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The Betapharm Acquisition

DRL'sInorganic Growth Strategy in Europe

We see ctur inuestnxent in betapharm as a hey strcltegic initicttiue towards becoming a mid-sized global pharmaceutical company with a strong presence in all hey pharmaceutical murket* betapharm hds creoted a strong growth platform and is well positioned for the future and we are loohing q strQtegic presence in Europe,l forwarcl to partner with them in building - Dn K Anji Reddy' Choirman, Dr. Reddy's Lqborcttories Liruited, in Mqrch 2006. Not only is Dr Reddy's non-existent in Germany, but the marhet has deeprooted sales crnd.distribution networhs that mahes inorganic expansion there tough and expensiuefor 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-uary 17, 2006. "Reddy's Seesbetapharm Deal as Panacea," Khozem Merchant and Andrew Jack, www.financialexpress'bd.com,July 08, 2006. B cs Secudties Limited is an Indian-based secudties firm and s paft of JV Gokal Group. It offers services in equity, debt and commodity brokering, portfolio management, depository facilities, and distribution of third-party products (Soulcel www.bricssecudties.com). @ 2006 The Icfai Center for Management Reseafch (ICMR). Alt Rights Reserved. For accessing and procuring the case study or loe on to www.ecch.cranfield.ac.uk www.icmrindia.org

The Betapharm Acquisition:DRL'sInorganicGroMh Strategyin Europe

DRL Gains a Foothold in Europe

on February 15, 2006, Dr. Reddy's Laboratories Limited (DRL), a leading Indian pharmaceutical company, acquired the fourth-largest genericl pharmaceutical company in Gcrmany, betapharm ArzneinriLtel GnrbH (betapharm) from the 3i Group PLC' (3i) for uSg570 mn (c4g0 mn). The sale deal also included the "beta institut for sociomedicalresearch GmbH,, (beta Institut), a non-profit research institute founded and funded by betapharm to conduct research on issues rerated to social aspectsof medicine and health management. The .cquisition was hailed as the biggest overseas acquisition made by an Indian pharmaceutical company. The synergies from the acquisition were expected to benefit both DRL and betapharm. Through this acq'isition, DRL courd get immediate access to the German generic rnarket, the second-largest generic market in the world after the US. Germany also accounted fol 667r of the generic market in Europe (Refer Exhibit I fcr. a list of the major generic markets in Europe). The acquisition was expected to help DRL gain a strategic presence in the European market as the generic drug market in Europe was expecteclto show strong growth due to rising public hearthcarecosts. It was also expected to help DRL re:rlize its arnbition of becoming a uS$1 bn mid-size global pharmaceutical company by 2008. betapl-rarm was expected to bencfit from Generics Europe in the acquisition as it would be able to adclmor.e Country Ceneric Market Size products to its portfblio and gpow at a much (in bn) faster rate in Germany. Besides, the Cermany 4.8 acquisition would help it to utilize DRL's UK 2.8 global product development and marketing France 1.6 infrastructure to expand its presence in the Netherlands 0.6 European market in the long run. 0.6 D r . W o l f g a n g N i e d e r m a i e r ( N i e d e r m a i e r ) . Spain 0.5 CEO of betapharm, commented, "Dr. Reddy,s Italy Sotrco: "DRL's A[)ar,, " Busine;sworro, impressive pipeline of generic and innovative lvlarch20,200(' products and its high quality standards combined with competitive manufacturing costs will heip further develop our position in the German market and offer an entry platform for the E u r o p e a n m a r k e t . I t s e x t e n s i v e a n d w e l l - r e c o g n i z e dc o r p o r a t e s o c i a i responsibility activities perfectly fit with our successful corporate philosophy and business model. we see Dr. Reddy's as our partner of choice to build a successfuljoint future and continue betapharm's growth and successstory."u
Lrene|rc clrugs (or Generics) are either copies or thc basic fbrm oi':r proprietary drug (or "brand-named") drugs produced by o larg" multinational. F';. ";";;r". Lipitor is the brand name of Atorvastatin by pharmaceutical maior pfizer h-rc. Anv othe. drugs with the same composition (Atorvastatin) made by other companie-r are cerlled senorics. 3i Group PLC is a private cquity trnd venture capital firm based ir-rthe uK. lli sr:rnos ibr investors in industry (Source: www.en.wikipedia.org). "3i Sells Betapharm to India-based Dr. Reddv,s Labs,', www.3i.com, Febmary f6, 2006.

Exhibitl: MaforMarkets for

Case Folio


February 2007

The BetapharmAcquisition:DRL'sInorganicGrowth Strategyin Europe

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 activities conducted by 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, which had also aggressively Ranbaxy Laboratories LimitedT (Ranbax5'), competed for the acquisition and was a pre-sale favorite to bag the betapharm deal, pulled out at the last minute quoting the high price. DRL, however,justifred the premium price saying that the advantages from the acquisition were manifold. A few also expressedtheir doubts as to whether DRL could leverage any benefits in the short-term as betapharm was reportedly emerging from a lean period. by A few months after the acquisition, there were already early signs of trouble, as the Economic Optimization of Pharmaceutical Care Act (AWVG) took effect in Germany on May 1, 2006. Though the act was expected to increase the scope for the use of'generic drugs, it also put some price caps in place, which affected the margins of betapharm. Anaiysts opined that the payback to DRL from this acquisition wouid take a f'ew years longer than previously expected. lt 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.*

DRL was founded Dr. Anji Reddy in 1984 in the South Indian city of Hyderabad

Background Note Dr. Reddy's Laboratories Limited

DRL was founded by Dr. Anji Reddy (Reddy) in 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 Limited (IDPL). in its researchand developmentdivision. Reddy was known for his entrepreneurship even before he established DRL. In fact, he was involved in fclunding and managing two companies, uniloids 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. Established in 1961, Ranbaxv now expo|ts its plodr.tctsto ovcr 70 countries with ground operations in 25 countries and manulacturing fat:ilities in seven countries including the us. For the yeal ended December 31, 2005, its global levenucs were US$1,178 mn. "Reddy's Faces Bctapharm Blip," u'ww.dnaindia com, October tl Chitti Pantulu, 9, 2006.



