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Contents
Executive ummary ................................ ................................ ................................ ................................ ...................... 4
armaceutical
ndian
Structural changes in industry over period: Historic evolution ................................ ................................ ............... 5 Pre-patent Regime (Before 2005- Phases I to IV) ................................ ................................ ................................ ... 6 Post-patent Regime (After 2005-Phase V) ................................ ................................ ................................ ............... 6 urrent tructure ................................ ................................ ................................ ................................ .................... 7
Value chain ................................ ................................ ................................ ................................ ................................ .. 7 Suppliers (Chemicals manufacturers) ................................ ................................ ................................ ....................... 7 API/Bulk drug manufactures ................................ ................................ ................................ ................................ ...... 7 Formulations Manufactures Industry players, market shares................................ ................................ .............. 8 egulatory Environment in ndia ................................ ................................ ................................ ........................ 13 utloo of the ndustry ................................ ................................ ................................ .......................... 14
Future
Medium erm:
Long em:
a) he threat of new entrants ................................ ................................ ................................ ............................. 15 ) he argaining ower of uyers ................................ ................................ ................................ .................... 17
c) he argaining ower of uppliers................................ ................................ ................................ ................ 19 d) he hreat of ubstitutes ................................ ................................ ................................ ............................... 20 e) ntensity of rivalry among competitors ................................ ................................ ................................ ........ 21 f) Exit arriers ................................ ................................ ................................ ................................ ......................... 23 Analysis of effect of external environment on current structure ( EST) ................................ ..................... 23 SWOT Analysis of ndian harmaceutical ndustry ................................ ................................ ............................ 24 usiness Strategy................................ ................................ ................................ ................................ ......................... 24
Value net analysis ................................ ................................ ................................ ................................ ................... 25 ustomers ................................ ................................ ................................ ................................ ........................... 25
Substitutors ................................ ................................ ................................ ................................ ......................... 26 Suppliers................................ ................................ ................................ ................................ ............................... 26
A TS Analysis ................................ ................................ ................................ ................................ ....................... 26 layers ................................ ................................ ................................ ................................ ................................ .. 26
ustry
Added Values: ................................ ................................ ................................ ................................ ..................... 27 ules: ................................ ................................ ................................ ................................ ................................ .... 27 Tactics: ................................ ................................ ................................ ................................ ................................ . 27 Scope ................................ ................................ ................................ ................................ ................................ .... 27 Technology Strategy................................ ................................ ................................ ................................ ................... 27
" "
evelopment by
Strategic ntent and Alliance of Current Strategy ................................ ................................ ............................... 29 Competitive Advantage ................................ ................................ ................................ ................................ ............. 30 esource ased Framework................................ ................................ ................................ ................................ 30 V O framework Analysis ................................ ................................ ................................ ............................... 30 Competitive advantage through structural position: ................................ ................................ ................ 31 Competitive advantage through process execution:................................ ................................ ................. 31 Competitive advantage through alliances and leadership: Company ................................ .................... 31 ecommendations ................................ ................................ ................................ ................................ ...................... 31
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Executive Summa y
In this report we analysed the pharmaceuticals industry of India, and the competitive advantage and strategy of Dr Reddys Laboratories. We briefly give the industry definition describing the scope of the industry considered for this analysis. We looked into current industry structure and changes in the industry structure over a period. We analysed the current industry structure using Porters Five Forces Analysis and SWOT analysis. We analyse the impact of external environment on the current structure. Towards the end we gave the medium and short term outlook of the industry. In the firm analysis, we looked into factors contributing to sustainable competitive advantage of Dr Reddys and analysed the resources of the firm using VRIO framework. We looked into business strategy of the firm and analysed it using Generic business strategy, value net and PARTS Analysis. We also analysed the International and Technology strategy of the firm.
ns m acc nts to 65 of market and bulk drugs account to In 2009-10 F m rest 35 market s are. Thus formulations market value is around Rs 69050 cores and it grew at a C R of 16.56 for last 5 years. Further in formulations generics market expanded at a C R of 13 in last 5 years. Bulk drugs market value is Rs 31561 crores and grew at a C R of 7 for last 5 years. Exports market accounts for major share of bulk drugs produced in India.
