapeutics. The laboratory is called Reddy US Therapeutics Inc. and its main aim is the discovery of next-generation drugs. Reddy’s research thrust focused on large niche areas in Western markets: anti-cancer, anti-diabetes, cardiovascular and anti-infection drugs. In the year 2001, it became the first non-Japanese pharmaceutical company from the Asia-Pacific region to obtain a New York Stock Exchange listing, a ground-breaking achievement for the Indian pharmaceutical industry.

Reddy’s started its European operations in 2002 by acquiring two pharmaceutical firms in the United Kingdom. The acquisition of BMS Laboratories and its wholly owned subsidiary, Meridian UK, allowed Reddy’s to expand geographically into the European market. The American launch of Reddy’s house-branded ibuprofen tablets in 400, 600 and 800 mg strengthened in 2003. Direct marketing under the Reddy’s brand name represented a significant step in the company’s efforts to build a strong and sustainable US generic business. It was the first step in building Reddy’s fully-fledged distribution network in the US market. In 2005, Dr. Reddy’s entered into a marketing agreement with Eurodrug Laboratories, a pharmaceutical company based in the Netherlands, to improve its product portfolio for respiratory diseases. Dr. Reddy’s acquired Betapharm Arzneimittel GmbH from 3i for €480 million in March 2006. This is one of the largest-ever foreign acquisitions by an Indian pharmaceutical company. Betapharm is Germany’s fourth-largest generics pharmaceutical company. In 2008, Reddy’s also acquired Dowpharma’s small molecule business in the UK. Dr. Reddy’s announced in 2009 that it had entered into a strategic partnership with GlaxoSmithKline plc (GSK) to develop and market select products across emerging markets outside India.

Having started in 1984 as an API manufacturer, Dr. Reddy’s Laboratories are currently offering over 150 patented medications and more than 60 APIs, with more than 500 DFM fillings, and assuring safety and quality of the medicinal products. The main business of Dr. Reddy’s Laboratories, however, is the production and distribution of generic drugs: drugs that can be legally reproduced after the branded drug goes off-patent, which is usually after a time period ranging from 20 to 25 years, as well as biologically-similar alternatives, new chemical entities, and differentiated formulations. In other words, Dr. Reddy’s is mostly involved in cheap and efficient reproduction of medications which are no longer protected by patents. Thus, they can be sold under the brand-name price since expensive steps such as research and innovation of the drug have already taken place.

Dr. Reddy’s Laboratories offers more than 200 generic drugs which are distributed to countries in the West and to Asia. The production of generic drugs is more cost efficient since the drugs have already been developed and tested. Therefore, based on the original price of the off-patent drug, generic drugs are substantially cheaper to purchase, in agreement with Dr. Reddy’s Laboratories’ philosophy of making crucial pharmaceuticals available for everyone. These generic drugs are mostly offered in the major therapeutic areas of cardiological diseases, pain management and anti-infection drugs, as well as those used in dermatology and oncology. Generic and biologically-similar pharmaceuticals are sold under brand names, also known as branded generics, in order to supply people, who are willing to pay a small premium in order to get an efficient and recognizable product, with high quality yet affordable drugs. Well known generic brands by Dr. Reddy’s include Omez, Ciprolet, and Nise, which are holding leadership positions in various key markets, especially in India, Russia, and Commonwealth of Independent States countries.

In developed markets such as the USA, Germany, UK, and Australia, however, the drugs are not sold under branded names but their generic names, also called pure generics, in order to keep costs low in the production stage and lower the healthcare costs for the patients. Furthermore, Dr. Reddy’s Laboratories’ product range does not only contain copycat or generic drugs but also includes APIs and is the second largest provider of APIs since it distributes to more than 75 countries in the world. Being a world leader in generic APIs also has multiple advantages, such as keeping prices low and making it available for patients in the shortest amount of time.

Dr. Reddy’s Laboratories has performed very well in the past two years. It made revenues of more than 96,737,323.00 Indian Rupees (€1.3 billion) during the fiscal year 2012 with a gross profit of more than 55 %. The year 2013 followed with a remarkable growth of 20 % in revenues, which demonstrates the quick growth the company is experiencing due to their successful business strategies mentioned above. Because Dr. Reddy’s LTD is listed on NASDAQ, the past years were very beneficial for the stockholders due to a strong increase in earnings per share as well as dividend pay-out. The company’s stock was strongly bullish and share prices have risen significantly when compared to other indexes within the last 5 years and this has made Dr. Reddy’s a stable and efficient investment opportunity.