F e b r u a r v2 0 0 7

Business Strategy

In 1986, DRL became a public limited company ancr started exporting pharmaceutical drugs in the same year. The formulations operations started in 1987 and the company obtained its first US Food and Drug Administrationlr (USFDA) approval for the drug Ibuprofen. In 1ggg. it acquired a bulk drugs'0 manufacturing company, Benzex Laboratories pl't. Ltd., to boost the bulk drugs business. During the 19g0s, India was dependent on imports for its requirements of bulk drugs. However, the role played by DRL and other major Indian pharmaceuticar c'mpanres helped change that. By the 1990s, India had become self-reliant in bulk drugs and the bulk drug industry had becorne an export-oriented sector. T h e e a r l y 1 9 9 0 s s a w D R L e m b a r k . n a n a g g r e s s i v ei n t e r n a t i o n a l expansion with its products making their way to several international markets such as Russia, Europe, and bhe Far East. In 1993, Dr. Reddy's Research Foundation (DRF) was established to realize the vision of the company to discover new drugs and not just rely on reverse engineering the drugs discovered by other companies. The establishment of DRF made DRL one of the few pharmaceutical companies in India to have an active drugs discovery program. In 19g7, DRF achieved a major milestone when it out-licensed an anti-diabetes molecule that it had developed to Novo Nordisk AS.u This was the first instance of out-licensing by an Indian pharmaceutical company. And it was considered as a In 1986, DRL becante a Iandmark in the Indian pharmaceutical inclustry as it public limited eontpany was believed to have started the evolution of Indian pharmaceutical companies from being mere imitators of and started e.rporting drugs discovered by other companies into drug pharmaceuticq,t drugs irt discoverers. This accomplishment also enabled DRL to realize its objective of becoming a vertically integrated the sante vear global pharmaceutical company. The company continued to grow with several acquisitions, the most important being the acquisition of cheminor Drugs Limited in 2000 that helped the company become the third-largest pharmaceutical company in India. In 2000, Reddy US Therapeutics was established in the US to conduct target-based drug discovery. In 2001, DRL became the first Indian pharmaceutical company as well as the first Asian pharmaceutical company outside Japan to be listed on the New York Stock Exchange (NYSE). It also launched its first generic product, Ranitidine in the US market in the same year. DRL's first overseas acquisition was that of BMS Laboratories Limited of the UK, in 2002. In the same year, DRL also acquired Meridian Healthcare of the uK. By 200b, it had consolidated its position further
responsible for issues such as the determination of safety and effectiveness of drugs or drug devices for human or animal use (Source: wwwmedterms.com).

The us Food and Drug Administration (FDA) is a us gou"ir'r-".,lug.n"y *tri"h it

Bulk drugs are the chemicals that become the drug's active ingredient. Novo Nordisk AS is a Denmark-based healthcare company specializing in diabetic care. The company is also a leaderr in other areas such as homeostasis manaiement, growth hormone therapy and hormone replacement therapy (Source: www.novonordisk.com/about us.aso).

Case Folio


Februarv 2007

lriorganicGrowth Strategyin Europe The BetapharmAcquisition:DFtL's

ll: Acquisitions Exhibit DRL's Overseas

Company Name BMS LaboratoriesLimited Meridian Healthcare Limited


Year of Acquisition


2002 2002 2004 2005

R o c h e ' sA P I d i v i s i o n
Sr:urce: w.

scont drreclcJy

with two morc acquisitions (Refer Exhibit II for DRL's overseas acquisitions and Exhibit III for DRL's r e v e n u e m i x b y r e g i o nt . DRL also entered into agreements with several companies to market or license its products and the

(Rs. lll: Revenue by Region mn)* Mix Exhibit DRL's

2005-06 8,272
il Others & il# Russia Olher c o u n t n e so t t h e f o r m t ' r S o v i e tU n i o n Europe

Norlh America lndia

6,6s3 m,*,
4,349 2,169



* Asofjuly 24,2006U5$1wasapproximately to Rs. 46.935 equal

Adaptedfrom DRL'sAnnual Repon, 2006; ttuw.dneddylcont

molecules developedby it. In 2005, it announced the formation of the frrst Indian integrated drug development company,Perlecan Pharma. With more pharmaceutical sector, it was consolidation expected in the research-based expected that DRL, with its active drug discovery programs, might concentrate more on research and licensing of molecules, and forming (Refer Exhibit IV for DRL's transactions alliances with other companiesL2 with foreign companies in research). As of 2006, DRL operated in five segments:Formulations, Active 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.

in with Companies Research Transactions Foreign Exhibit DRL's lV:

Company Name Rheoscience Novartrs Novo Nordisk Novo Nordisk

Nature of Transaction
Codevelopment and commercializationof B a l a q l i t a z o n m o l e c u l e( D R F 2 5 9 3 ) e o Out-licensine f DRF4158 molecule tD L i t e n s i n go l R a g a g l i l a z a r R t ) 7 2 5 ' m o l e c u l e (DRF 2593) ntolecule Licensingof Balaglitazone
-Source: tm,.dreddys.com

Year of Transaction

2005 2001 1998



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.

Case Folio


F e b r u a r y2 0 0 7

Business Strategy

DRL had active social initiative programs through various entities such as NAANDI Foundation. D r . R c d d y ' s F o u n c l a t i o r ru n c l r h e , Center for Social Initiative & Management. The company also had wt:ll-established CSR initiatives and ptLblishedannual sustainability r e p o r t s r R e f e rE x h i b i r V l f o r a b r i c f note on DRL's CSR initiatives). For t h e f i n a n c i a l y e a r 2 0 0 5 _ 0 6e n d e c l Mztrch 31, 2006, DRL reported revenues of 482.2 mn and net .Source: DRI's ,justainabiltty Repoft20O5,,, income (after taxes) of 30.8 mn.r3 vw.dneddys.cont (Refer Exhibit VII for DRL's Income Statement and Exhibit VIII for DRL's Balance Sheet). As of.2006, the company had a total employee strength of 7,825.

