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The Aim and Objective of this study is to research and examine the differences in the entrepreneurship strategies of Starter Company and Acquires; their motives, risk and responds, challenges and roles. The opportunities identified and achievement of entrepreneur is discussed.


Entrepreneurship is the act of being an entrepreneur, which is a French word meaning "one who undertakes an endeavour". Entrepreneurs assemble resources including innovations, finance and business acumen in an effort to transform innovations into economic goods. This may result in new organizations or may be part of revitalizing mature organizations in response to a perceived opportunity. The most obvious form of entrepreneurship is that of starting new businesses; however, in recent years, the term has been extended to include social and political forms of entrepreneurial activity.

Entrepreneurship is often a difficult undertaking, as a vast majority of new businesses fail. Nevertheless such undertaking supposes the development of more than just a business venture. Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities.

Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs. Lately more holistic conceptualizations of entrepreneurship as a specific mindset resulting in entrepreneurial initiatives e.g. in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship emerged.

Definition Entrepreneurship

The entrepreneur is an individual who introduces something new in the economy- a new production method, a new product, a new source of raw material, a new market etc.

An entrepreneur is the one who always searches for change, responds to it and exploits it as an opportunity. Innovation is a specific tool by which he exploits change as an opportunity, for a business or service.

A true entrepreneur is the one who is endowed with more than average capacity in the task of organizing and coordinating the various other factors of production.

Literature Review of Entrepreneurship Strategies of Starters and Acquires

The literature review is diverged in two- Starters and Acquires.

"There will come a time when big opportunities will be presented to you, and you've got to be in a position to take advantage of them." - Sam Walton, founder of Wal-Mart Inc.

"Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage." - Niccolo Machiavelli

"The entrepreneur is our visionary, the creator in each of us. We're born with that quality and it defines our lives as we respond to what we see, hear, feel, and experience. It is developed, nurtured, and given space to flourish or is squelched, thwarted, without air or stimulation, and dies." - Michael Gerber

"The entrepreneur," said the French economist J. B. Say around 1800, "shifts economic resources out of an area of lower and into an area of higher productivity and greater yield." But Say's definition does not tell us who this "entrepreneur" is. And since Say coined the term almost two hundred years ago, there has been total confusion over the definitions of "entrepreneur" and "entrepreneurship."

In the United States, for instance, the entrepreneur is often defined as one who starts his own, new and small business. Indeed, the courses in "Entrepreneurship" that have become popular of late in American business schools are the linear descendants of the course in starting one's own small business that was offered thirty years ago, and in many cases, not very different.

But not every new small business is entrepreneurial or represents entrepreneurship.

Start Up Company

A startup company is newly created company in the phase of development and research for market.

Evolution of a startup company

Startup companies can come in all forms, including those that are simply life-style companies, but the phrase "startup company" is often associated with high growth, technology oriented companies. Investors are generally most attracted to those new companies distinguished by their risk/reward profile and scalability. That is, they have lower bootstrapping costs, higher risk, and higher potential return on investment. Successful startups are typically more scalable than an established business, in the sense that they can potentially grow rapidly with limited investment of capital, labor or land.

Startups enjoy several unique options for funding. Venture capital firms and angel investors may help startup companies begin operations, exchanging cash for an equity stake. In practice though, many startups are initially funded by the founders themselves. Factoring is another option, though not unique to start ups.

A critical task in setting up a business is to conduct research in order to validate, assess and develop the ideas or business concepts in addition to opportunities to establish further and deeper understanding on the ideas or business concepts as well as their commercial potential.

If a company's value is based on its technology, it is often equally important for the business owners to obtain intellectual property protection for their idea. The newsmagazine The Economist estimated that up to 75% of the value of US public companies is now based on their intellectual property (up from 40% in 1980). Often, 100% of a small startup company's value is based on its intellectual property. As such, it is important for technology oriented start up companies to develop a sound strategy for protecting their intellectual capital as early as possible.

Startup companies, particularly those associated with new technology, sometimes produce huge returns to their creators and investors - a recent example of such was Google, whose creators are now billionaires through their share ownership. However, the failure rate of startup companies is very high. Based on a research, founder CEOs of high-tech companies can typically expect their stock to be worth about $6,500,000 (statistical average) if the company succeeds in going public(in 1997)

When incorporating a new venture, a good rule of thumb is to authorize (or issue) 10 million shares @ 1/10 of cent. 50% of these shares should be issued to the founders (with a vesting schedule). 10% should be set aside for future employees. The remaining 40% will go to future investors.

While there are startup businesses created in all types of businesses, and all over the world, some locations and business sectors are particularly associated with startup companies. The Internet bubble of the late 1990s was associated with huge numbers of internet startup companies, some selling the technology to provide internet access, others using the internet to provide services. Most of this startup activity was located in Silicon Valley, an area of northern California renowned for the high level of startup company activity.

A company may cease to be a startup as it passes various milestones, such as becoming profitable, or becoming publicly traded in an IPO, or ceasing to exist as an independent entity via a merger or acquisition. Companies may also fail and cease to operate altogether. Recently the patent assets of these failed startup companies have been being purchased by what are derogatorily known as "patent trolls" who then take the patents from the companies and assert those patents against companies that might be infringing the technology covered by the patent.

Merger And Acquisition Company

Merger and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

An acquisition, also known as a takeover or a buyout or "merger", is the buying of one company (the 'target') by another. An acquisition may be friendly or hostile. In the former case, the companies cooperate in negotiations; in the latter case, the takeover target is unwilling to be bought or the target's board has no prior knowledge of the offer.

Acquisition usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger or longer established company and keep its name for the combined entity. This is known as a reverse takeover.

Another type of acquisition is reverse merger a deal that enables a private company to get publicly listed in a short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly listed shell company, usually one with no business and limited assets. Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome.

The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment.

The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage. A disadvantage of this structure is the tax that many jurisdictions, particularly outside the United States, impose on transfers of the individual assets, whereas stock transactions can frequently be structured as like-kind exchanges or other arrangements that are tax-free or tax-neutral, both to the buyer and to the seller's shareholders.

Effects on management

A study published in the July/August 2008 issue of the Journal of Business Strategy suggests that mergers and acquisitions destroy leadership continuity in target companies' top management teams for at least a decade following a deal. The study found that target companies lose 21 percent of their executives each year for at least 10 years following an acquisition - more than double the turnover experienced in non-merged firms.

