dr. reddy’s lab acquisition of venus remedies ltd
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Dr. Reddy’s Lab acquisition of Venus Remedies Ltd.
Group 13
Hitesh Garg (13P078)
Nikhil Gambhir (13P091)
Gopesh Nakra (13P104)
Group 14Samarth Kagdiyal (13P041)Shreyans Gangwal (13P047)
Apratim Saha(13P066)Shashank Mishra (13P110)Erika Di Diego (14CBS01)
Indian Pharma Sector Overview
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
Growth Drivers:
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
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
0
50
100
2005 2013 2020F
Revenue($bn)
72%
19%
9%Revenue Share
Generic
OTC
Patented
Indian Pharmaceutical industry:
• 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
Business Description Strong revenue growth over the last decade
Source: Dr. Reddy’s Investor Presentation November 2014
28% revenue growth during 2008-13 in
the emerging markets
Venus Remedies Ltd.
• Incorporated in 1989, Chandigarh-based
• Presence in 60 countries and covering more than 75 products
• Contract manufacturer of Oncological and Cefalosporineproducts
• 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. Reddy’s 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 itskeycompetitor Teva Pharma in the US, which accounts for more than half of the revenues
Relative Valuation
SectorMarket Cap.
P/E P/B P/Sales EV/EBITDA52 week low/high
Elder Pharmaceuticals Ltd. Cephalosporin 356.93 130.68 0.46 1.78 3.5 162.5/349.3
RPG Life Sciences Oncology 152.96 NA 1.87 2.70 15.4 44.6/134.35
Kopran Ltd.Cephalosporin and oncology
235.08 15.28 2.21 3.03 11.2 18.25/72.65
Arvind RemediesCephalosporin
227.88 3.65 0.82 0.78 3.0 30/66.2
AVERAGE 49.87 1.34 0.51 8.28
Value of the firm (in Rs cr.)
Value Per Share(Rs.) Total Value (30% Control Premium)
P/B 813 713.15 927.10
P/Sales 530.9 465.65 605.35
EV/EBITDA 884.4 775.80 1008.54
Current Market Cap. – Rs. 271.86 cr Current Share Price – Rs. 237.60
Deal structuring Potential organization Acquirer's objective
Acquisition VehicleCorporate or divisional
structure
Maximizing controlFacilitating postclosing
integration
Post-Closing OrganizationCorporate or divisional
structure
Integrate target immediately Centralize
control in parent Facilitate future funding
Form of Payment Cash and Debt No EPS dilution
Form of AcquisitionCash Purchase of stock
• Complete right on intellectual property
Deal Structuring
Additional benefits of aforementioned deal structuring• No target shareholder approval required• Enables circumvention of target’s board in hostile tender offer• May insulate from target liabilities if kept as subsidiary
• 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. Reddy’s 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
Problems in Acquisition
Appendix
Venus Remedies – Balance Sheet
Appendix
Dr Reddys Laboratories - Balance Sheet
Thank You
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