Exhibit DR[,sValuepvrarnid V:

E*!4it Vt: A BriefNoteon DRt,sCSR Initiatives

DRLisengagedinvariousCSRinitiatlves.5omesocial'n'm NAANDI Foundation It is a not-for-profit deveropment institutionthat strivesfor eradication poverty. of DRL,s ChairmanK An.ii Reddywas the founder or tr,,ii'rnliiu,,uu, supportecr orher rike-minded by corporations' foundation The workstogether *ith gouoinments, corporates civir society and to rmprove livesof the underprivilegedl the the ""rpiJv,*r "r DRLareencouraged to contribute to so^cial initiatives through the,"i"o*"i"f to, (R..ib*6r;."th). DRL contributes amountthat an matches contributions the emproyees. the of This ,.,-runly. .n"nnerizedby the foundation ,, to support socialinitiatives '".'11lrl:fiving the O,lu1itV "or.urron in over2,000governmenr o1 schools, and providingmid-daymealsto ,*na"rpriuit"!"o srudents, creating sustainable social entrepreneurship models, etc.

i"{"d;;,.,p:'":i:fu:lPY;f':i:ili: y:llllh"one of the foundation'i f',iffi":,',iinli:'f;ff::'::fil:;il development' initiative, rhelivelihood Advancement

;'s',nt ,u,uttrl'unr lommunirv ffi[X?yJ:T?].tiiXiif:r:":l:l:.!"d;''ii;;; vouth,
Business (LABS), geared school is rowards underprivileg.i th^e p""pl" i".ruding schoor dropouts, unemproyec, safes, nurting'uriirt*ce, autc) mechanics androrr-*r,'Jl'^-fultomer.relations' (two lealthcare, housekeeping, drirlng,financial anct business services buckoffeili?fffr:l:*r"*"cruring, and

Dr. Reddy,sFoundation It is a social arm of DRLthat

and b',os*'i inlo.iat entrepreneurship to individuars,


;[IJJT?.J},',:;|' ff331*

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

Adapted fro rn tww.d rrcddy s.tant


I'r ''

Arzneimittel GmbH betapharm was founded in 1998 at Augsburg city in Germany by Thomas Aldreas Striingmann. The foundeis folmerly owned the Hexal Group 11d (Hexal)ta and betapharm was also run as a part of this group. In March
http://www.hooverslrm The Hexal Group founded in 1986, is the one of the largest generic drug manufacturers in Germany. In addition to manufacturing, it ul.o d"rr"lnp. ur_,i markets generic drrrgs (Sourcc: wwwhexal.de).

Case Folio


I T h e B e t a p h a r m c q u i s i t i o n : R L " s n o r g a n r c r o w t hS t r a t e g y n E u r o p e A D G i

txhibit Vll: DR['sIncome Statement

In Rs. mn (except for per share items) Revenue Other Revenue,Total Total Revenue Cost of Rr-.venue, Total

As of March 31, 2006


As of March 31,2005

As of March 31,2004

19,519.37 19,519.37 9,385.82 10,1 33.55 6,774.56 2,803.31 349.99

'20,1{\ J.52 20,103.52 9,337.25



Cross Profil
Selling/Ceneral/Admin.Expenses, Total Research& Developmenl Depreciation/Amortization InterestExpense(lncome)- Net Operating Unusual Expense(lncome) Other Operating Expenses, Total

r1,849.63 8,028.88 2.152.95 419.87

1 , 9 9 16 3 .



494.79 19/808.47


Total OperatingExpense Operatinglncome

Interestlncome (Expense), Net Non-operating Cain (Loss) Saleof Assets on Other, Net Income Before Tax


18,055.03 2,048.49 362.43 t29.12 2,540.O4 2,47O.79 3.36


3 ]O.57

1 8 2 34

IncomeAfter Tax
Minority Interest Equity in Affiliates Net Income Before Extra. ltems A c c o u n t i n gC h a n g e Drscontinued Operations Extraordinaryltem Net Income
5ourc<: w.f :

1,887.32 't,628.93 -0.08

107.O3 201.31 9.94 211.25


inan ce.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 as the non-executive director on the board of betapharm. betapharm thrived under its new owner as several measures were taken to streng$hen its position in the market. Under its new owner, the company made its transition from being a subsidiary of Hexal to a full-fledged pharmaceutical company as it was spun off as a separate organization. As a part of the post-merger integration plan, 3i worked with the management team to revarnp business development. supply management, financial services,and inventory and logistics management. Though dependenceon Hexal remained for sourcing its products, the company bolstered its own product pipeline by forging partnerships with independent drug companies, including drug companies in Asia. betapharm was well-known in German.y for its sales and distribution network. As the company had no manufacturing facilities and.just marketed products, the company had a dedicated team of sales personnei targeting specific groups of customers, such as primary care phl'sici6ns, pharmacists,

Case Folio


F e b r u a r y2 0 0 7

Business Strategy

Exhibit Vlll: DRL's Balance Sheet

ln Rs. mn (except for per share items) C.rsh& Equivalents Short-tenn Inveslments Cash and Shon-termInvestmenrs A ( ( o u n l s R e re i v a b l e- I r a d c , N e l Receivables Other lotal Receivables, Net Total Inventory Hrepatdtxpenses 5,348. 5 1

As of March 31, 2006

3,712.64 14.70

As of March 31, 2005 10,562.t4

As of March 31,2OO4

10.363.95 160.69

3,727.34 5 , 0 4 8 .5 1

10,562.24 4,355.69 4,35s.69 4,O37.89 2,088.44 21,044.26 1 1 5 4 16 2 . , 2,508.45


1,932.89 t,932.89 3,670.00 1, 9 1 2 . 1 7 20,o39.7O 11423.51 , 2,57 .O1 5 1,01.50 5 283.71



Other CurrentAssets, Total Total Current Assels Property/Plant/Equipment, - Cross Total

trOO0wlll, Net


I n t a n g i b l e sN e t , Long{erm Investments vurer L0ng-Iermnssets, lotal

17,034.56 1,222-86 4,699.79 | _+


254.56 31,656.06 1,875.98 2,490.12 4,108.57 5.92 613.08 9,093.67 22.18 22.18 4,136.68 536.26

