Dr.

Reddys Lab acquisition of

Venus Remedies Ltd.
Group 13
Hitesh Garg (13P078)
Nikhil Gambhir (13P091)
Gopesh Nakra (13P104)

Group 14
Samarth Kagdiyal (13P041)
Shreyans Gangwal (13P047)
Apratim Saha(13P066)
Shashank Mishra (13P110)
Erika Di Diego (14CBS01)

Indian Pharma Sector Overview

Indian Pharmaceutical industry:

Indian pharma market: valued at US$12 billion and accounts for 1.4% of global pharma industry
With 72% market share, generic drugs forms the largest segment
Market is highly fragmented with top ten companies accounting for around 35% of the market
Expected to expand at CAGR of 24% to reach US$ 55 billion by 2020
Revenue($bn)

Revenue Share

9%

100

Generic

19%

50

72%

2005

2013

2020F

OTC
Patented

Growth Drivers:

Rising household income levels

Increasing Prevalence of lifestyle related diseases: Rapid growth of chronic segments
Improving healthcare infrastructure/delivery systems
Wave of patent expiries: Growth for generics players in developed markets such as the US
Rising penetration in smaller towns and rural areas

Challenges:

Competitive pressures on domestic market as MNCs become aggressive in pricing policies

Price controls exerted under National Pharmaceutical Pricing Policy impacts top line of
pharmaceutical companies
Crowded generics space leads to increasing competition for Indian generics companies

Business Description

Founded in 1984, based in Hyderabad

Family controlled business
Manufactures and markets a wide range of
pharmaceuticals in India and overseas
2012 revenue was $2 billion
Vertically integrated business with 3 segments

Pharma Services & Active Ingredients

Global Generics (80% of the revenue)
Proprietary Products

28% revenue growth

during 2008-13 in
the emerging
markets

Source: Dr. Reddys Investor Presentation November 2014

Strong revenue growth over the last decade

Venus Remedies Ltd.

Incorporated in 1989, Chandigarhbased
Presence in 60 countries and
covering more than 75 products
Contract manufacturer of
Oncological and Cefalosporine
products
Focus on R&D and IP generation
Invested 12% of sales in R&D in
FY14
Strong R&D focus on high growth
anti microbial resistance and
Oncology segments

Oncology
High unmet needs and
product revenue potential
Worldwide sales of $78 bn in
2012, expected to reach $110
billion by 2018
Price of cancer drugs has risen
from an average of $5000 per
month to $10,000 per month
Biosimilar market has not yet
fully materialized
China and India show
untapped potential as the
disease population outpaces
the treated population

Source: http://www.pharmexec.com

Strategic Rationale

Strengthen Oncology
Segment

Cost Synergies

FDA approved
Manufacturing Centers

Improved Competitive
Position

Dr. Reddys will be able to strengthen its expertise in the oncology

segment as a part of their generic business (oncology being a key
offering in all major geographies
The strong drug pipeline & previous ANDA approvals of Venus are
positive for the growth in this sector

Overlap between many geographies will lead to significant cost

savings in Sales & Marketing Work Force expense
US, Russia, CIS & South Africa being some

The cGMP compliant facilities will draw further draw synergies from
combined manufacturing of other generics
Further cost synergies are probable due to Dr. Reddy being a
vertically integrated firm

Reddy will be able to have a slice of the pie of the profits of itskey
competitor Teva Pharma in the US, which accounts for more than half
of the revenues

Deal Structuring
Deal structuring
Acquisition Vehicle

Potential organization

Acquirer's objective

Corporate or divisional
structure

Maximizing control
Facilitating postclosing
integration

Post-Closing Organization

Corporate or divisional
structure

Form of Payment

Cash and Debt

Form of Acquisition

Cash Purchase of stock

Integrate target
immediately Centralize
control in parent Facilitate
future funding
No EPS dilution
Complete right on
intellectual property

Additional benefits of aforementioned deal structuring

No target shareholder approval required
Enables circumvention of targets board in hostile tender offer
May insulate from target liabilities if kept as subsidiary

Problems in Acquisition
Related to deal structuring
Difficulty in cost synergies in various divisions in divisional
structure
Form of payment (cash and debt)
Immediate tax liabilities for seller
Increases leverage of Dr. Reddys Labs

Form of Acquisition (Cash Purchase of stock)

Union and employee benefit agreement do not terminate

No asset write-up
Responsibilities for known and unknown liabilities

Other Problems

Possible Dilution of EPS post acquisition

More leverage post acquisition