M&A failure

Reasons for frequent failure of M&A were analyzed by Thomas Straub in "Reasons for frequent failure in mergers and acquisitions - a comprehensive analysis", DUV Gabler Edition, 2007. Despite the goal of performance improvement, results from mergers and acquisitions (M&A) are often disappointing. Numerous empirical studies show high failure rates of M&A deals. The effect of M&A evolution in a transition economy, especially where the presence of rent-seeking and relationship-based transactions is significant, may cause destructive entrepreneurship. From socio-economic and cultural views, the degree of positive impacts it may result in for domestic entrepreneurship will perhaps be the single most important indicator. Studies are mostly focused on individual determinants. The literature therefore lacks a more comprehensive framework that includes different perspectives. Using four statistical methods, Thomas Straub shows that M&A performance is a multi-dimensional function. For a successful deal, the following key success factors should be taken into account:

  • Strategic logic which is reflected by six determinants: market similarities, market complementarities, operational similarities, operational complementarities, market power, and purchasing power.
  • Organizational integration which is reflected by three determinants: acquisition experience, relative size, cultural compatibility.
  • Financial / price perspective which is reflected by three determinants: acquisition premium, bidding process, and due diligence.

Post-M&A performance is measured by synergy realization, relative performance (compared to competition), and absolute performance.

The Great Merger Movement

The Great Merger Movement was a predominantly U.S. business phenomenon that happened from 1895 to 1905. During this time, small firms with little market share consolidated with similar firms to form large, powerful institutions that dominated their markets. It is estimated that more than 1,800 of these firms disappeared into consolidations, many of which acquired substantial shares of the markets in which they operated. The vehicle used was so-called trusts. To truly understand how large this movement was—in 1900 the value of firms acquired in mergers was 20% of GDP. In 1990 the value was only 3% and from 1998-2000 it was around 10-11% of GDP. Organizations that commanded the greatest share of the market in 1905 saw that command disintegrate by 1929 as smaller competitors joined forces with each other. However, there were companies that merged during this time such as DuPont, US Steel, and General Electric that have been able to keep their dominance in their respected sectors today due to growing technological advances of their products, patents, and brand recognition by their customers. The companies that merged were mass producers of homogeneous goods that could exploit the efficiencies of large volume production. However more often than them were "quick mergers". These "quick mergers" involved mergers of companies with unrelated technology and different management. As a result, the efficiency gains associated with mergers were not present. The new and bigger company would actually face higher costs than competitors because of these technological and managerial differences. Thus, the mergers were not done to see large efficiency gains, they were in fact done because that was the trend at the time. Companies which had specific fine products, such as fine writing paper, earned their profits on high margin rather than volume and took no part in Great Merger Movement.

Short-run factors

One of the major short run factors that sparked in The Great Merger Movement was the desire to keep prices high. That is, with many firms in a market, supply of the product remains high. During the panic of 1893, the demand declined. When demand for the good falls, as illustrated by the classic supply and demand model, prices are driven down. To avoid this decline in prices, firms found it profitable to collude and manipulate supply to counter any changes in demand for the good. This type of cooperation led to widespread horizontal integration amongst firms of the era. Focusing on mass production allowed firms to reduce unit costs to a much lower rate. These firms usually were capital-intensive and had high fixed costs. Because new machines were mostly financed through bonds, interest payments on bonds were high followed by the panic of 1893, yet no firm was willing to accept quantity reduction during that period.

Long-run factors

In the long run, due to the desire to keep costs low, it was advantageous for firms to merge and reduce their transportation costs thus producing and transporting from one location rather than various sites of different companies as in the past. This resulted in shipment directly to market from this one location. In addition, technological changes prior to the merger movement within companies increased the efficient size of plants with capital intensive assembly lines allowing for economies of scale. Thus improved technology and transportation were forerunners to the Great Merger Movement. In part due to competitors as mentioned above, and in part due to the government, however, many of these initially successful mergers were eventually dismantled. The U.S. government passed the Sherman Act in 1890, setting rules against price fixing and monopolies. Starting in the 1890s with such cases as U.S. versus Addyston Pipe and Steel Co., the courts attacked large companies for strategizing with others or within their own companies to maximize profits. Price fixing with competitors created a greater incentive for companies to unite and merge in one name so that they were not competitors anymore and technically not price fixing.

Managing tension for competitive advantage

Think of today's organizations. Most of them face the challenge of changing frequently in order to meet the needs of those they serve, such as customers, suppliers, and shareholders? Indeed, for many organizations, using their resources and skills to change in ways that will create value for stakeholders, and perhaps especially customers, is becoming increasingly difficult.

The challenging nature of competing in a global environment creates several tension-filled questions for firms: In what markets should we compete? Should we offer standardized products across all markets or should we modify our products for local preferences? How much risk are we willing to accept to compete in markets with which we are not deeply familiar? What kinds of skills should we develop in order to become more innovative? The issues raised by these questions have the potential to create tensions in today's firms.

All of these tensions (and certainly others) are important and demand careful consideration by those interested in organizational success. What is of interest to us, though, is a particular type of tension that the need to rapidly change creates for firms; specifically, the need for a firm to learn how to simultaneously exploit today that which it does well relative to rivals, while also exploring to determine what it needs to do to be successful in the future. In essence, this tension is between doing what is necessary to exploit today's competitive advantages and exploring today for innovations that can be the foundation for the firm's future competitive advantages. We think that the ability to effectively manage this tension is rapidly becoming a key differentiator between maintaining organizational success and facing dwindling performance over time. The Fortune 100 annual survey rankings indicate that most firms do, in fact, find it difficult to sustain their performance over a considerable period of time. As evidence for this assertion, consider the fact that only 26% of the 100 companies listed in Fortune's 1980 ranking remained on the list in 2001 (Cappelli & Hamori,2005).

Our paper proceeds as follows. First, we introduce strategic entrepreneurship as a concept with the potential to influence the degree of success today's organizations can achieve while engaging their rivals in competitive exchanges. We then drill deeper into strategic entrepreneurship by examining its two components: exploration and exploitation. Explanations of differences in operational activities, organizational structure, and organizational culture that contribute to effective strategic entrepreneurship are included as parts of these discussions.

Introducing strategic entrepreneurship

Strategic entrepreneurship (SE) is a term used to capture firms' efforts to simultaneously exploit today's competitive advantages while exploring for the innovations that will be the foundation for tomorrow's competitive advantages. The SE concept, as we are describing it, is somewhat new for academics and business practitioners; however, the concept is important in that effective SE practices result in a firm being able to form a balance between opportunity-seeking (i.e., exploration) and advantage-seeking (i.e., exploitation) behaviors (Ireland, Hitt, & Sirmon, 2003).

Effective SE helps a firm position itself such that it is capable of properly responding to the types of significant environmental changes that face many of today's organizations. Beyond this, effective SE helps the firm develop relatively sustainable competitive advantages. In addition to being valuable and rare, sustainable advantages are also difficult for competitors to fully understand, and difficult to imitate as a result of that lack of understanding (Barney,1991). As this initial discussion of SE suggests, continuous innovation is at the core of what firms are able to achieve as a result of balancing exploitation and exploration.