“If one analyses why we have been so successful, the single most important fact is our strength in the R&D and our ability to commercialize technologies developed in a quick and efficient manner”.

This quote by the Chairman and CEO of Dr. Reddy’s, G.V. Prasad, states why the company was able to become a world pharmaceutical company in less than 30 years: the fact that high priority was put on the R&D sector.

There are multiple daughter companies wholly owned by Dr. Reddy’s, such as Promius Pharma, which focus solely on innovation and new product development which are positioned not only to produce generic drugs but also to research new and affordable alternatives. Another important fact, which greatly contributed and still contributes to the company’s success, is the patient-friendliness of the company. Dr Reddy’s is different from other pharmaceutical companies because it does not exploit the end-consumer by exaggerating medicinal products but puts efforts into making medicine affordable for everyone. This fact almost instantly provided the company with a good reputation. Furthermore, Dr. Reddy’s was the first pharmaceutical company in India that approached the end-consumer directly, providing in depth customer services and using it as a tool to keep patients both satisfied and updated on upcoming products.

Another major point contributing to the success of the company is the very diverse manufacturing and distribution of medicinal products in emerging and developed markets. In emerging markets, generic drugs by Dr. Reddy’s Laboratories are sold under branded names, whereas the opposite approach is taken when acting in developed markets: that is, distributing the product solely under the generic name to make it more competitive in Western markets in particular. Hence, a focus on R&D, the right marketing efforts, and the company’s philosophy that healthcare must be affordable, made Dr. Reddy’s a world leading pharmaceutical company in less than 30 years.

Through multiple R&D laboratories all over the world, Dr. Reddy’s Laboratories assures high quality standards for all their products. Targeting Western specialty generics in order to establish a foundation for drug production constituted the first step for the company towards its own innovation and research. The company has multiple research and development institutes in India and North America which are pioneering next generation pharmaceuticals using genomics and proteomics. The laboratory, Reddy US Therapeutics Inc., located in Atlanta, is only doing research on next-generation drugs, and focuses on Western niche markets such as anti-cancer, anti-diabetes, and anti-infection drugs. Additionally, more and more new medical products are developed on a biologically similar basis, focusing more on the conversion of natural ingredients rather than just on synthetic ones. Dr. Reddy’s Laboratories are also strongly engaging in novel molecule innovations which are crucial in developing new treatments for therapeutic use.

Dr Reddy’s Laboratories capitalized on the regulatory troubles of Indian rivals to post its highest ever quarterly income and operating profit during October-December 2013. India’s largest pharmaceutical company by sales announced in January 2014 that net profit in the third quarter swelled by 70% compared to the previous year whilst revenue grew by 23%.” (Economic Times 2014) Based on this citation written by The Economic Times in February 2014, it become clear what a huge growth potential and thus growth development Dr. Reddy’s Laboratories has displayed in the past year especially, but also in general, since it was founded in 1984.

The biggest growth in market size and capitalization has been made primarily in the US market as a result of several crucial factors. The business benefited the most from the launch of new products in the generic business and the expansion of key products with limited competition due to patenting and complex development. Additionally, Dr. Reddy’s Laboratories was able to increase its market share in the US because competing pharmaceutical companies, such as Wockhardt and Ranbaxy, had been dealing with legal issues concerning the safety of a new plant and so production was unable to meet the market demand.

Dr. Reddy’s has a long history of being guided by principles. The strong belief that they can make medicines of higher quality and lower prices compared to Western companies was a driving factor for the company to enter the overseas market as an API supplier in 1986. At that time, Dr. Reddy’s Laboratories was one of the first suppliers in the overseas market. It gained more and more attention when it became the biggest supplier of methyldopa to the German pharmaceutical giant Merck. By delivering high quality for low prices and by getting US FDA (Food and Drug Administration) approval for their plants, Dr. Reddy’s Laboratories was able to supply ibuprofen to the US market shortly thereafter. Hence, within a short time, Dr. Reddy’s made a name in the European and North American markets.

This reputation began to grow as the company also launched several products for which they had gained marketing exclusivity rights: that is, being able to make extra revenues of more than 200 million US$ just by having exclusive selling rights due to patenting and FTF regulations (Mahalingam, 2013). Not only has Dr. Reddy’s Laboratories been successful in expanding into the European and US market, but it also has been reaching out to the emerging markets. It has become a trustworthy partner with Russia, which is currently the biggest growing market of the pharmaceutical company. Through the company’s willingness to strive to its best potential and to take on new challenges by entering into such difficult markets as the US, it inspired other smaller Indian companies and became a benchmark for success.