Totaf Assets
Accounrs rayabte Accrued Expenses Notes Payable./Shorr-termDebt L U r r e n l P o r 1 o l I I D e b u c a p i t a ll e a r e s . O t h e r C u r r e n t l i a b i l i t i e sl,o t a l

58.768.07 *_

1,838.50 2,468.30
f , 9 1 7. 8 7 5.92 547.71

9,l t2.46

1,812.62 18,744.86 20,9t7.1 J 20,937.13 30,995.35 6,346.17 468.17 46,496,34

TotalCurrentLiabilities Long-termDebt
Capital LeaseObligations

8,778.29 23.66 23.66 3,947.45 613.46 190.52 9,605,94

Total Long-termDetrt Total Debt

Deferred Income Tax Minority lnterest Other Liabilities,Total

Total Liabilities
Redeemable Preferred Stock, Total PreferredStock - Non+edeemable, Net Common Stock, Total A d o r t t o n a tP a r d - t n a p i t a l c


378.59 10,724.91 1 1 2 0 17 9 . , -33.56


377.81 10,562.70 10,809.8.:l 69.58

21,819.94 31/656.06

177.81 10,533.29 10,356.62 68.05 21,335.77 30,941.71 76.54

Retained (Accumulated Earnings Deficit)

lreasury Stock - Common

OtherEquity, Total Total Equity TotalLiabilities Shareholders, & Equity

SharesOuts - Common Stock priman, lssue


Total CommonShares Outstanding

).)ource: lw.iiltance.


Case Folio

February 2007

The BetapharmAcquisition:DBL's inorgani; Growth Strategyin Europe

etc. The personal sales efforts were also supported by a public relations program. "beta" brand betapharm distinguished its product portfolio through its ancl pr.imarily concentrated on high value segrrrents.Thc product portfolio of betapharm enabled it to have a strong presence in categories such as cardiovascular, 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 its market share, and driving its revenue growth. The company was also well-prepared to introduce generic substitutes to brands whose sales exceeded10 mn each and whose patents were to expire in the years leading up to 2010.

Portfolio Product lX: Exhibit Betapharm's

1O.7 olo

sy C.rrdiovascular stem f 'iiffrfii1 Central neryous s,vstenr ism tracl and metaLlol Castroint('stinal i A n t i - i n f e c t i v e s y s t e mc , Musculo-:celetr.rlsysten.) :iri::Others

Sburce; wvbe.tap

harn t.cont hn ed ic in es.htm I

As of 2006, betapharm was X: Exhibit TopFourGenericDrugs the fourth-largest genetic in Companies Germany p h a r m a c e u t i c a l sc o m p a n y i n Company Rank Germany, with annual sales of Hexal, AC 186 mn in 2005 (Refer Exhibit I R a t i o p h a r mC m b H X for the top four generic drugs 2 companies in Germany). It was l StadaArzneimittel AC also the fastest growing generic 4 betapharm Arzneimittel CmbH company in Germany. growing "Reddy's Faces Betapharm Blip," Source:C Chitti Pantu/u, at approximately 26'/( Per www.d n aind ia.com, ()aober 9, 2006 annum. The company had a workforce of about 350 employees,out of which around 250 employees were dedicated to the sales function (Refer Exhibit XI for key figures for betapharm). The company also had well-defined CSR initiatives. The non-profit "beta Institut" was establishedin 1999 to undertake sociomedical research projects sponsored by betapharm. In addition to this, beta Institut had its own research funds to undertake projects related to patient-oriented

Case Folio

F e b r u a r y2 0 0 7

Business Strategy

case management, disease Exhibit KeyFigures Betapharm Xl: for management, health system r9 9 3 management, and psychosocial Founded irr the year (2005) Revenue health.1r' 186 mn
growth (20O0-05) Average revenue

DRL's Acquisition Betapharm

Market share in Cermany Position in the Cerman generic markel Number of employees (2005)
Compiled frorn variou-{s&rces

26<'lo pel annum

3.5 to 4ol, (approx.)


A Gateway to the SecondLargest Generic Market When 3i put betapharmup for sale in 2005. it attractedthe


interest of several major pharmaceutical companies around the world, including the world's biggest generic drugs manufacturer, Teva Pharmaceutical Industries Limited.r'i Several reasons were attributed for this interest. rhe most important factors were betapharm's strong marketing infrastructure and instant accessto the German generic market, which many experts believed was very difficult to develop through organic growth.ri The good value offered bv betapharm played a major part in attracting potential buyers. Schuler said on the attractiveness of betapharm to potential buyers, "We have substantially built value by complementing many of business functions such as procurement, finance, and controlling and business development. All that has led to an independent company with a unique positioning representing a clear gateway to German market, which is the second-largest generics 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 generic pharmaceutical sector in Europe and its attractiveness to Indian pharmaceutical companies). There were several reasons for the interest evinced by the Indian pharmaceutical companies such as DRL and Ranbaxy, in aL-quiring betapharm. one of the principal reasons was the intense competition in the US generic market that had impacted their profit margins. It was estimated that the generic companies had previously had margins as high as 25% on the generic products sold in the US, but this had shrunk to abott \c/c as a result of intense competition. In addition, an increasing number of branded manulacturers were coming out with their own genelic versions once the patents on their drugs expired, making it difficult for the generic companies.
www.betapharm.com/corporate-sgcialbeta-institu t.html responsibility/research-and-developrnent,l

Teva Pharmaceutical Industries Ltd. is an Israel-based company involved in the development, production, and marketing of generic as well as branded p h a r m a c e u t i c a l d r u g s . I n 2 0 0 5 , t h e c o r n p e r n yr e p o r t e d a n n u a l s a l e s o f U S $ 5 . 8 b n and had a workforce of'25,000 employees (Source: www.tevapharm.com). In organic gr-owth, a company gtows by increasing its output and sales in a gradual manner. In inorganic growth, a company grows rapidly through mergers and acqursrtrons. rE "Exce.pts from cNBC - TVlB's Exclusive Interview with Bernd Schuler. partner of Si Germany, www.india-now.org, February 17,2006.