An expanded view of strategic entrepreneurship

Defining the terms strategy and entrepreneurship is a useful first step in becoming more familiar with strategic entrepreneurship. In Fig. 1, we present some of the individual attributes of strategy, entrepreneurship, and SE. As suggested in Fig. 1, strategy is concerned with the firm's long-term development (Ghemawat,2002). A firm's long-term development includes a number of elements, such as decisions regarding scope, how resources are to be acquired and managed, and intended sources of competitive advantage, among others (Hofer & Schendel,1978). The attributes listed in Fig. 1 suggest that, in the most general sense, entrepreneurship is concerned with actions taken to create newness (Ireland etal., 2003). We can extend this a bit to note that newness results from actions framed around efforts to create new organizational units, to establish new organizations, or to renew existing organizations (Sharma & Chrisman, 1999). As these descriptions suggest, strategy and entrepreneurship are products of an array of decisions made about various issues and phenomena (Miller & Ireland, 2005).

Effective SE leads to a combination of both effectiveness and efficiency-oriented forms of newness, and is the source of sustainable competitive advantages. New products, new processes used to produce products, and new ways to structure a firm to facilitate innovation are all examples of newness that SE can produce. Product innovations are the source of effectiveness as a result of satisfying market expectations, while process and structural innovations are the foundation for efficiency as the firm wisely uses its resources. Although new products highlight to the world a firm's innovativeness and prestige, some scholars suggest that process and administrative innovations provide firms with greater competitive advantage than product innovations. The reason for this is that process and administrative innovations are hidden within the firm. Consequently, it is more difficult for competitors to reverse engineer and imitate these innovations, as is often easily and quickly achieved with product innovations.

As an example, Philip Morris held a competitive advantage over its competitors for a number of years because of its bexpandedQ tobacco process, which signified a radical innovation in cigarette manufacturing. The firm discovered that when tobacco was allowed to soak in liquid carbon dioxide and then passed through a stream of hot air, it would expand and pop, much like popcorn. By employing this technique, Philip Morris was able to fill the same amount of cigarettes with less tobacco, greatly enhancing its productivity and, subsequently, its profitability. To the naked eye, cigarettes filled with expanded tobacco and those filled with regular tobacco are indistinguishable. Furthermore, the process through which Philip Morris expands tobacco remains safely housed behind the walls of its manufacturing facilities, hidden from those who may wish to imitate such value-creating activities. This process innovation provided great value to Philip Morris, but the company's success was already founded on its Marlboro brand of cigarettes. Therefore, in the case of SE, we take the position that sustainable competitive advantage results from a combination of product, process, and administrative innovations, as firms cannot gain value from low-quality or outdated products, even when utilizing highly efficient processes.


This study is an exploratory qualitative study with a purpose to understand the similarities, differences and study the companies who were started on the basis of start-up firms and acquisited companies. The aim of the research is to provide grounding for future study.

The research strategy used is part case-study approach and part exploratory and descriptive study. As a part of the case study, there are two organizations which sell identical services but has diverged approach of start-up and acquisition. The exploratory and descriptive part deals with information on the entrepreneurship background, strategies, industry data, and some recommendations.The exploratory information is through literature search, press releases and certain interviews.

The study is a Cross sectional study, keeping in mind the time constraints and not indulging in a full Longitudinal analysis. Some information, like industry trends and growth, is secondary data calculated over a period of time.

Data collection methods used in this research is interviews and secondary data. The data is of qualitative nature. Though only two organizations are considered for review, but it has drawn lot of information to assess all the characteristics and strategies of entrepreneurship.

Some of the limitations of the research include not being able to analyze on more bigger organizations due to time and mobility limitations.

Literature Review via Case Studies

Startup Company - Aurobindo

Aurobindo Pharma is the largest vertically integrated pharmaceutical companies in India. Aurobindo has clear vision for their large plans. They strategy of their achievement is through by their quality conscious and cheaper cost. The strategies they have followed are focusing the product, product value, entering the partnership, expanded their earning.

They expand their company to Aurobindo R&D and Manufacturing competencies which will result in the long term success and enhance their growth. By their company strategy their total income got raised from Rs. 21,772.3 million in the financial year 2006-2007 to Rs. 30,943 million in the financial year 2008-2009. Aurobindo are following the organizational setup in terms of best manufacturing technology and affordable cost of drugs.

For Aurobindo, 2008- 2009 was a better year in financial and growth parameters since they have faced the fluctuation loss of Rs.2278.2 million. By compared this with the last year, the fluctuation gain of their market is Rs.481.3 million in 2007-2008.

Gross Revenue for the last year is 19.75% higher over the previous year.

They have created a great cross functional co-ordination that has impact on Aurobindo R&D, production, marketing and commercial administration department.

Over the past few years, Aurobindo has stronger their research and development activities and sets aside a significant proportion of its revenues (Rs.952 million in 2008-09). In order to handle all phases of R&D, Aurobindo employs a wide-range of competencies including the ability to identify and validate potential targets, investigate the effect of compounds on the targets, the ability to synthesize compounds, develop new products with shortest route of synthesis and deal with complex chemistry. The Company has been able to attract highly qualified researchers and scientists and retain competent employees and has a dynamic working environment with fast decision making processes. New technologies have been introduced and integrated in the research process, innovative research specialties have been set-up and the existing facilities have been further upgraded in the state-of-the-art R&D Center.

As mentioned earlier, the business model followed by Aurobindo, stepped up its revenue. (Refer Appendix - A Fig 1).

Challenges of the Startup Company

As a startup company, Aurobindo also faced pressures and challenges.

Long term growth with large product

Emergence of new products leads to decrease the life cycle of products in the health care industry. Challenging with the competitors Aurobindo recognized the changing market dynamics. This is the way they have responded to the competitors. Changing market is done by the maintaining reservoir or back up of particular products which are going and growing in the market. By creating a pipeline from the manufacturing the product and introducing it to the market lead them to have a strong foundation.

Once the product approved they are mainly concentrating on all the approvals to convert it to invoice as early as possible. This is the main challenge for them in the market to make a long term and strong foundation of Aurobindo.

Shorten the time to market

Another challenged faced by Aurobindo is flexibility in manufacturing, scale-up production volumes and fast track from lab to the pharmacy.

After the success of all the product approvals to the invoice, they felt the pressure of logistics operation of the manufacturing products. As they got the encouraging response of their products, the orders got increased. But the time taken to deliver the products becomes pressure for them.

The Company has several products which have presence in multiple markets. A large production batch size for some of the key products enhances the flexibility to offer products to multiple markets and shorten the time lag between order and deliveries. In fact, Aurobindo is able to offer FDA approved quality products to emerging markets.

Aurobindo strives to enhance the value chain by straddling the formulations market by its control over active ingredients. Efforts will continue to be made to step-up the capacity for active ingredients in tandem with the rise in formulations business.

Differentiate by being cost-effective

The third challenge faced by Aurobindo is to be a successful in the competitive pharmaceutical market. The strategy they followed to cross the challenges are mentioned here.

The aim of Aurobindo is to develop a business model with sufficient manufacturing capacity. Aurobindo maintained a competitive cost structure and has ability to succeed as cost effective producer. The main function of cost effectiveness is the Pricing power and Aurobindo already succeed in that factor which gives the results to them.