& 6 )' D 254(1 C 6 9 8 6 9 8 6 9 8 7 '3210) (' & B B A 6 @
role in shaping the current pharma industry structure. Over years structure has hanged c from minuscule domestic market with MNCs mainly catering to Indian market through imports to current structure where domestic companies predominantly cater to the 95 of the market. Below figure briefly describes the structural changes undergone:
E
S TT
a nufacturing
a`
Setting up new manufacturing bulk drugs plant is low capital intensive. A USFDAapproved API manufacturing facility costs up to Rs 150 -200 million as compared to Rs 3050 million for an unapproved facility. The average gest tion period for a USFDA approved a manufacturing facility is 18-24 months as compared to 6 -12 months for an unapproved facility. Indian bulk drug manufacturers are increasingly resorting to signing contract manufacturing deals with global players, by provi ing services such as custom synthesis d and manufacturing bulk drugs for both off patent and patented drugs . Below chart describe the average cost structure:
Profitability
The sales turnover of large size players increased at a CAGR of 20.5 pa for last ive f years and an average operating margin of 20.9%. Whereas, sales turnover of small size players increased at a CAGR of 24.5% for last 5 years and had an average operating margin of 14.2%.
h g d
ormulations
Indian companies dominate the domestic formulations market by occupying seven out of the top ten spots and serving 95% of domestic demand Top 5 companies have 22.5% of . total formulations market share. The industry is highly fragmen ted with around 300-400 companies in organized sector and around 15000 unorganized small scale units. Altogether these players manufacture over 100000 drugs. Some of the major players and their market shares are shown in the chart below. Recent deals in em erging markets and an increasing number of tie-ups with generic firms indicate that branded pharma
companies are moving into the generic space. Companies like Pfizer, GSK, Sanofi, AstraZeneca and Abbott have already made moves in this direction and this co ld result u in increased pricing pressure. Competition in generics is intensifying due to increase of focus many players on generics exports because of huge generics opportunity opening for next 5 years.
Manufacturing
Setting up new manufacturing bulk drugs plant is low capital intensive. Setting up a USFDA approved formulations manufacturing plant costs about Rs 200 -300 million as compared to Rs 120-150 million for an unapproved facility. Average gestation period for a USFDA approved manufacturing facility is 18 -24 months as compared to 6 -12 months for an unapproved facility. Players follow GMP practices. Average cost structure of the company is shown below:
Profitability
Turnover of large players (aggregate of 7 comp anies) registered a CAGR of 21.4 per cent between 2005-06 and 2009-10. Revenues of medium -sized players (aggregate of 10 companies) posted a CAGR of 21.3 per cent during 2005 -06 to 2009-10. Average operating margin of large and medium size players in the ndustry is around 21.5%. i
Distribution channel
Long channel of distribution and incidence of brand substitution make allSKUs to be available 24X7. Drug distribution in India has wit nessed a paradigm shift. C learing and forwarding agents (CFAs) are primarily responsible for maintaining stock and forwarding SKUs downstream. Unlike a CFA that can handle the stock of one company, a stockist (distributor) can simultaneously handle 30 50 different companies. From the CFA the stocks are supplied either to the stoc kist, sub-stockist, or hospitals. The retail pharmacy obtains products from the stockist or sub -stockist through whom it finally reaches the consumers (patients). Certain small manufacturers directly supply the drugs to the super stockist.
Buyers consist of health care providers (e.g. hospitals, managed care organizations (MCOs), government agencies) and drug retailers In India, doctors prescription is . required to access most medicines. Marketing of prescription drugs by pharmaceutical companies is therefore largely directed at medical practitioners, with whom they wield a significant influence. Depending on the medical condition, there may b several different e drug treatments available differing in efficacy, ease of use, side effects and cost effectiveness. Buyers show greater price sensitivity in case of low cost generics drugs.
