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Table of Contents
Case Summary............................................................................................................................................... 2 Identification of Problems ............................................................................................................................ 3 Theories to Solve problems .......................................................................................................................... 4 List of alternative Solutions to the Problem ................................................................................................. 5 Analysis and Identification of the Right Alternative ..................................................................................... 6 Findings and Recommendation .................................................................................................................... 7
Case Summary
The case talks about Indias Dr Reddys Laboratories Limited trying to acquire Betapharm, the fourthlargest generic drug manufacturer in Germany. Germany had the largest generics market growing at 13% in Europe which had the 2nd biggest market after US. So through this acquisition DRL could get immediate access to the German generic market. DRL had realized that organic growth was not enough to become a global mid-sized pharmaceutical player, so through this acquisition DRL expected that it would gain a strategic presence in the European market owing to the high growth of the market and rising public healthcare costs. It is also to be seen that DRL wanted to grow in size and realize its ambition of becoming a US$1 billion mid-size global pharmaceutical company by 2008. DRL's product development skills and low cost manufacturing would benefit betapharm as it would be able to add more products to its portfolio and grow at a much faster rate in Germany. On the other hand, Betapharm (EBITDA margins of around 24%) had intellectual property IP and regulatory infrastructure giving it faster access to European market. DRL was itself recovering from financial challenges. So any failure here would daunt the recovery process, thus care needed to be taken.
Identification of Problems
DRL was just recovering from financial challenges, so failure would dent the recovery. Dr. Reddy had a history of proactive legal component characterized by challenging patents in various courts. Though it had experiences of 4 acquisitions earlier but this would be the biggest, hence the execution risks would be much higher. There was difference in corporate culture. Betapharm was a process driven company given to compliance with systems, procedures and protocol as compared to the relationship-driven Dr Reddy. Hence integrating the two businesses would be a key factor in driving synergies. Underestimation of cultural differences can create a bias which if not taken care of would yield problems; substantially bring down the performance and synergies. Discounts mandated in the European market as more and more generic drugs were coming, so there was a pricing pressure to be seen on generics manufacturers. This implies lower sales realizations. Hence a longer time frame to digest the acquisition. As Betapharm was already into exclusive contracts implies that post acquisition, the task of consolidation of manufacturing would not be easy for Dr. Reddy. Planning should be thorough devoid of any planning fallacy so that proper forecasts are there to estimate time and money needed for integration.
7633 3065
27.6%
19.0%
14.9%
We can clearly see that Betapharm would add value to Dr Reddys as its financials are in the right place, it was the 4th largest Generic drug manufacturer in Germany and it had strong growth potential. It was the manufacturer of choice for the long-term treatment drugs and based on its growth potential as well as relative position in Germany we recommend that Dr Reddys should purchase BetaPharm.