Aurobindo manufacture 95% of key intermediates and also the active ingredients which are needed for them. The production process followed by Aurobindo are streamlined, vertically integrated and simplified. The raw materials are also available when they are required and they are able to control the quality from manufacturing to deliver the product.

While manufacturing, the renewed efforts are made to maximize the recovery of solvents, raw materials, conserve the resources like manpower, power, water and it may result in process wastage. This process waste is reduced by constant improvement of production technology and work practice. They have implemented strategy to improve operational performance, reduce the inventory and improve the manufacture of drugs. The decision taken for each field and operation are quicker and well implemented. To eliver the manufactured products in the market and to ensure the steady progress in it, they have introduced the cost structure which is affordable and that makes them to grow faster in the global pharma market.

Plans to become zero debt company - to build stronger balance sheet

Fourth challenge faced by Aurobindo is to generate and conserve cash for improving the business.

Aurobindo has strong enough in the production capabilities. But to maintain the zero debt is the challenge faced by it. The operations are followed to conserve the liquidity and generate a strong cash flow. There is a calibrated approach to improve the financial strength which would enhance the ability to launch newer products as well as a footprint in potential markets. Aurobindo is reducing its leverage through internal generation and plans to become a zero debt company by 2012-13.

Formulating volume by 18.6% in 2008-2009 over the previous year

The positive approach of Aurobindo makes them to reach 18.6% volume in the 2008-2009. They have made a huge impact in research, manufacturing, raw material procurement, marketing strategies, product launches, logistics and all other support functions.

The team in Aurobindo understands their business and capitalizes on emerging opportunities and responsible for making positive impact by their result oriented approach to task. Aurobindo has a grip on the multiple levers that influence business and it is the first mover and takes the initiative to meet customer expectations that helps to achieve the corporate objectives.

Aurobindo identifies the importance of the technical specialist. Since they are creating impact on the product, Aurobindo gave freedom to their ideas, solution and their technologies. Bringing their ideas and suggestion of technical specialist, Aurobindo leads to create products for the customer. This enhances their growth and exceeds their expectation in the global market. Because of this, the employees are also committed to the organizational goals.

These are the simple and basic strategies that Aurobindo have concentrated on their growth. These simple key enhances their growth by 18.6% in the 2008-09 as compared to the previous year 2007-2008.

The company provides supplementary inputs regularly by focused training and in 2008-09 covered key areas such as leadership training, quality systems, team building, and communication and lifestyle management. The learning curve in the employees makes up the DNA for high performance organization.

As at March 31, 2009 the company had 6,944 employees, approximately 9% more than the strength a year earlier. A very large proportion of them are PhDs, Post graduates, graduates and skilled workmen. The attrition level is approximately 5 % while the industry average is estimated to be 14%.

Aurobindo is focusing on the employee development as well as employee career progression. Aurobindo helps to discover the individual potential and make them to contribute their best efforts and to take responsibility for them as well as Company's growth. They have identified by their strength and weakness.

The fast tracked growth at Aurobindo is a testimony to the competence, mind set and dedication to develop solutions to the many challenges that face the highly competitive pharmaceutical industry. Through these employees, the Company will maintain the momentum.

Managing Environment and Safety

Aurobindo made their best effort for the excellence in environment, health and safety performance. They have committed to deal with issues not only in responsible way but also in the proactive and transparent way. This results their path to the constant development. They also minimize the usage of the natural resources such as water and energy.

High priority is given to the Company's manufacturing systems. The processes, procedures and equipments are optimized with respect to process safety, environmental aspect and worker health. Aurobindo aims to minimize its environmental footprint by improvements throughout the value chain.

The critical issues faced by the Aurobindo are: constantly assess the impact of the operations on the environment, improve the environmental performance by using eco-friendly process and cleaner technology, make the best possible use of raw materials and energy, reduce emissions from each of our production units, tailor the production technology and objectives after assessing the compliance needs, be transparent in our environment management systems, provide training and awareness to the employees to ensure that they are responsible and sensitive to environmental requirements.

The team at Aurobindo is cognizant that polices need to be translated into action by employee involvement and managerial supervision. Wherever required we are presently installing environmental friendly technologies such as multiple effect evaporation systems and agitated thin film driers for the API units. Nitrogen blanketing and water sprinkler system for solvent storage tanks are operational to reduce hazards.

Resource consumption and sources of pollution are monitored on a regular basis and efforts are being made to meet present standards and future needs. Aurobindo is also planning to install reverse osmosis units for re-use of water and reduce net water consumption in all the manufacturing facilities.

Realistic targets for improvement are set and implemented with concrete action plans especially in areas such CO2 emissions and waste water management. All effluents, emissions and wastes are monitored strictly and treated appropriately before being safely disposed off. Stack emissions are monitored at regular intervals. This has enabled the Company to reduce the relative environmental burden instead of rise in production volumes. Prevention, closely coordinated production, care of the environment and vigilance are all natural elements of daily life at Aurobindo.

Safety is both an employee's responsibility as well as a corporate objective. Our goal in safety management is that no harm is suffered by employees, our contractors and visitors to our facilities. The stakeholders in the mission, the employees at all the manufacturing facilities, have been encouraged to handle safely chemical raw materials, intermediates and finished products. Knowledge of chemical procedures and the products manufactured using these procedures is a critical part of our safety management system.

There is no finish line for our commitment and responsibility. New initiatives are being developed and implemented to bring about a step change in our safety performance. Care and concern of the neighborhood and safety of our employees is non-negotiable and integral to our business.

Company target over Revenue generated over a period of time

Aurobindo built the staircase one step at a time. They have world class regulatory inspected/approved facilities and products, a pipeline of new products, marketing architecture in several countries, talented and experienced staff and a growing quality conscious market that needs affordable drugs. We ensured that we had multiple levers to ensure consistent growth.

We have knowledge of the market, a very good understanding of the industry space and are marketing progress. This is a high energy organization and we have empowered teams and Aurobindo will have more on offer from R&D; several products have been filed and are pending approval; there are also products that are waiting for inspection; much more work has been done on product quality and environment and safety, and partnerships with our customers are likely to be impacting our revenues and our cash flows.

Going forward, we will become a more global company. As we grow in North America, Europe, Latin America and emerging markets, we will be driven by finding new ways to position ourselves and shall set even more ambitious goals. We align our business processes around such higher expectations.

Much will be expected from the Aurobindo team from strategic planning to customer value management to developing and engaging our people. One of the most important elements of our success will be creating even more accountability I terms of our performance. Everything we do will be about improving our performance, meeting customer expectations and outpacing the competition.

We will continue our intense focus on improving our performances both in APIs and formulations and our Company in total. We have already made several improvements in this area, but we are clear that we need to improve further everyday, every place on an absolute and relative basis. To do this we shall continue to be even more customers driven and continue to be disciplined with our finances. Aurobindo prides itself in being a prudent organization and as we accelerate, the team is conscious to enhance manufacturing productivity, improve the bottom line and generate cash.