Market (domestic market-major therapeutic demand segments and th eir expected growth rates, exports market)
Indian formulations market can be broadly classified as shown in the below chart:
Buyers (retailers hospitals patients and customers of export demand -nature of buyers their size, power)
p p
Acute has market share of about 69% and rest is of Chronic. Among therapeutic categories, growth was primarily driven by chronic segments such as cardiac, antidiabetic, gastrointestinal, gynaecology, while anti infectives also grew steadily. Over the next few years, the therapeutic category mix is expected to gradually move in favour of speciality therapies. However, mass therapie such as anti-infectives and gastrointestinal s will continue to grow stably, due to rising demand from rural areas, which don't have proper sanitation facilities and are thus more prone to acute ailments. Currently, tierII cities (with a population of less than 1 lakh) and rural markets constitute about 40 per cent of the total market size. Demand from these markets is expected to grow at a much faster rate than tier-I cities.
Substitutes
The main substitutes to branded drugs are generics and biosimilar (also known as s follow-on biologics) and alternative or holistic medicines. Generics are low cost versions and Biosimilars are subsequent versions of innovator biopharmaceutical products made by a different sponsor following patent and exclusivity expiry on the innovator product. These substitutes are relatively inexpensive. They pose a significant threat to OTC medicines than prescription medicines.
Complements
The main complements are professional healthcare providers and medical insurance companies. Through the provision of professional medical services to patients, companies can not only effectively coordinate between patients, physicians, social workers, and care managers, but also advertise to the general public and conduct clinical trials with greater
ease. Cooperation with medical insurance companies also helps patients purchase the pharmaceutical products at lower costs.
r
The Drugs and Cosmetics Act, 1940 (Drugs Act) and Drugs and Cosmetic Rules, 1945 (Drug rules) regulate the import, manufacture, distribution and sale of drugs in India. Central and State government both are responsible to enforce disciplines under these acts. State authorities are responsible for regulating the manufacturing, sale and distribution of drugs, whereas the central authorities are responsible for approving new drugs and clinical trials, laying down the standards for drugs, controlling the quality of imported drugs and co-ordinating the activities of state drug control organisations.
Patent :
Till 2004 the focus was on process patents. That resulted in a lot of unethical reengineering of existing products. From 2005 product patents started in India. This prevents the reengineered products in the market.
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Price:
The Drug Price Control Order (DPCO) fixes the ceiling price of some APIs and formulations. The APIs and formulations falling under the purview of the legislation are called scheduled drugs and scheduled formulations.
Quality:
No drug in India can be stocked, sold or distributed unle it meets the quality standards ss laid down by Drugs Act.
Medium Term: Generics Focus In the medium term i.e. years period, Indian firms should focus on generics as$130 billion of new
drugs going off-patent during this period and open up huge generics opportunity.
y
Long Tem:
iversification
With the generics market set to become extremely competitive in the long term (next 10 years), Indian players will look to make the most of the current generic opportunity and achieve a substantial scale of operations.
Porters Five Forces Analysis of current tructure a) The threat of new entrants
ECONOM E OF CALE:
Economies of scale exist in the pharma industry. From the below table we can see that proxy variable (TE/TA) decreases with increase in assets indicating presence of economies of scale. This reduces the thre at of new entrants and increases incumbents attractiveness. Company Total Expenses(TE) Total Assets(TA) TE/TA
Domestic market is branded market i.e. doctors generally prescribe the brand name. Different branded medicines exist for same disease and are perceived differently by both doctors and patients. So there exists product di fferentiation in domestic formulations market. However, the product differentiation is very less in the domestic bulk drugs market. The perceived product differentiation is less in exports market as it is mostly development market where doctors prescribe t e underlying molecule. On a whole there h exists product differentiation, and reduces the threat of new entrants and increases incumbents attractiveness.