Case Folio


February 2007

The BetapharmAcquisition: DFiL's InorganicGrowth Strategyin Europe

pharmaceutical Exhibit l: A Noteon the Generic Xl sectorin ruiop" *a it,

Attractivenessto Indian PharmaceuticalCompanies
Due to rising healthcare costsin Europe,many countrieswere looking toward genericdrr,rgs an as alternative to costly branded products. lt was reporterdthat the."Er,rropeo"n ni"n.y io, tr.l" Evaluationof Medicinal (EMEA)products, had revisedrhe rules un,t pro."Jrr"s c?nce'rning tne generic drLrgs market in 2006 so as to make it more attractivefor genenc companies. By 201 1, patents.fordrugs worth 1 i .B .bn were expected to expire in major generic markets ac'ross Eur,rpesuch as France,cermany, the UK, and ltaly. (ReferTable n for ihe estimated values of patents,-'xpiring from 2006 to 20i l). In Europe, the market for genericswas gro*injJaster than ul branded drugs, thus making the acquisition of betapharm"nrore"attractive llrnl (ReferTable B for generic drugs vs. branded drugs in different Europeanmarkets).

Table A: Value of patents

Expiring Europe in from2006 2011* to

Table GenericDrugsvs.Branded B: Drugs: GroMh in Different (2005) European Markets


CenericDrugs Growth (in %) 3B 35 21

BrandedDrugs Growth (in o/")

B 6 4 1 1

2006 2007 2008 2009 2010

* Estimatedvalues Source:"DR|s ADay," Businessworld, rch 20, 2006 Ma

1.7 1.8 2.O 1.7 3.1
Cermany France Italy Spain


Sou rce: "D R!'s D,Dat; " Businessrvorld, a rch 20, 2006 Ni

According to Niedermaier,the peculiarityof the genericcirug manufacturingsituation in Europe was giving sc<-rpe acquisitions.lt was saidthat the manufactureof generiidrugs for had cleclined in Europe due to policies that made the developmentof generic drugs illegal ev-ento1research purposesduring the patent period. Therefore,the companies were firced-to concluct research outside Europe.The manufacturingand developmentofihe generic drugs was outsourceci so that the European companies could launch them on the first cliy of pateni expiry. As u i"ru,,, ,nu Europeancompanies shiftedtoward concentrating the maiketing aspectsand outsourcing on the production' This enabled companies like DRL, which had strong manuticturing capabilitie-"s, to look at acquiring Europeancompaniesto enter the new marketsand complemeni the advantages they enjoyed. According to some analysts,more mergersand acquisitionswere expecterl in the near future in the pharmaceuticalmarkets of Europe and the US. The US generic market was consicrered as expensive for Indian companies in terms of acquisitions(ReferTable C for the acquisitionsby Indian.pharmaceutical companies).In Europe,pharmaceuticar companies in westein Lrropuun countries such as spain and ltaly could be of interestto the Indian companies, as they were c o n s i d e r e d l e s s r i s k y a n d m o r e r e a s o r - r a bpy i c e d . H o w e v e r , t h e c o m p a n i e s ' i n lr the eastenr European countries were considered to be less attractive due to their small populatron ano eronomy size.

Table : Acquisitionsby Indian PharmaceuticalCompanies

(fune2003 to lune 2006)
lndian Company Name

Acquired Company Name

betapharnl Aventrs Veratide (B r a n d ) Terapia

Acquired Company Country

Cermany France Cermany Romania


Acquisition Value (in USgmn) 570


Month/Year of Acquisition

February 2006 2004 .lanuary June2005 June2006


Cas" rot;o



Therefore, the Indian companies were compelled to look out lbr new markets and new avenues for growth. In such a scenario, Europe, especially Germany, being the second-largest generic market afier the liS, oft".ud significant potential for growth. Alexander Groschke, an Analyst saicl, ,,This is the right market to access fbr an Indian cornpany The market is saturated with branded generics. You can build from scratch, but that takes lbrever.,,1e The global ambitions of the Indian pharmaceutical companies were also said to have played a major part in the extensive tiaaing for betapharm. Dominic Hollamby (Hollambay), Global Head (pharma and healthcare practice) at Rothschild,ro said, ,,On the suppiy side, f.ew companies are being divested in the US and Europe. We have worked with several large Indian companies and seen their strategies over the last few years. Many of them have promoters with a personal stake, who want the business to grow. They are familiar with regulatory markets and conlident about acquisitions. Further, Indian capital market is very robust, so capital is easily available and relatively cheap. Hence, Indian companres are aggressive bidders. In fact, in some recent deals, Indian companies have been among the top three bidder.s.,'r1 DRL and Ranbaxy Cornpete for betapharm

the_various competing firms from India, the race to acqurre ,Among betapharm had ultimately narrowed down to Ranbary and DRL. lndustry analysts had predicted that Ranbaxy was the favorite to seal the deal as it was already present in the German market through the acquisition of Bayer AG's,, generic business in Germany in 2000, and the takeover of
r' "Dr Reddy's to tnL" O Februarv 17. 2006. Rothschild is a leading international investment bank with offices in more than 40 locations worldwide (Source: www.rothschild.com/home/). "Indian Companies are Aggressive Biclders,,'Basizess Todat, May 01,2006. Bayer AG, heaquartered in Leverkusen, North Rhine_Westphalia, Germany, rs a well-known German chemical and pharmaceutical "o^p"rry fo.rr_rd"a in iSOA.

