Dr. Reddy’s Laboratories Ltd.

Good Health can’t wait

189278001 - Neeraj Verma

189278006 - Apurv Nigam
Team Elixir
189278019 - Rakhi Tholia
Group 11 189278021 - Rohit Garg
Sec - B 189278092 - Anmol Agrawal
 Motivation behind selecting Pharmaceutical Industry

• Medicine spending in India is projected to grow

Annual Turnover of Indian Pharmaceutical about 9-12% for the next 5 years and India is
expected to be amongst top 10 countries in medical
Industry ($ billions) spending.
19 • The overall value of the pharma sector was $ 33
billion in 2017.
18.12
• India has a competitive advantage in production of
18
generics as the cost of production is significantly
lower than that of US and its almost half of that of
17
Europe.
• It accounts for largest global exports in generics for
about 20% and the current value of exports stands
16 at $ 19.14 billion in FY19, which is expected to
15.53 reach $ 20 billion by 2020.
• The sector is expected to grow at CAGR of 15% and
15 hence its amongst the fastest growing segments.
2015 2015 2016 2016 2017 2017 2018 2018 2019 • Indian pharma companies spend 8-13 per cent of
their total turnover on R&D.
 Motivation behind selecting Dr. Reddy’s Laboratories

R&D EXPENDITURE AS PERCENTAGE OF NET TURNOVER FOR DR. REDDY

20%

15%

10%

5%

0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

• Dr. Reddy’s Laboratories, sphere of influence extends across IT, Business Process Excellence (BPE) and Digital
Transformation of the pharma giant.
• It is using technology to invigorate internal operations and revitalize the partner ecosystem of the pharma company
and helping innovation flourish in the highly regulated pharma industry.
• The R&D Expenditure as a percentage of Net Turnover has been greater than 10% for last 5 years, hence it is going to
increase its market share quite significantly. Also, it is expected to invest $ 300m in R&D in FY20.
• It is leveraging digital to optimize current operations, elevate the company’s current business model and existing
processes and figure out new ways of competing differently in the marketplace.
 Evolution – Graphical Journey

1993
A separate company in the name of `Dr.
Reddy's Diagnostics Ltd.' was set up for
2015
the manufacture of diagnostics kits.
Entered into partnership
with Hetero to accelerate
1995 access to treatment for
Expanding to reach 2012
1984 The birth of a Strengthening our Hepatitis C in India
patients in other
dream 2007 capabilities
countries
Accelerating access to
expensive therapies

1999
2010
Started a new trend in the
1991 From medicines
pharma sector by installing a
From molecules to health
`satellite' discovery research
to affordable
laboratory in the US 2017
medicines
2001 Acquired 100% stake in
Spreading wings Imperial Credit Private
globally Limited, a Non-Banking
Finance Company (NBFC)
 Spending and Growth in Pharma sector

Source: Sun Pharma Annual Report Source: Sun Pharma Annual Report

FINDINGS

• The CAGR of pharma sector worldwide is poised to slow down to less than percentage in the next 5 years as compared to previous 5 years
• Pharmemerging markets are growing at a much faster rate than developed markets and the rest of the world at 9.3% CAGR
• Global medicine spending have dropped down in the last 3 years but slowly it is rising up and again
• Future prediction for global spending on medicine is set to be constant at 5% over the next years
• There is a positive relation between spending on OTC products and the high growth of pharma spending in the Pharmemerging markets
• Original brands make the biggest chunk of products in the pharma sector worldwide but that is not the case in pharmemerging markets
• Non original brands constitute over 1/5th of the total products all over the world
 Key SMoT Questions

Problem Statement: Sustainability of the cut in R&D Spending in maintaining

Competitiveness Revenue share per category
Management’s Comments: Annual report 2018-19
PSAI
Propreitery
• Absolute and proportional decrease in R&D Spend 16%
Products
4%
• Productivity Improvement measures: Cost Global
Generics
Optimization , Project Prioritization 80%

Questions

• Can R&D be substituted with Acquisitions to achieve the targeted product Peers: Large Sized Formulation
portfolio?
• Cadila Healthcare
• How long is the time frame at which the recently filed (ANDAs) with US FDA • Cipla
become commercially viable? • Lupin
• How long the strategy of cost optimization sustains and is the company • Sun Pharma
committed to pursue the new opportunities to growth? • Torrent Pharma
• Company’s position in adaptation of new technologies such as Big Data and • Glenmark Pharma
artificial intelligence in reduction of clinical trials and R&D Spends?
 Key SMoT Questions