PRO UCT
FFERENT AT O N :
Economies of cale
Product
ifferentiation
Access to
istbn Ch
Govt Policy
CAPITAL R EQUIREMENTS:
Below table shows the capital requirements and gestation periods USFDA approved plant Unapproved plant Rs 20 30 crores Rs 12 15 crores Gestation-18-24 months Gestation-6-12 months Bulk Drugs Rs 15-20 crores Rs 3-5 crores Gestation-18-24 months Gestation-6-12 months Above table clearly indicates low capital requirement and gestation period. However, the cost of producing an innovator drug is very high due to huge R&D expenses and also requires expertise in the drug discovery process. . On a whole there is low capital requirement, and increases the threat of new entrants and decreases incumbents attractiveness. Formulations
SWITCHING COSTS :
In the domestic formulations market, there are switching cost in terms of side effects from switching drugs and doctors/patients hesitation t shift to new brand or some o unidentified generic version. However there are no switching costs for bulk drugs and exports market. On a whole there are switching costs, and decreases the threat of new entrants and increases incumbents attractiveness.
say that there is moderate difficulty in getting access to technology and know-how and makes the industry moderately attractive for incumbents.
Getting access to chemicals/intermediates and APIs is relatively easy as there are many suppliers. So there is threat of new entrants and incumbents attractiveness is low.
Medical representatives, distribution warehouses, doctors prescription and medical stores constitute the distribution channel for most of the drugs. In India it is easy to get access to these all distribution resources. So there is threat of new entrants and incumbents attractiveness is low.
Indian Government regulates the pharma industry in terms of Patents, Price and Quality. Though government requires adhering to patent rules and quality standards, it has taken lot of initiatives to promote domestic pharmaceutical industry. It increased import duties for foreign drugs, recognized pharma as knowledge based sector, reduced interest rates for exports financing, tax deductions for R&D expenses, plans to setup VC for pharma financing, SEZs for pharma, Pharma Vision 2020, 3000 Jan Aushadhi stores and reduced the drugs under price control. So there is threat of new entrants and incumbents attractiveness is low. On a whole, we see that Government gives lot of push to encourage new players in the industry increasing threat of new entrants and decreasing incumbents attractiveness.
For the formulations, patients are the actual end users. But they use it mostly on doctors prescription. So doctors can be considered as final buyers and have considerable power. This considerably reduces the number of buyers and increases their bargaining power.
As seen earlier, there exists product differentiation reducing bargaining power of buyers.
Major substitutes are generics, biosimilars, and holistic medicines like homeopathy and aurvedhic medicines. Currently use of all these substitutes is very less compared. Use of
A VAILABILITY
ii
PR DUCT DI
ERENTIATI
N:
SUBSTITUTES :
VER
ENT
P L ICY/P R TECTI N :
A CCESS
DIS R IB
CHA
ELS
A CCESS
RAW
A ERIALS
biosimilars and generics is considerably increasing and can pose as a proper subst itute in the long run. So currently influence of substitutes is less and reduces the bargaining power of buyers.
Number of Buyers
j
Low
Low Low
Moderate
Moderate Moderate
Average
Average Average
Strong
Strong Strong
High
High High
Product
ifferentiation
Availability of Subst Switching Cost Buyers Portability Buyers Threat of B. Int. Industrys threat of F. Int Contbn to Buyer Qlty Contbn to Cost
Low
Moderate
Average
Strong
High
SWITCHING COSTS :
As seen earlier, there are switching costs reducing bargaining power of buyers.
BUYER S PROFITABILITY:
In the pharma industry doctors can be considered as buyers for medicines and formulations manufacturers are buyers for bulk drugs. Both of them have considerable profits reducing their bargaining power.
doctor and the API molecule supplied by bulk dru manufacturer forms core of g formulations preparation. This reduces the buyers bargaining power.
CONTRIBUTION TO COST:
Contribution of medicines to the health care costs and bulk drugs to formulations cost is high. This provides reason for buyers to barg ain and increases their bargaining power.
Number of Suppliers Substitute Availability Switching Cost Supplier threat if F.Int. Buyers Portability Buyers Threat of B. Int. Industrys threat of F. Int Indstrys Imp to Supplier Diff of Supplier Product Contbn to Buyer Qlty Contbn to Cost
Moderate
Moderate Moderate
Average
Average Average
Strong
Strong Strong
High
High High
A AILABILITY OF SUBSTITUTES :
Only inorganic compounds of chemicals, intermediates and APIs form the raw materials to the industry. There are no other substitutes available. This leads to high bargainingpower of suppliers.
k
SWITCHING COSTS :
There are no switching costs involved in changing from one supplier to another. More or less these raw materials are commodity chemicals without much differentiation, so there are no switching costs. This leads to low supplier bargaining power.