Case Folio


February 2007

The BetapharmAcquisition: DRL'sInorganicGrowth Strategyin Europe

betapharm was expected to strengthen its presence in 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 "aggressively" as this acquisition would have he had bid for betapharm 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 addition to the business synergies for both the companies,their 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 for ourselves in Germany through our social corporate responsibility, which means that we have intertwined our commercial duty of producing and distributing pharmaceuticals with our self'-imposedtask of 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 social medicine and health management. That's from our side. Dr. Reddy's are known in India for t h e i r s o c i a l w o r k a n d t h r o u g h t h e i r c o r p o r a t e c i t i z e n s h i p . " : ; ;S c h u l e r "We think Dr Reddy's is important from both the further explained, business perspective and cultural perspective. It has got a great product pipeline, low-cost, competitive and high quality production base. The company's culture is based on the tt'ust of people and hands-on "2a entrepreneurship. 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 team 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, something most Indian firms have a reputation for, especially when striking the large deals."2;
"I3etaph:Lrm in 'Good Mood' aftcr Dr. Reddy's' Takeover'," www2.http:iilvww2.dwr v o r l d . d e r .F e b r u a r l ' 1 6 , 2 0 0 6 . j "FJxcerpts iiom CNBC - TV18's Exclusivc Interview lvith Bernd Schuler, Palttler of ili Germany," www.india-now.org, February' 17, 2006. r-' "Prescliption fbl Success," India Todo'r, Aplil 03, 2006. Jr

Case Folio

February 2007

Business Strategy

In total' DRL paiclcnlg for the acquisition out of which tne companv T.1 was reported to have paid g0 mn from its inte.nal .u.h ."ro.uus and the .emaining through a loan from citibank.!6 .rhe loan from the bank was to be split in two halves, with cach half being accountable in the barance sheets of DRL and betapharm.^The ;;;"", had prior approval from its shareholders to raise f'unds from the iarkets fut thi'"u-our, .'u. reportedlv not interested in this option. G v prasad (prasad),Vice_chairman and cEo of DRL, d.escribecl betupha.'.'s acquisition as an ,,accretive,,r; acquisition that would not impact DRL'; trntto- rine or burden its earnrngs. He said, "The acquisition is "urni.rg.*,.";etive. The profit generated f'om betapharm will more tha. pay ro. ir'ru i"turest costs o'acquisitiop.,,:s However' some industry observers felt that the 4g0 mn paid for the acquisition was too high when compared to the annual revenues o1. betapharm. Reacting.to these .ur."".rr.i p.asad said, ,,It is not sales alone that needs to be taken into consideration. you should roox ut profits, prolitabilitv and earnings before i'teresf depreciatio' and tax (EBIDTA). If'you look at grobal benchmarks r" ."q"i.rti"ns, the multiples are about 12 times of EBIDTA. our acquiritio,-r oiuntapharm is we, within that range' of course' it is delinitely not a low-cost acquisition like our Roche acquisition.2r) But the m.rket is difT'e.e.t this time. It is now branded business and we have the .urtul,_rof,;irt-u ui._,,.g1^,' here.,!jjo 3i took financial, udr1t:u,i." th: :rcquisition from Bear Stealns Internationar Limited'ir_and sal.oppenl-r.,;,rri,, and regal advice from olifford chance LLP'r'r DRL utilized *'" .".,ri"". n? notr."i.ilcr for financiai aclvice while the legal advice was provided by Freshfields Bruckhaus Derinser.,il

Benefits of the Acquisition

was gerting an jmmediate presence the "T:*::*:l:tll:_ool,German in generic ma.ket anct the;;;";,i#rdii;il: from the acquisition

roundr:d il;;-;;;;',:";::""in:,';'?fi,i;.ilj,ll".' i' r812 :":.:::.:::-rany acquiring companv,s iJ.H:::hlsii::Til: Per Share tEpS) (Source ;iil,:i,T,J:il.:::,::::lh" Earning h;;p;;;;;p;;;.i.,;::;l " o"'*'s

Still Ga're{i' rAcq'isitions: cEo," wwwbronnet.com,


on November g.2005., DRL announced that it.had-signed a crefinitiveagrecment to :rcquir.e Roche,s ApI busincss "t R;"lr'N;;;ico facility.


"*Ur's still carne fc,rAcquisitions: cEo,,, www.blonnet.com.

Bear Stearns International Limited is a wholl-v_owned subsidiary of T,he Bear Stealns companies Inc., one c,f tr.re la.g.rr-"ui'*"]ilr",r*n financial serviccs firms ' rv.rld lt offers sr':rvices.inglobal the i";.-r;;;;, securrtres, and br..ke.age (s.urcc: wr,vw.en.wikipcdia.orgiwiki/Bear Stearns)., 's Sal opperrreim is a Gerr.nan-bascd privato b.nk involvecl in asset rna'.gcrnent and investment banking. 1 1 2 3b n o f a s s J t s a n d h a d a w o r k l i r r c e o l l l , l 6 0 i e:m9 lld r *e : "s ; ( ; . . a g ec e : : i: p ov :e ; ;Sour. d wwwoppenheim.cic). ri cliffbrd chance LLp is.a global law firm based in L.ndon with 2g offices world*ide rn Asia, Europe, and thc Americ.s G;;;;;;;**.cliff.rdcharco.com). 'r Freshlields Bruckh:rus.Deringer is one of the reading law firms in t r - r ew o r l d w i t h over 28 olfices woildwide rS^,,r",-. .",rr.1"",'i ti"lar."u,r,,,.

Case Folio


February 2007

Growth Strategyin Europe The BetapharmAcquisition:DRL'sInorganic

market' Analysts said that DRL presence to expand in the European a c q u i r e c l t h i s p r e s e n c e w i t h o t r t a n y r n a j o r l i a b i l i t i e s a S b e t atpa a r m w a s a h healthv was consistently pp'owing considerecla proiitable company that p'oducts i'troduction program Satish rate and had a we[-piu.r."a frtu." "We looked at its turnover and Reddy, MD and COO ;i DRL, explained' as manv as has 3'5% market share in Germany; Ot"fii"t ifi,t Betapharm fbrce of 200; and 145 strong sales field' of 370 enLployees, which there is a had to do all this launch calendar until 2009 If'we brands, with a clea' The acquisition was prohibitively high... from scratch, the cosl wourd be for us'"35 a market entry strategy acquisitiorl was-in-line'with DRL's Nieder:maier said that the betapharm "Our bt'tsiness was ideally designed for ambitious global pians' He said' whether it is the-healthcare thc German market with its peculiarities' oui' comlnunication design' This is .r.,"rn, product distribution' or s t r e n g t h . r r ' " . n u . , ' ' - o i t h i s c o m b j n a t i o n i s t h a t D r ' . R e d d y , s the n o t h a v e ' d i d German its population shrinking' a presence in (iermany " ' Despite 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 bglobalo n inati There was a gap in Dr' Reddv's {its perfectly, life a jigsatt puzzle' "'r" picture ;;..it, and we perfectly fit into that