Dr. Reddy’s Laboratories has a strong position in the global market. While playing a minor role in the domestic market, it established itself in the global market with its generic business and over-the-counter drugs in North America, West Europe, and in Russia, its fastest growing market. The pharma market accounts currently for more than 65 % of Dr. Reddy’s Laboratories total revenues. The main business of the company in the North American market is the development and production of global generics, whereas a pipeline with more than 200 generic drugs are on file in order to instantly replace products which are going off-patent within the next few years. In addition to those generics which have yet to be launched, other key products with limited competition have been constantly introduced to the market over the previous years and are expected to continue to build high market share with little price erosion.

The strongest growing market for Dr. Reddy’s Laboratories, however, is the Russian market, which is currently experiencing a strong restructuring of their pharmaceutical sector as it is trying to reach a level of 50 % in domestic production of pharmaceuticals. The huge increase in demand is mainly in the middle to low cost generics produced by Dr. Reddy’s Laboratories as well as over-the-counter drugs. Since the company already has strong business connections with Russia since 1988, it was able to increase its revenues significantly (20 % on average) during the past years. Even if Russia passes a specific law which requires generic and innovative companies to have a manufacturing presence when selling its products, Dr. Reddy’s Laboratories has already stated that they are willing to locate production facilities in Russia, and the only thing to evaluate is whether to acquire existing facilities or build new ones.

Despite the generally strong growth of Dr. Reddy’s Laboratories in the USA, Russia, and the emerging markets, Dr. Reddy’s Laboratories is not one of the biggest players in the domestic Indian market; it does not even rank in the top 10 in the domestic pharma market although it is ranked as the second largest pharmaceutical company in India. The strong focus on profitable foreign markets is surely to some extent a reason for the lack of performance in the domestic market. The Indian pharmaceutical market is flooded with several new products from companies such as Sun Pharma and Cipla, whereas Dr. Reddy’s Laboratories had been focusing on a few selected brands which limits the company’s portfolio to a much greater extent and thus makes it difficult to acquire additional market share.

Therefore, in the past four years, the company has invested heavily in boosting the sales force by 50 % and marketing efforts have been expanded into rural areas, as they are seen as an emerging market in India itself. Furthermore, through the development of new product lines and the extension of existing key brands in the area of gastrointestinal or cardiovascular, which account for more than 50 % of its revenues, the company will have new possibilities to gain a bigger market share. However, as Dr. Reddy’s has been showing so little effort in the domestic market as compared to foreign markets, it will be very challenging for the company to gain acceptance within the Indian medical community and therefore increase sales since time has shown that the Indian pharma community is hesitant when it comes to new portfolios, unlike the North American community. Furthermore, Dr. Reddy’s may also be influenced by the new Drug Pricing Controls, which will increase the prices for some of its essential products perhaps causing a decent loss in profits in the home market (Economic Times, 2014). Since the medical portfolio of the company is relatively small compared to its competitors, another way of gaining market share more quickly is by acquisition of other medical businesses, individual brands, or entire portfolios.

However, Dr. Reddy’s Laboratories has far more possibilities than only acquiring other businesses or expanding their existing portfolio, including making use of the huge R&D facilities in developing biologically similar products. These products have little competition in the domestic market and are expected to increase from US$2 billion to US$ 4–6 billion through 2016. Since the possibility of new entrants remains small due to the complexity of the products and production processes in this new emerging pharmaceutical sector, Dr. Reddy’s may use this favourable position to grow its market share.

Additionally, by entering into a partnership with Merck Sereno, a division of the pharmaceutical company Merck, Dr. Reddy’s will lower the risk by splitting development costs, which are estimated to be at more than US$200 million. The fact that the company is already heavily engaged in the development of biologically-similar products, and that developed countries are still far from launching biologically-similar products to such an extent, gives Dr. Reddy’s a crucial advantage in its home market among its Indian competitors. High entry barriers and the difficulty of domestic companies to increase their capabilities also work in Dr. Reddy’s favour. Thus, the key driver for the company to gain market share with little competition within its domestic market is its high expenditure in R&D.