CONTRIBUTION TO COST :
Suppliers also contribute significantly to the manufacturing costs o f pharma industry. Raw material costs constitute about 40-50% of total costs incurred. We can see that latest total raw material costs for group of 31 companies in the industry is Rs 16282.3 crores out of 33784 crores of total expenditure(around 48%). This reduces the bargaining power of suppliers.
substitutes is very less compared to branded halopathy medicines. Use of biosimilars is considerably increasing and can pose as a proper substitute in the long run. Growth in insurance business in India might also increase usage o generics as in developed f markets and can replace the current branded medicines. So we can say availability of substitutes is high and the threat is high.
Low Low
alue
Low Low
Profitability of Prdcrs
SWITCHING COSTS :
There are considerable switching costs involved in changing to usage of substitutes. Switching to substitutes might also involve changing completely the treatment plan which is costly. Also there can be severe side effects because of switching to substitutes .On a whole due to high switching costs, threat of substitutes is low.
SUBSTITUTE S PRICE-VALUE:
Generics, Homeopathy and Aurvedhic medicines are considerably cheaper than the branded medicines. This might pose as a threat of substitutes.
Numerous Competitors Slowing Ind Growth Fixed or Storage Cost Product Differentn Switching Cost Excess Capacity Levels Exit Barriers
PRODUCT DIFFERENTIATION :
As seen earlier, there is product differentiation and perceived brand image for some companies. This reduces the intensity of rivalry.
SWITCHING COSTS :
In the domestic formulations market, there are switching costs in terms of side effects from switching drugs. Switching costs make t intensity of rivalry low. he
EXIT BARRIERS:
Low exit barriers in the pharma industry make it easy for unprofitable firms to quit then add to capacity of industry. This lowers the intensity of rivalry.
f) Exit Barriers
A SSET SPECIALIZATION :
Capital requirement is very low for pharma plants. Except the intangible assets like patents, there is not much asset specialization required for pharma. So exit barriers are low.
GOVERNMENT RESTRICTIONS:
There are no exit restrictions imposed by Government. So exit barriers are low.
Strength
Matured Industry Large Home Market Fast Changing Lifestyle Low cost manufacturing Quick adoption of new technology Increasing population and per caipta Income
Weakness
Lack of pricing, Power impact growth Low margins Lower investment in D Highly fragmented industry Intense competition High exposure to global markets - both political and currency risk High input costs due to inflation
n o
Opportunity
Potential to absorb high priced products Opening of OTC segment Large number of drugs going off patent Increasing penetration of Insurance industry Biosimilars
T reat
Non tariff barrier imposed by developed countries Internal fragmentation Chinese intrusion into domestic markets Small number of discoveries Outdated sales and marketing methods Increasing influence of foreign MNCs
Business Strategy
General Analysis
Dr Reddys core purpose is to provide affordable medicines to enable people lead healthier lives. Through its branded and unbranded generics company offers low cost alternatives to highly priced innovative brands. Some examples are company successfully introduced Fluoxetine (generic version of Prozac), Donepezil hydrochloride tablets (generic version of Aricept), Venlafaxine (generic version of Effexor R) and Letrozole (generic version of Femara). Company capitalizes on low labour and manufacturing costs in India by producing and exporting these generic drugs to other markets. It also capitalizes on economies of scale achieved through centralized production. Company also produces and markets APIs/bulk drugs at low costs to both domestic and exports market. Thus company follows overall cost leadership business strategy in case of Generic drugs and APIs. Dr Reddys is also using its R&D to bring differentiated formulations and New Chemical Entities (NCEs) into the market. Its strategy with respect to these products is overall Differentiation as it tries to bring new effective drugs into the market. Dr Reddys operates in highly dynamic environment due to intense rivalry in the industry and changing regulations. So we analyse the value addition to the company though game played using Value net and PARTS analysis.