Our target is to reach revenues of $2 billion in three years. We will make every effort to see that the earnings improve quarter on quarter.

We have the architecture, the formula and dedicated people to build the staircase of growth. We have the momentum. We are moving to the next level.

Analysis of Aurobindo

Industry perspective

The pharmaceutical industry is one of the success stories of India ensuring that good quality essential drugs are made available at affordable prices to the vast population of the country as well as competing with some of the best names in the global markets.

The industry is an intellectual industry and is in the front rank of India's science-based industries with investment in research and development and wide ranging capabilities in the complex field of drug manufacture and technology. It has grown from a mere $0.3 billion turnover in 1980 to about $19 billion in 2008 (combined sales in domestic and export markets). The country now ranks 3rd in terms of volume of production (10% of global share) and 14th largest by value. One reason for lower value share is the lower cost of drugs in India ranging from 5% to 50% less as compared to developed countries. The accelerated growth has been fuelled by exports to more than 200 countries with a sizeable share in the advanced regulated markets of U.S. and Western Europe. 40% of the world's bulk drug requirement is met by India. It ranks very high in terms of technology, quality and range of medicines manufactured. From simple headache pills to sophisticated antibiotics and complex cardiac compounds, almost every type of medicine is now made indigenously.

The industry has made significant progress in creation of required infrastructure, meeting global needs for supply of quality medicines and active pharmaceuticals ingredients (APIs), as also entering into the highly opportune area of contract research and manufacturing (CRAM) and clinical trials. Domestic investment in the pharmaceuticals sector is estimated at Rs.314.30 billion (approximately $6.55 billion). The pharmaceuticals sector has been able to attract FDI amounting to $1.40 billion in the sector during 2000-01 to 2008-09 of which, there has been an inflow of $334.09 million in 2007-08 and $125.30 million during the first half of 2008-09. (Source: Ministry of Commerce & Industry) The sector is estimated to have so far created 4.2 million employment opportunities with more than 20,000 registered units. Despite the fragmentation and price competition, the leading 250 pharmaceutical companies control 70% of the market with the leader holding nearly 7% of the market share. While pharmaceutical products are exported primarily to U.S.A., Germany, Russia, UK and Brazil amongst a large basket of countries, India's imports emanate mainly from China, Switzerland, U.S.A. and Italy. India currently exports drug intermediates, APIs, finished dosage formulations (FDFs), bio-pharmaceuticals, and clinical services to various parts of the world. Exports of pharmaceuticals have consistently outstripped the value of corresponding imports between 1996-97 and 2008-09. The trade balance increased from Rs.21.57 billion in 1996-97 to Rs.298.81 billion in 2008-09. Exports of pharmaceuticals at Rs.384.33 billion registered a growth rate of 25% in 2008-09. This is quite impressive, seen in the context of the growth in the country's total exports of all commodities was at 16.9% in the corresponding period. The share of exports of pharmaceuticals products to the total national exports have been in excess of 2% during each of last 12 years ending 2007-08. It has exhibited a long term upward trend from 2.01% in 1996-97 to 2.55% in 2008-09. In 2008-09, there was a sharp growth at 40% in exports to Brazil, and exports to Asian countries was $1 .38 billion (approximately 19% of India's total pharma exports).

Generics - a perspective

A generic drug product is one that is comparable to an innovator drug product in dosage form, strength, and route of administration, quality, performance characteristics and intended use. In U.S.A., all approved products, both innovator and generic, are listed in FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book). These drugs also go through a rigorous scientific review to ensure both safety and effectiveness.

The generics business, characterized by volume sales and thin profit margins, was not an attractive business proposition for most innovator companies until a few years earlier. Innovator multinational companies worried over plummeting profits and business due to the dwindling new drug pipeline and existing drugs going off-patent in the near future, are looking at containing costs and additional revenue streams.

The growth in sales of the top 15 multinational pharma companies was just 1.2%, at $369.72 billion, in 2008. And, net profit also grew just by 1.2% to $94 billion, said a study by an industry specialist. The study also said seven of 15 top companies cut their research and development expenditure, last year. It is now believed that the global generics market will grow to $140-150 billion by 2015, thanks to $105 billion worth of drugs going off-patent in the near future.

Global pharmaceutical market intelligence company IMS Health believes the Indian generic manufacturers will grow at a faster clip as drugs worth approximately $20 billion in annual sales will face patent expiry in 2011. In fact, with nearly $105 billion worth of patent-protected drugs to go off-patent (including 30 of the best selling US patent-protected drugs) by 2012, Indian generic manufacturers are positioning themselves to offer generic versions of these drugs.

Also, there is global shift towards use of generics as governments worldwide are under tremendous pressure to curtail steeply escalating healthcare budgets. Consequently, the generics industry in India after capturing the US markets is gradually making its foray into Japan, South Africa, Europe and the Commonwealth.

Indian pharmaceutical companies with their reverse-engineering expertise, significant investment in research facilities and availability of skilled manpower are favorably placed in the global generic market. Already, Indian drug companies account for over 25% of the total generic drug applications made to the US FDA, which accounts for over half of the $60 billion market. The US FDA's latest generic initiative GIVE (Generic Initiative for Value and Efficiency) aimed at increasing the number and variety of generic medicines available to consumers and healthcare providers. Having more generic-drug options means more cost-savings to consumers, as generic drugs cost about 30% to 80% less than brand name drugs and is expected to further fuel the export plans of Indian pharmaceutical companies. In order to seek approval from regulatory authorities, generic applicants must scientifically demonstrate that their product is bioequivalent (i.e., performs in the same manner as the innovator drug). One way scientists demonstrate bioequivalence is to measure the time it takes the generic drug to reach the bloodstream in 24 to 36 healthy volunteers. This gives them the rate of absorption, or bioavailability, of the generic drug, which they can then compare to that of the innovator drug. The generic version must deliver the same amount of active ingredients into a patient's bloodstream in the same amount of time as the innovator drug. Generic drug applications are termed "abbreviated" because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness.

In U.S.A., bioequivalence as the basis for approving generic copies of drug products was established by the "Drug Price Competition and Patent Term Restoration Act of 1984," also known as the Waxman-Hatch Act. This Act expedites the availability of less costly generic drugs by permitting FDA to approve applications to market generic versions of brand-name drugs without conducting costly and duplicative clinical trials. At the same time, the brand-name companies can apply for up to five additional years longer patent protection for the new medicines they developed to make up for time lost while their products were going through FDA's approval process. Brand-name drugs are subject to the same bioequivalence tests as generics upon reformulation.

Trend in CRAMS business

Contract research and manufacturing services (CRAMS) has become a promising medium for the Indian pharma industry, with India increasingly being viewed as global hub for CRAMS. Over the last 5 years, the CRAMS industry has been contributing close to 8% of the total Indian pharmaceutical business. Developed countries are expected to further propel the CRAMS industry to grow at a CAGR of nearly 32% from 2008 to 2013 as India offers global pharma companies both quality and cost advantage.