Pharmaceutical Roadmap
Generic Drug Approvals in US
11. Marketing and Sales 900 841
816
10. Regulatory Approval 800
700
9. Clinical Phase-3 600
499
8. Clinical Phase-2 500
400
7. Clinical Phase-1 300 234
6. Pre Clinical 200
100
142
59 80 99
100
5. Load Optimization
-
4. Converting hit compounds to leads 2000 2005 2010 2015 2020
First generic approvals Final ANDA approvals*
3. Identification of hit compounds
2. Target Identification & Creation
1. Basic Biology
 Key SMoT Questions

Financial Benchmarking
Year Mar 19 Mar 18 Mar 17 Mar 16 Mar 15
Cost Breakup for Large Formulation Clients
DR. Reddy 11.29 15.43 15.18 13.84 12
Cipla 8.64 8.1 9.39 8.5 8.26 23.70%
2.70%
Sun Pharma 9.8 12.4 13.4 12.2 11.8 11.80% Other Expenses
Power & Fuel
Torrent Pharma 7.16 8.92 0.77 5 4.8 22.70%
Glenmark Selling Expenses

Pharma 7.03 5.94 7.3 5.6 5.4 Labour Costs

39.10%
Raw Materials

Net Profit Margins % Share

51% 60%

40%

17% 15% 20%

12%
0%
Mar 14 Mar 15 Mar 16 Mar 17 Mar 18

Industry Average Dr. Reddy

 Technological Benchmarking

Patented drugs , generics

Base and OTC Medicines
Tech.
Pacing Key API Manufacturing , Oncology
Tech. Tech. Formulations , Custom
Pharmaceutical Services (CPS)

Emerging Gene Modification , Stem cell

Tech. research

Artificial Intelligence, Machine

Learning and Big data
 Root Cause Analysis

Industry Factors: Regulatory Factor: People Factor:

High Competition in Large lead time in Ability to find and
generic market due to inspection and drug retain good research
large number of approval from US FDA and technology staff
players

Declining
Share of US
Generic
Company Factors: Technological Factors: Economic Factor: Markets
Reduction in R&D Adaptation of new Rupee volatility
Spending both in technologies like Big continue to pose
absolute amount and data , AI and ML to challenge in managing
proportion to sales reduce the number of revenues and costs
clinical tests.
 SWOT Analysis
STRENGTHS
Strong distribution network
Product Innovation
High level of customer satisfaction
Automation of activities - consistency of quality
Scalability based on the demand conditions in the market
Superb Performance in New Markets
Successful track record of mergers & acquisition.
OPPORTUNITIES
Core competencies can be a success in similar other products field
New customers from online channel
Develop cost effective ways of new drug development to improve
business in emerging markets
New partnerships to develop Biosimilar business
WEAKNESSES
Days inventory is high compare to the competitors
Limited success outside core business
Low profitability ratio and Net Contribution %
High attrition rate in work force
Gaps in the product range sold
Weak market positioning and unique selling proposition
THREATS
Rising raw material can pose a threat to profits
Imitation of the counterfeit and low-quality product
New technologies developed by the competitor
Growing strengths of local distributors
Changing consumer buying behavior from online channel
 Porter Five Forces Analysis

Threats of New Entrants Bargaining Power of Suppliers

• Economies of scale is fairly difficult to • Large number of suppliers
achieve • Standardized, less differentiated Product
• Product differentiation is strong • Low supplier switching costs
• Capital requirements are high • Suppliers do not provide a credible threat
• Strict government policies- licensing and for forward integration
legal requirements Rivalry Among Existing Firms
• Number of competitors are very few
• Very few competitors have a large
market share
• Product differentiation is strong
• The exit barriers are particularly high
due to high investment
Bargaining Power of Buyers Threat of Substitute
• Product differentiation is high
• Price sensitive buyers • Very few substitutes available
• Quality of the products is important • Very few substitutes available are of high
• No significant threat to the buyers to quality but are way more expensive.
integrate backwards
 Critical Success Factors

Market Position
Competitive market position, which could be quantitatively and qualitatively determined using the company’s market share, size in
terms of sales value and volume, as well as its growth history and anticipated growth prospect going forward. Brand recognition or
brand equity is also important particularly for over the counter (OTC) branded products.

Product Mix and Development

Company’s diversification strategy and policy in terms of demographic profile, products and market segments in an effort to maintain
steady revenue and profitability

Operating Management
How well the company manages its daily business operation, as a failure to effectively and efficiently manage the operation would
adversely affect the company’s future operating results

Marketing and Distribution Channel

Company's strategies to distribute products (how well the company adopts to the needs of retailers, how well the distribution matches
the retail forms, how well the company manages distributors, what kind of linkage/relationship/agreement between the company and
distributors) and examinations on others related factors that can ensure continuous product availability in the market in an effort to
support sales

Innovation
Companies initiatives and investment in Research and Development