The betapharm Acquisition: DRL's Inorganic Growth Strategy in Europe

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Case Details:

Case Code : BSTR249
Case Length : 19 Pages
Period : 2002 - 2006
Pub Date : 2007
Teaching Note : Available
Organization : Dr. Reddy's Laboratories Ltd.
Industry : Pharmaceutical
Countries : Germany, Europe, India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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A Risky Acquisition?

Some analysts opined that DRL had taken a big gamble by acquiring betapharm. The acquisition had resulted in the depletion of DRL's cash reserves and 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 market in India was viewed as not being large enough to generate enough 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 1, 2006, the Economic Optimisation of Pharmaceutical Care Act (AVWG) took effect in Germany.

This act changed the pricing and reimbursement system in Germany. Though this act increased the scope of using generic drugs, there was also pressure on generic drug companies to reduce their prices. An analyst at a leading securities company commented, "Price cuts on generics in Germany have ranged between 20-30% at a time when the overall European pharma market itself has remained stagnant..."

Exhibits

Exhibit I: Major Markets for Generics in Europe
Exhibit II: DRL's Overseas Acquisitions
Exhibit III: DRL's Revenue Mix by Region
Exhibit IV: DRL's Transactions with Foreign Companies in Research
Exhibit V: DRL's Value Pyramid
Exhibit VI: A Brief Note on DRL's CSR Initiatives
Exhibit VII: DRL's Income Statement
Exhibit VIII: DRL's Balance Sheet
Exhibit IX: betapharm's Product Portfolio
Exhibit X: Top Four Generic Drugs Companies in Germany
Exhibit XI: Key Figures for betapharm
Exhibit XII: A Note on the Generic Pharmaceutical Sector in Europe and its attractiveness to Indian Pharmaceutical Companies

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