Contract research, including both drug discovery research and clinical research, has been growing at a phenomenal rate. While clinical trials represent 65% of this market, new drug discovery makes up the remaining 35%. Indian companies are playing an important role in early drug discovery processes due to their substantial experience in the field of generic drugs with India becoming an established venue for chemistry and drug discovery developments than China.

Frost and Sullivan estimates outsourced contract research in India to reach $2 billion by 2012. Similarly, according to a McKinsey report, the global clinical trial outsourcing to India in the pharmaceutical industry is estimated to be worth $1.23 billion by 2010.

Over 15 prominent contract research organizations (CROs) are now operating in the country. Contract manufacturing is another new opportunity for the Indian pharmaceutical industry. Already, India has the largest number of US Food and Drug Administration (US FDA) approved plants outside the US, with over 100 facilities. And now even small and medium scale pharmaceutical companies are setting up new and upgraded high-quality manufacturing plants to take part in this growing segment. The Boston Consulting Group estimates that the contract manufacturing market for global companies in India would touch $ 900 million by 2010.

Company Perspective

Aurobindo's commitment to create good health acts as a constant driver for improvement. This high energy pharmaceutical company has a passion to succeed in the most competitive markets.

Aurobindo straddles key strategies from fermentation to formulation and is one of the most cost effective producers in the world. Vertically integrated manufacturing process and captive raw material source makes an impact in end product marketing. Ability to control quality and power to price has helped Aurobindo to offer quality pharmaceuticals at affordable prices.

The investments made in the past are paying off. The Company had built large manufacturing capacities for both active ingredients and formulations, created a large pipeline of approved products and undertaken development work in the market to launch them. Aurobindo's core competence in manufacturing, cost effectiveness and quality consciousness have been supplemented by the geographical reach and marketing channels. Aurobindo was able to deliver better than the earlier years, and now has a platform for aggressive and successful product launches.

As in the past, the financial year 2008-09 saw higher volume sales as well as higher revenues. Formulation sales in revenue terms were higher by 41.83% over the previous year, which is a significant growth given that there was a 48.1% rise in the previous year. The volume sold was also higher by 18.6% primarily because of the focused marketing efforts, larger geographical presence and a large approved product portfolio.

Aurobindo has been able to gain visibility in key markets and ramp up volume shares for large runners in the formulations market. However, the volatility of currencies and uncertain economic environment resulted in exchange fluctuation loss of Rs.2278.2 million and shaded the annual financial results.

Aurobindo has invested in the future and worked hard to build a large portfolio and sought product approvals in all relevant categories. The table below shows the new filings in the past three years for select markets:

The approvals have been received at rapid pace, and the Company will continue to keep the momentum and seek such product approvals, and when received shall make suitable marketing arrangements.

Contract Research and Contract Manufacturing (CRAMS) are other areas that are being pursued. These are potentially attractive business with possible long term business relationship. With the technology platform and skilled professionals available both at R&D Centre and in the production facilities, Aurobindo is able to offer products and services as well as the customers want. Multinational pharmaceutical companies have perceived Aurobindo's facilities as extensions of their own labs and manufacturing plants.

There is an excitement across the organization driving the change to become a global resource in the pharmaceutical industry. In this journey, as in the past, care is taken to create value for all stakeholders, and in particular to the customers and investors.

Threats and Challenges

Price sensitivities get tested in a crowded market where price tends to sag while volume business gets done. Competing pharmaceutical companies have several similar bio-equivalent products in the same market manufactured at facilities that have been approved by the highest regulatory authorities. All of them stay focused on the same markets with the result price elasticity is tested and margins get eroded.

The challenges are greater from Indian manufacturers who have similar production facilities. It is also common to find managers with similar talents and experiences in the industry. Indian manufacturers have made an impact on the global stage and have worked to get shelf space.

This threat however, does not affect Aurobindo primarily because of its control over raw material sourcing. The Company is a dominant player in the active ingredients business and has been able to control its quality, save on timelines, control its costs and has the ability to deliver at short notice. Pricing power i.e. the ability to price lower and yet manage to get higher return on sales than the competitors, is a potent strength. This is a unique advantage that Aurobindo enjoys over manufacturers across the world.

Aurobindo has been timing its launches to take advantage of products going off-patent and the opportunities available in a first-mover market. This strategy is built around the in-house R&D capabilities, technology strength in manufacturing facilities and the marketing infrastructure. The Company has worked on its speed-to-market abilities and is quick to convert product approvals into invoices.

In addition to the foregoing, the Company has unmatched strengths to cope with the challenges of the market such as experienced staff with ability to anticipate market needs, plan for product launches with supportive documentation, create products that meet regulatory norms, and execute plans within tight cost and time budgets. The professionals within the Company have been trained to create opportunities, replicate the successes and drive business growth.

Financial Performance

It was another year of new highs in volume sales and revenues for the Company while the profits were shaded by exchange fluctuation loss of Rs.2278.2 million.

The marketing efforts were made to enlarge the geographical spread as well as deepen the relationships with existing customers. The Company had larger product portfolio and got closer to the customers resulting in better formulation sales.

The Company reported its highest ever revenues at Rs.28852.5 million as against Rs.24092.8 million in the previous year. Exports constituted Rs.18232.6 million as against Rs.13976.6 million. Exports as a percentage of total sales were 63.2%, an improvement from 58% in 2007-08. Formulation sales were Rs.12035.3 million in year ended March 2009 as against Rs.8485.6 million in the earlier year.

Raw material consumption as a percentage of sale of goods was maintained at 58.49% as compared to 58.50% in 2007-08. During 2008-09, China operations were streamlined and there was improvement in yields and quality of strains, while Pen-G prices remained volatile. Presently steps are being taken to improve business prospects.

Internal Control

The Company has implemented Oracle based ERP which not only adds to the controls, but has led to faster information, analysis and improved decision making.

Aurobindo has a well-defined and documented internal control system and are adequately monitored. Checks and balances and control systems have been established to ensure that assets are safe guarded, utilized under proper authorization and recorded in the books of account.

There are proper definition of roles and responsibilities across the organization to ensure information flow and monitoring. These are supplemented by internal audit carried out by a firm of Chartered Accountants. The Company has an Audit Committee consisting of four Directors, all of whom are independent Directors. This Committee reviews the internal audit reports, statutory audit reports, the quarterly and annual financial statements and discusses all significant audit observations and follow up actions arising from them.

Human Resources

The Company has result oriented professionals who have consistently delivered results in line with customer needs and corporate plans and where necessary have been trained keeping the growth needs. Aurobindo has fashioned human resource management systems and processes, which aim to create a responsive, customer-centric and market-focused culture that enhances organizational capability and vitality. These systems and processes operating in an enabling and empowering work environment support winning performance.