DRLcouldalsoincleaseitsproductportfolioandsellaVarietyot.genertc products' betapharm's product portfolio drugs in addition to ,ts n*i'tit'g o{ DRL' which had only 105 products ' was rruch more diverse than thal ; products in a few categories' it was felt Though there were some common Delalrrrarr' D ! to use betapharm's ; intencted not affect either party. DRL also intended that it would .tot afi"ct Jtft"t p*ty' lr-rutii to expand its product to opu'la its productline through""t.,T:"t"f": $ intrastructure regulatory regulatory intiastructut" lll" lni::*l:"^t",T:J"#; "We have a vast portfoiio of generic druSs' We i I Niedermaier explained, ingredients and $ with different active pharma have 150 products portfolio, we can cover major ailments $ combinations. By addinf ".r"*," our or central '-t"tt'ottt system Utt"t1:]:- 1: $ Iike cardiovascular Jilo'a"" tn q administrative activities' even E u r o p e , w e h a v e a c o n v e r g e n c eo f Dr. Reddy's can utilize I authorization. pharmaceuticals and fn"i. -"urt "ting to make Europe' We can t"" nt Reddy's capabilitl' this for expanding into I the right time' Our I amount u"d ut the products in the right quaiity and getting marketing authorization' and I experience in t"g-r.t"ti'-t; p'od'lltt' and utilizins the """itott-"its marketing products in specific European I useful'"'rt pot'ibl" *iit utto be available technologies ut bu't ut I coupled with the t"tt"ttt:t-l:l]]ll The ageing European population generlc with an attractive European healthcare costs preserttea Onl I hishf individuals in Europe was verV market. The average life span of sciences.This r,l,asespecially,.'"..jI thanks to the advances in the health one of the rvorld's most advanced a country like Germany, which had large and mature healthcare -"lftt; healthcare systems that resulted in a I sales volume of the Pharmaceutica It was reported that in 2004' the gZS'Z b.''rs With an ageing lolulation and industry in Germany *t'
r "Our Risk l,s NIay Bt,tslne.sstl.ot.lrl, 01, 2006. 'r; ..Tlris CombinationFits Perfectly,,, "'fhis CombinationFits Perfectly"'Brslrtessu'orld'\itay 0f ' 2006 t de' August zuuD lndustry in German1""http:iirvx'wv{a n 'Ihe Pharmaceutical

I 1

Case Folio


I --F"-b".,*t2o01

Business Strategy

increased healthcare costs, analysts expected a lurther increase in sales of generic drugs. It was believed that the g"rowing German gJeneric drugs market coupleci with its huge size ofl'ered an excellent opportunity fbr DRL to make prolits over a long period of time. That bctapharm did not have any manufhcturing plant was also considered as a benefit as it would ncgate the possibilitv of retrenchments and allow seamlessintcgration with DRL. At the time oi' the acquisition, betapharm was outsourcing thc entire production ancl it was expected that the lorv-cost manufa,:turing advantage of'DRL could be utiiized by betapharm to source drugs and market them in Germany ar economical prices. The strong marketing infrastructure of betapharm offerecl wellestablished distribution channels and relationships with doctors. pharmacists, etc. Analysts considered that jt was difficult to build these channels and relationships in Germany and would have been almost impossible fcrr an outsider like DRL. Therefore, the acquisition enablecl DRL to acquire a tailor-made rnarketing infrastructu'e to market its generic drugs by leveraging the brand equity of betapharm. Further, l)RL's own generics could be introduced and sold in the German market utilizine the marketing infrastructure of br:tapharn"r. Commenting on the distribution adr.'antagein an interview, Hollamby said, "Indian companieshave a large pipeline oi products and want a presence in the local markets. So, they are looking at companies with a strong distribution capability in thcir respective markets. Local companres, on the other hand, need to be effectively vertically integrated with a supply of competitively priced products. Hence, joining with the Indian companies makes sense."rJe Another major gain fbr DRL was that with this acquisition, it could reduce its dependenceon the US generic market. Though the US was a major market for DRL, as it contributed 16% of the DRL's revenues,the company was gradually losing markct share due to increased competition and some litigation problems. The acquisition was expected to give DRL a strategic presence in the European generic market. In fact, DRL justified the premium price paicl to 3i because of the strategic and long-term value expected from this acquisition. Prasad said, "we are very excited with our strategic investment in betapharm. betapharm with its diff'ercntiated business modcl has all the key elements for achieving successin a fast growing generics market in Germany. we strongly believe that this strategic investment will generate substantial opportunities for long-term value creation for both companies."r,r He further said, "In the long-term, betapharm would be a vehicle for launching Dr Reddy's products in the German market in particular, and
'r' '' "Indian "Dr. Companies are Aggrcssive Ridders," Brrsinessroor./d, al, 0 1 , 2 0 0 6 . M

R e d d y ' s S i g n s D e f i n i t i v e A g r e c m e n t w i t h B i f o r t h e S t r a t e g i c Acquisition of betapharm," www.drreddvs.com, Februarl, 16, 2006.

Case Folio

February 2007

The BetapharmAcquisition: DRL' sInorganicGrowth Strategyin Europe

the European market in general. The R&D capabilities 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 company by 2008. In an internal communication sent to the employees after acquiring betapharm, DRL said that one of the reasons fbr the acquisition was to reach the uS$1 bn revenue goal by 2 0 0 8 . T h e a c q u i s i t i o n a l s o i n c r e a s e dt h e r e v e n u e s o f ' D R L b y a r o u n d 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 in the context of DRL's declining sales in the US generic market and the litigation costs it was incurring in the us. Further, DRL's domestic m a r k e l j n I n d i a w a s v i e w e da s n o t b e i n g l a r g e e n o u g h t o g e n e r a t ee n o u g h 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 impact 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 scope of using generic drugs, there was also pressure on generic drug companies to recluce their prices. An analyst at a ieading securities colnpany "Price cuts on generics in Germany have ranged between commented, 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, which resulted in a decline in revenues. Prasad ,,b"tupharm had a difficult time in the first quarter, primarily on .r,id,
@cquisitions;(]Eo'''www.blonnet.com.Febrrrary1?. 2006.
! c t)hitti Pantulu, 2006. "Reddy's Faces Betaphann

Blip," rvu'w.dnaindia.com. october 9.