Dr. Reddy’s Laboratories is a multinational pharma company, which provides high amounts of tax yearly to the government from producing, importing or exporting products. The new regulations in the Indian Drug Pricing Policy will most likely lead to higher prices and to shrinking profit margins, and also to having to pay more taxes, which is a clear disadvantage for the company as well as for the whole pharma sector in India. Furthermore, Russia passed a law which would force pharmaceutical suppliers to build domestic plants in order to be able to distribute their products to the Russian market. This would lead to higher taxation as well in the Russian market, although the good, general relationship between Russia and Dr. Reddy’s Laboratories would suggest that both parties would be in favour of such an idea since having production facilities in Russia opens new supply channels towards Eastern European countries. A special-purpose program will support the restructuring of the Russian pharmaceutical industry, which might provide beneficial incentives for companies such as Dr. Reddy’s to produce in this market in the near future. Nevertheless, the general advantages and benefits, which Dr. Reddy’s already possesses and seeks to expand over the coming years, are primarily their own successes in technology, long term thinking, and a high degree of innovation.

As one of the largest pharmaceutical companies in India, Dr. Reddy’s Laboratories averages 200 orders a day alone for its US generic pharmaceutical and over-the-counter products. A triple-digit percentage revenue increase in the past year (2013) demonstrates the agility of the company’s move into the generic marketplace. Getting to market first following US FDA approval is a key with generics. Dr. Reddy’s needed a streamlined supply chain and the flexibility to position its new products against the large number of prescription drugs due to come off patent protection. Since it manufactures in India, Dr. Reddy’s must plan for additional lead times to get products to the USA. When drugs move from branded to generic, pharmaceutical companies face a host of regulatory and supply chain challenges to get products to clinicians and retail pharmacies. Since the FDA approves the sale of branded drugs as generic as late as the day of patent expiration, acting quickly and efficiently means being first out of the gate, sometimes even getting products to the drug wholesalers or store distribution centres the next day. That drives critical planning for the right warehousing and distribution solutions linked with transportation. Further complicating the process, the FDA also may require label and packaging changes to some medicines prior to approval for generic sales.

Since Dr. Reddy’s Laboratories’ company mission is to make “affordable medicine for everybody,” the challenge is going to be how to remain sustainable in the low pricing class in order to build and keep their customer base. Newly imposed regulations are obstacles which have to be overcome by the company using even more technological advantages in order to still make profit by keeping costs low throughout the production process. In addition, Dr. Reddy’s has to show initiative and strong cooperation with the new ‘healthcare project’ in order to gain a favourable position in the Russian pharmaceutical market. As Dr. Reddy’s plays more of a minor role in their domestic Indian drug market due to the intense competition, a different approach, such as the production of highly technological medicine, rather than lower costing has to be found in order to retain a leading position in the Indian market.

CASE ONE QUESTIONS:

A. Critically discuss the strategy/strategies adopted by Dr. Reddy’s Laboratories Ltd. to become a global company.

B. Discuss the issues and challenges Dr. Reddy’s Laboratories Ltd. faced in its march to become a global company.

C. With reference to strategic management concepts/tools, discuss how the company dealt with the issues and challenges it faced.

Answer 1

Ans: The strategy/strategies adopted by Dr. Reddy’s Laboratories Ltd. to become a global company are as follows:

He intends to increase the U.S. stock holdings across these following five years. That remained the entirety of these five focus majority states that individual organizations feature.

Five Core Growth Areas are as follows:

• Strengthen forces within composite common including produce report to world businesses addressed the benefaction robustness within insanity APIs.
• Renewed the abundance of exchanged units within the U.S. these following years.
• Gain about the primary removal success'
• Collapse within uppermost-10 medicine authors’ through trades'
• Continue improving the agreement methods through manufactories.

Ans: The issues and the challenges Dr. Reddy’s Laboratories Ltd. faced in its march to become a global company are as follows:

• Follow the connection linking approach including procedures.
• Follow the problems furthermore difficulties of feature administration.
• Follow the concerns and requests for a business of a materialize corporation struggling against the markets globally.
• Follow the problems furthermore difficulties in struggling toward below price moreover supporting the below price aggressive benefit.
• Recognize the effect of functioning usefulness in conveying a below price approach.

Ans:  The company dealt with strategic management concepts/tools issues are as follows:

Certain issues involve:

• Resource earmarking.
• Revelation
• Operative method.
• Collaboration and harmonizing
• Management raising
• Opposition upon innovation
• Outer conditions

The company dealt with strategic management concepts/tools challenges are as follows:

• Ineffective approach

• Incompetent practice

• Shortage of sources

• Absence of ideas

• Reduction of observing over