As at March 31, 2009, there 6,944 employees and their collective dedication is enabling Aurobindo to meet customer expectations and deliver superior shareholder value.


The Company has proven competence and expertise. There is a strong balance sheet that supports the business plan. The professionals in the Company have a defining role in significantly accelerating its growth and transformation, and enhance its position as one of the most valuable companies. Aurobindo has organized its entire business infrastructure and is leveraging its knowledge base and process chemistry strengths to become a significant player in generics. All the strengths have been tested from the perspective plan to manufacturing plant and later in the market place. There is a powerful marketing infrastructure backed up by state-of-the-art manufacturing systems that are driving the business. Looking ahead, Aurobindo is determined to create a significant market presence and offer quality products and services, to meet both customer and stakeholder expectations.

Risk Management

Risk management secures the continuity of our business. The objective is to facilitate attainment of our goals, and ensure sustainable growth. In the pursuit of our goals, risks can be either perceived threats or untapped opportunities. While there are several risks associated with a pharmaceutical manufacturing Company, some of them need to be examined to appreciate the steps taken to mitigate them. Some of them are presented below:

Risk related to economic and political conditions

An economic slowdown in the U.S. or Europe could adversely affect the Company's business and results of operations.

Aurobindo has a product basket that straddles several therapeutic segments and has its revenues spread across the U.S., the European Union and the rest of the world. Care is taken to grow in each of its product segments and is striving to improve its presence in each of these three markets.

The Company holds regulatory approvals for large number of products in U.S. and Europe and is in a bid to widen the geographical reach. The product portfolio and the pipeline are being further strengthened, with a view to gaining new market presence. Efforts are also being made to strengthen presence in potentially large markets such as Brazil, South Africa, Canada, Australia, North and West Africa as well as Middle East to step up business. These initiatives would also help consolidate Aurobindo's volumes and revenues over the long term.

Slowdown in any one economy will not have a major influence on the industry. Overall, the healthcare industry is not price elastic, and is reasonably insulated from recessionary trends.

Competitive Pressure

Our products face intense competition from products developed, or under development, by other companies in India and abroad. Competition could be from major pharmaceutical and chemical companies, specialized contract research organizations and research and development firms.

In a highly competitive market between equally competent players, it is critical to have unmatched and unique strengths that improve market share, reduce risks while adding potential value. Aurobindo indeed has unique strengths which enable the Company to face its competitive pressures better than its peers. This risk perception would be minimal for Aurobindo since it is vertically integrated. For most of its generic formulations, the Company has captive manufacture of active ingredients. This helps keep the cost under control, and improve margins. In a price sensitive industry, with its operational efficiencies Aurobindo is able to offer products at competitive prices. This is one of the major strengths of the Company.

Risk relating to regulatory approvals

Some of our competitor especially multinational pharmaceutical companies have greater experience in clinical testing and human clinical trials of pharmaceutical products and in obtaining international regulatory approvals. This could render our technologies and products uncompetitive or limit our ability to introduce new products impacting adversely our business.

Aurobindo has a talent pool of scientists who have considerable experience in handling complex chemistry as well as filing applications with the regulatory authorities. The in-house team has applied for over 1,068 approvals for ANDAs out of which 160 are with the US FDA. Approvals received from US FDA total 109. Similarly, the team has filed over 1,461 DMFs including 143 with US FDA. 404 patent & design applications have been filed with various authorities. The capabilities of the research scientists have been proved by the aggressive filing and the speed at which the approvals have been received. The research team has also demonstrated their ability to scale up and commercialize the products.

Risk related to lack of pricing power

Certain of our products are subject to price controls or other pressures on pricing. Price controls limit the financial benefits of growth in the life sciences market and the introduction of new products.

With near perfect competition in the generic industry, prices are a function of supply and demand. Prices do trend in response to supplies as well as competitive pressures. Domestic pricing is also influenced by global trends in both availability and price of imported active ingredients. Industry players with marked presence in segments with demand are able to differentiate themselves and offer value proposition. In some segments, the brand value and offer has enabled players to price the products appropriately.

Aurobindo is able to cope with pricing pressures and the Company's focus on quality assurance has minimized the possibilities of commoditization. Aurobindo strives to protect margins and has been responsive to the needs of growth as well as profitability.

Risk relating to protecting patents

Our success will depend on our ability in future to obtain patents, protect trade secrets and other proprietary information and operate without infringing on the proprietary rights of others.

Aurobindo has a dedicated IPR team of trained scientists whose primary task is to ensure that the Company's products are manufactured using only non-infringing processes. So far the Company has filed for 404 patents and designs and has been granted 44 non-infringing process patents. Adequate care is taken to respect trade secrets, knowhow and other proprietary information and ensures that the employees, vendors and suppliers sign confidentiality agreements.

Risk related to high dependence on specific markets

We depend on the US market for a significant part of our future operating results. Failure to develop profitable operations in that market could adversely affect our business, results of operations, financial condition or prospects.

The Company has been consciously spreading its risks. Formulations business is growing as a proportion of the revenues, which has reduced the dependence on active ingredients. While the initial thrust for the generic business was made to gain foothold in U.S.A., the Company is making significant inroads into the European markets, especially in U.K. and The Netherlands. Aurobindo would be further accelerating with its marketing strategy to gain business volume in 18 more countries of Europe. Ongoing efforts are to widen the geographical spread by foraying into markets with large potential such as South Africa, Brazil, Australia and Japan. In order to improve the business, results of operations and financial condition, the strategy is being implemented with a time bound action plan.

Risk related to exposure to the Rupee-US dollar exchange rate

Currency exchange rates could undergo change with Indian rupee gaining strength. This could reduce earnings.

The rupee is showing signs of strength in relation to the USD and the Company is conscious of the possibility of weakening dollar impacting earnings. This is being mitigated by the following actions:

Current objective is to neutralize the forex volatility by maintaining the parity of receivables and payables, and by availing cheaper bank borrowings in foreign currency. Such parity provides a natural hedge and very limited forward cover has been taken to the extent of the gap, if any. Natural hedge in relation to underlying contracts help minimize the risk. At the same time, operating margins are being improved by larger proportion of formulations sales to drive the margins to mitigate the possible currency exchange loss. In the ultimate analysis, Aurobindo is in the business of manufacturing and marketing APIs and formulations and will always make effort to mitigate the temporary inconsistencies of profits.

Risk related to Human Resources

Aurobindo's success depends largely upon the highly-skilled professionals and the ability to attract and retain competent managerial personnel. The industry is human capital intensive with a high rate of attrition.

This is a result oriented Company with a focused approach to customers, markets and products. There is premium attached to completing tasks on time and being cost conscious. Aurobindo is therefore a demanding organization and hence recruits trains and builds a team of achievers. Aurobindo has been fine tuning its HR practices with the objective of providing an environment that encourages people to deliver results. The current phase of accelerated growth is backed by systems that meet future needs. Second-in-command in each key function and decentralized management style has developed a much stronger organization culture. There is a proactive approach to human resource management and the employees are given responsibility with authority. Emphasis is on accountability and they are encouraged to raise the bar and perform to their potential. The professional approach in day to day management has enabled the staff to stay motivated. As in the past, the attrition in the Company is much lower than the industry average.