The third plan is to use the infrastructure of agencies and programmes which are already there in villages, like the World Health Foundation and ITC's e-choupal
Substitutors
Dr Reddys is in all game to increase its market share in India. Seeing that urban markets are saturated with huge presence of competitors from domestic and foreign MNCs, it is putting as its efforts to quickly penetrate into rural markets. It has increased its field force by adding 1000 representatives to quickly setup network with doctors and medical practitioners in the rural areas. The problem is Substitutors are also eager to join the rural bandwagon. So company is making fast steps to quickly capture the market and gain the first mover advantage. In US markets, company has been aggressive in litigious para IV filings to launch new generic drugs. In the late 1990s Dr. Reddy's was the original action hero in taking on the large multinationals and launching generic versions of their products. It was also the early one to start the trend of settling with multinationals to arrive at a middle ground to launch drugs. In 2006 company changed its US strategy to special therapy segments from core segments in the face of lost litigations against Pfizer. As an additional differentiation, Dr. Reddy's is increasing its focus on bio generics, an area not many large companies are focusing on. It already has three products, though it competes with Roche, the innovator company of the drugs.
Suppliers
Dr Reddys API manufacturing plants supply most of the raw materials required for the companys formulations manufacturing. This gives the company lot of flexibility and control with regards to raw materials supply and also minimizes the raw materials cost which forms almost 40% of total cost. In case of other required materials it uses broad base of suppliers in order to minimize the risk arising from dependence on a single supplier. It prescribes strict supplier code of conduct and requi res its suppliers to be US FDA approved plants.
Complementors
In order to enhance business, Dr Reddys frequently seeks to acquire or make strategic investments in complementary businesses or products, or to enter into strategic partnerships or alliances with third parties. In September 2005, it entered into a co development and commercialization agreement with Denmark based Rheoscience A/S for the joint development and commercialization of Balaglitazone (DRF 2593), a partial PPAR gamma agonist, for the treatment of type 2 diabetes. During the year ended March 31, 2011, it entered into collaborations with discovery biotechnology companies to initiate new chemical entities (NCEs) and differentiated formulations programs in the therapeutic areas of interest. In addition company has in house R&D division working on several differentiated formulations, biosimilars, ANDAs for generics and new molecule innovations. Some of its developments were in Clinical trials and human trials phases.
PARTS Analysis
Players: In the Indian Pharmaceutical market players are mainly the domestic companies
and foreign MNCs. As the industry is highly fragmented and competition is high, these players are always on their toes to retain and increase their market share. Other players include Suppliers (in most cases the companies themselves), Indian Government and
Regulatory framework, US FDA, buyers (doctors, hospitals, retailers and patients), Alliance partners (R&D houses).
Added Values: Dr Reddys has done much value add activities from its inception. It is
successful in bringing many low cost generic version drugs making them affordable to many customers across. It did so by taking litigation gambling of fighting Big Pharma through para IV filings. It entered into alliance with GSK to market and distributes its products to Latin America and Asia pacific markets where GSK has strong distribution network. It formed alliances with other domestic and foreign R&D houses to innovate new molecules, differentiated formulations and ANDAs. It cut down its API manufacturing business as it became little value add due to decreased margins. It sources raw materials for its generics manufacturing from its own API plants, thus reducing supplier dependency, costs and increasing flexibility.
Tactics: Company played generics tactic in US. It used its R&D to develop ANDAs and
launched these generics in US to gain the market share. In expanded though acquisitions and alliances in international markets and became the worlds top five generics producer. But, throughout it ignored domestic market. Failures in some International markets (Germany) made the company rethink its strategy and made company realise that it is cost competitive but not cost conscious. It moved its focus now to only its top five markets and is aiming to be in top 5 in all these markets. It has fired all its cylinders and is aggressively launching various products across to gain the market share. It sees huge Indian rural market potential and it making fast steps to gain first mover advantage in this market. . In 2002 -03 when the Indian Pharma companies were at crossroads of choosing between R&D and generics development, it has chosen a R&D route different from the competition. As the company consistently believed in R&D and product innovation to develop new molecules. It formed alliances in this regard with foreign R&D houses.