Case Folio


February 2007


account of the government bringing trown the reference pricing.a,rln addition. we had some one-timu .o.t., such as writing down the value of the stocks in the market place. These two factors have contributecr to add pressure 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 hit and this situation will continue for thr: balance portion of the year.,,r+ some anal.ysts a-lsosaid that large iesearch-based pharmaceutical companres' such as Novartis,+5were prarning to tap trr"'gn""ri. market opportunitv. with large manufacturing, fi:rancial, .nd ma.k""ting resources at their disposal' these companies were airning to capture ;;;;", share oi. the generic market by rereasing their o*n gene.i" proclucts. In such ir scenario, it was believed that it woulcl be-very airri"rri-?o. DRL to significantlv increase its market share. {2 Debapratim purhayast ha,

The I cfai Cert er for Manager, " r, f;:::i


Soorya Tejomoortula,

TheIct'aiCent..r. Manage*rrr?;i::lrf for


Rajiu Fernand.o,

The I c i C rt er for .vr ag r. r r, o[iil,!':, r yr"r;f fa e an e ;i

References 1. 2. 3. 4. 5' 6. 7' Dottg Bandow, Sauing pfennige, March 17, 2005. Costing Liues, uwu.cato.org,

DRL's Sustqinctbility Report 2005, www.drred,d.ys.com Betapharm in Mood.', after Dr. Reddy,s, Taheouer, ,',Good utuw2.dw-world.de, February 16, 2d06. Dn Reddy's Buys Betctphe.rm, www.telegrapJt.indio.cotn,Febrtta,y 16, 2006. Dn Reddy's s,uT" Definitiue Agreement with Bi for the strategic Acquisition of betapharm, nlo w. drarecrcry m,, irorir'"rr', 6, 2 006. s.co 3i Sells Betapharm to India-based. Dn Reddy,s Labs, wwtu.Ji.cont, Febrttarl, 16, 2006. 3i sells German compdny Betapharm Arzneimitter in 4g0 mn Transaction, wuw.altassets.net,' February j6, 2006.
under referencepricing, d."g.;. g.r.,l"'-,1 phr."rA"s-.i;q,,""r1"r-... by G""".ri", listed rogether."a'."r",."""" plices ale sot basedon the ;i$"i.:,-":"lj:."..*,:,-.." difference between th,,,chcapest'""a

'"rt^""pcnsive dru6;s. Innovativc and therapeutically important d_rugs aro. theoreticallv, excrnpt (Source: "Saving pfennige, Do,,,g Bor,do*l Costing Livos,,, .r*rr;;;;;.;;.;,''Mo..h 17, 200s). bn in Revenues this Year: Dr Reddv's," www.news.mone.ycont.or.com, ;ilC,'|:t;rf;lu

Novartis Internationar AG, headqua.tered irt Basel, Switzerrand,is a multination.l pharmaceutical complnl' created in 1996 r.um irr" -".*"" "r-aig;]cl'w ."a Sandoz Laboratories. o"l.-"1.0]l* i11.S i,iro'1i'euantum, Novartis has a global market sharc o1-4.87. basecl sales1br the l2 mor_rths on 1i, endingJune 2005. Case Folio


February 2007

The BetapharmAcquisition: DRL'sInorganicGrowth Strategyin Europe

8. 9.

CR Sukuntar, D^ Reddy's Stiil Game for Acquisitions: wuw.blonnet.cctnt, February iZ, 2006.


Dn Reddy's Buys German Co Betapharm for Rs. 2,250 cr _ Biggest Ouerseas Acquisition by an Indian pharma Co, wwut.blonnet.com, Febnrary iZ, 2006. cEo, uwtu.blonnet.corn.

10. Dn Reddy's still Game for Acquisitions: Feb,.uary 17, 2006. 1 1 Dr. Reddy's to Tahe ouer Betapharm, c.ont.hk,, Fcbruary 17, 2006.


1 2 Excerpts from CNBC - TY18's Exc:Iusiue Interuiew


ui,th Bernd Schulen Pq,rtner of 3i Gennany, tuwtt'.inclia-notr,.nrg, Febnnnt, 17, 2006. Our Rish is Noro Being Managed, r)tl)LL,redil/:com, March j0, 2006.

1.1.DRL's D-Dqy, Businessworld, March 20, 2006. 1 5 . Prescription for Success, India Today, April 03, 2006.

Indian companies 01, 2006.

are Aggressiue Bidders, Business 'fodar,: Mn' Fits Perfectly, Businessworld,, Mctt, 01. 200(;. Europe, u)wu.expresspharntaonli e.utnt, n

17. This Combination

18. sopna Dogra, Destinatiott Jult, 1-15. 2006.

7!). Kh.zent Merr:h.ant and Andreu ,Iat:h, Redd.y's sees Betapharm Deo.l as Panacea, wwu.fi.n.o n.t:ialexpress-bcl.cot,, Jul.y 0g, 2006. 20. To cross $1 bn in Reuenues this year: Dr Redd.y's, u)u)rL,.neu)s rttort.av<:on.trol.com, 28. 2006. J u Lv 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 rnt..r:onr 25. wwLt.cliffordc han.ce.cont 2 6. utw Lu. rl.r'reddy r:o s. nt 2 7. tuw u. entea. eu. i n t I htrrtsIabo uttt sI emeao ue rrti ew.lt t rn 28. uuw.en.w i,kipedru,.org 29. u;uu:.finance.google.cont 30. utww.finnncial-dictionart,.thefi-eed,icl Lury.cont i ct r i) 1. wtuu:.freshfield,s.cont 32. wwu.hoouers.clm i)3. tuuttt.oppe tilt.cirn.d e 3 1. u,w u;.tt,oc lt.lta -cotrt. rdt

-02 Reference# l4M-2007 -02-07

Case Folio 78

February 2007