Acquisition of Matrix

Matrix Laboratories Limited is a leading Active Pharmaceutical Ingredients (APIs) manufacturer and Solid Oral Dosage Forms. Matrix's quality products are innovative and affordable for the domestic market as well as the international market.

Large Pharmaceutical companies in the world are looking the Indian Pharmaceutical companies as potential target of M&A deals (Merger and Acquisition) to enhance the company in the world.

Low cost manufacturing of large and varied products and with good quality in India make the other companies to have M&A agreement.

Mylan acquisition Matrix and continue to expand the domestic pharmaceutical company. In particular this acquisition helped both the companies to emerge the products to India, China and South Africa. And other benefit is also help Mylan to enter the high-margin European countries through Matrix. Matrix also gained by this deal by providing low cost products for Mylan to develop and maintain the strong pipeline of Active Pharmaceutical Ingredients. Since Matrix global capabilities are likely to have much greater value to Mylan, both are get benefited by their deal.

Mylan acquired major strake in Matrix to establish global distribution network. Through this Mylan can enhance their growth to other countries. The benefit for Matrix in their deal is it triggers their production capabilities and manufacturing capacity to reach the global market.

Investment deal

Win - Win Deal: Mylan acquired 71.50% stake in Matrix Lab at Rs. 306 per share. This included a 51.50% stake from private equity investors and existing promoters and the open offer of 20%. Mr. Prasad (Promoter & Chairman) will retain 5% stake. He will remain on MLL's board as the Non-Executive Vice Chairman.

This is win-win deal for both Matrix Lab and Mylan Laboratories for the following reasons:

  1. Mylan and Matrix together will have approximately 5,100 employees in 10 countries. Matrix will provide Mylan with a significant presence in important emerging pharmaceutical markets, including India, China, and Africa, as well as a European footprint and distribution network through Matrix's Docpharma subsidiary. By combining Matrix's active pharmaceutical ingredient (API) and drug development business with Mylan's expertise in finished dosage forms (FDFs), this transaction also will allow Mylan to capture incremental pieces of the value chain through backward vertical integration.
  2. As part of the Mylan organization, Matrix will benefit from a strong U.S. presence, expanded production capabilities and manufacturing capacity and industry-leading expertise in product development and process optimization. Together, they will be able to compete more effectively while delivering cost savings to their customers. It provides Matrix Labs with a strong financial support to grow both organically and inorganically.
  3. Matrix is the world's second largest API player with respect to the number of drug master files (DMFs), with over 165 APIs in the market or under development, and 10 APIs and pharmaceutical intermediate manufacturing facilities, six of which are FDA approved. Matrix has diverse API capabilities, knowledge of the API patent landscape, capability in early API development, a low cost structure and strong scientific capabilities. Matrix's API manufacturing platform will provide Mylan with significant cost savings. This is of great significance as global generics majors are witnessing erosion in margins. Their Finished Dosage Form pipeline will expand Mylan's forms and therapeutic categories and allow Mylan to pursue a broader portfolio of product opportunities more economically.
  4. Matrix Labs will expand Mylan's capabilities in a number of key areas including products with higher barriers to entry and long-term growth opportunities, and allow the company to pursue a broader portfolio of new products at lower costs.
  5. Matrix Labs presence in Asia and Africa provides Mylan with access to multiple, underpenetrated and growing new markets. In addition, Matrix's strong development capabilities and access to India's highly skilled, scientific talent pool will allow Mylan to increase its number of Abbreviated New Drug Application (ANDA) submissions. MLL's additional manufacturing capabilities will provide Mylan with maximum manufacturing flexibility, allowing it to better manage industry cycles, while optimizing market share and gross margins.
  6. Matrix Labs is currently the world's largest supplier of generic anti-retroviral (ARV) APIs. Matrix also expands Mylan's "high-barrier-to-entry" product capabilities, particularly in the area of anti-viral. Through its ARV franchise, Mylan and Matrix intend to partner with international programs to bring lower-cost treatment solutions to patients in regions of the world most affected by HIV.

Organizational Structure after Acquisition

While Mylan has acquired a 71.50% stake in MLL, Mr. N Prasad (Promoter & Chairman) has retained a 5% stake. He will remain on Matrix board as Non-Executive Vice Chairman with Mr. Robert Coury (Vice Chairman & CEO of Mylan) taking over as the Chairman. Mr. Rajiv Malik will remain as CEO of Matrix. Mr. Stijn Van Rompay, cofounder of Docpharma, will remain responsible for the Docpharma operations. Further Mr. Prasad joins Mylan Board and Executive Management Team as Head of Global Strategies. This is a positive development for MLL per se.

This in turn allows Mylan to distribute products from its broad portfolio into these markets, creating substantial additional distribution opportunities for Mylan's products, extending their growth cycle, and allowing Mylan to capture incremental revenues. Mylan's resources and products will accelerate Docpharma's expansion into existing markets, as well as support expansion into multiple new European markets through both organic growth and acquisitions. Mylan also plans to pursue the distribution of Docpharma's novel, existing products and development pipeline in the U.S. in areas such as female health and oncology. This will increase revenues for both Mylan Lab and Matrix.


Aurobindo Pharma believes that the Company belongs to all the stakeholders and the corporate objective is to maximize shareholder value ethically and legally. The Company will continue to strive to be a wealth creator to meet stakeholder expectations and be a responsible citizen in its societal commitments. In the achievement of its goals, the Company utilizes its resources to meet the needs of customers and deliver on their expectations; meet the commitments with vendors, partners, employees, governments and the community. The trust reposed on the Company will always be exercised within a framework of transparency, accountability and professionalism.

See Appendix: The stock and share holder information of the Aurobindo.

Matrix- MLL is the world's second largest API player with respect to the number of drug master files (DMFs), with over 165 APIs in the market or under development, and 10 API and pharmaceutical intermediate manufacturing facilities, 6 of which are US FDA approved. Acquisition of Matrix by a global leader like Mylan is a win-win situation for both companies. The stock is currently trading at around 11x and 8x of FY 08E EPS of Rs. 21 and FY 09E EPS of Rs. 29 respectively. The risk to our recommendation includes risk pertaining to the generics business and APIs where margins are witnessing erosion due to fierce competition. It also includes lack of clarity on transfer pricing between Matrix and Mylan.

After the Mylan merger, Matrix has continued to trade on the Bombay exchange, and it is considered an independent company. Its Chairman, Sri N. Prasad, continues to hold a 5% stake in the company.

As a side note, one of the companies from whom Mylan bought its interest in Matrix was Newbridge Capital, which is made up of Texas Pacific Group and Blum Capital. Texas Pacific Group made a splash earlier this year when it made a $30 million investment in China CRO ChemPharma.