Scope: DR Reddys started as API manufacturer. It soon increased its product scope to
bring in Generics and branded formulations seeing the patent expiries and capitalizing on Indias process patents rule. It increased its market scope by rapidly expanding into countries like UK, Russia, Germany, etc. It formed alliances to expand into other small markets. Now it is all guns to gain domestic share and is rapidly laying path to capture rural in roads.
Technolo y Strate y
y y Generics Generic Drugs are low cost reinforced versions of actual patented drugs. Here, the core concept, basic mix and linkages are not changed Biosimilars High Quality and bio equivalent alternative of the innovative drugs. Here the core concept is not changed but the architecture is changed to bio equivalents Differen iated Formulations/N E s: These are new drug innovations of the company to cure the diseases
y y y
Biosimilars/NCEs are relatively new products and are going through high development cost and time consuming stage. So they are in initial stages Generics on the other hand are expecting huge market growth due to expiration of patents in next five years On similar lines API market is saturated and is in maturity stage
International Strate y
DR Reddys has followed Global international strategy. It produced standardized drugs mostly through its plants in India, and marketed and sold in different international markets. It has achieved economies of scale through centralized manufacturing in six FDA approved plants in India. It also benefited from low labor and manufacturing costs in India.
1) 2) 3) 4) 5) 6) 7)
With Fujifilm to produce low cost and high quality generic drugs With R-pharma to share high technology manufacturing knowhow With GSK to get ownership of penicillin manufacturing plants in US With Vitabiotics to get exclusive marketing rights of two of its products With Cosmederm for India distribution of its products With Albemarle to get global distribution rights of its API With Rheoscience to carry out clinical trials for its latest anti-diabetes drug, Balaglitazone 8) With Clintec to carry out R&D on solid tuumors This indicates that companys current business strategy is in alliance with companys strategic intent. Also the companys strategy is in alliance with medium and long term future outlook of the industry. In the medium term companys strategy to increase its domestic and international market shares in generics business. The generics opportunity opening up in the future due to patented drugs going off paten t provides very good chance to the company to achieve this objective. In the long term company plans to innovate and develop new products, along with this it should also focus on diversifying into outsourcing clinical research, etc.
Competitive Advantage
Resource Based Framework
Indentified key resources of the company are Human Capital, Supply chain resources, Manufacturing processes, Technology know -how, R&D capabilities, ANDAs, DMFs and Brand name. We applied VRIO framework on these resources to check if it has any sustainable competitive advantage
Entity Valuable
Yes/No Yes
Rare
Yes
Difficult to imitate
No
Remarks The resources of Dr. Reddys are valuable because they help the company in introducing new products at regular intervals and hence stay ahead of the competition. The R&D expertise coupled with skilled scientists helped the company to enter into biosimilars which are giving the company a fist mover advantage. The manufacturing processes and supply chain resources give the company the cost advantage needed to strengthen its position in cost driven generics market. The biggest resource for any pharmaceutical company wh ich is mainly into generics is the ANDAs and DMFs. These are rare resources that enable a firm to bring new products into the market. Dr. Reddys is one of the market leaders in terms of the IPRs that it possesses. The resources such as strategic partnerships for distribution channels are moderately rare due to the due diligence and the gestation period involved in such strategies. Dr. Reddys directly compete with generics drug manufactures. These are the players who produce off-patent drugs and hence the competitors of Dr. Reddys can get access to some of the generic formulations that the company is involved into. Though the company is in R&D for some time, it is still in the process of building differentiated formulations /NCEs (which are difficult to
imitate) and develop new drugs. E loited Yes Company has made fair use of its resources in producing generics by of low cost and high quality. It made huge profits in earlier years Organiza by optimally exploiting these resources tion Conclusion: Temporary Competitive Advantage
Competitive advantage through alliances and leadership: Company has formed many
alliances to gain new business. Also company has strong stable leadership. Dr Anji Reddy has been the started and carefully nurtured the company to become global leader in the pharma sector. He is still associated with company and constantly monitors the day to day activity of the company. G.V. Prasad, MD and CEO of the company, has been considered as greater thinker and played a crucial role in shaping the company. K. Satish Reddy, COO of the company, has strong execution skills. This trio provides a stable and strong leadership to the company.
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