Comment

When Dr Anji Reddy founded Dr Reddy’s Laboratories (DRL) in the early eighties, many avenues of growth, from doing research on new drugs and putting new medicines into the Indian market to tapping the largely unexplored exports market, kept the momentum.

Riding on an incessant quest to excel, skilled people and high ambitions that small start-up has grown to be a Rs 7,000 crore mega structure, among the top Indian pharma companies by revenues.

The last 25 years were all eventful for DRL. But the noticeable changes came in the late nineties. When the company signed a research deal with Novo Nordisk for development of an anti-diabetes drug, the world took note of its research capabilities for the first time. But the euphoria did not last too long. A few years later, Novo dropped the molecule from research on detection of adverse reactions on lab animals.

DRL may have made the mistake of licensing out the drug too early into research and raising expectations of a blockbuster product. That failure taught it a lesson and awakened the entire industry to the perils of out-licensing drugs early and then assuming everything will go right with it.

DRL took that setback dauntingly and continued to grow after a few bad quarters.

Betapharm was the next challenge. The company spent $570 million after a bidding slugfest with arch-rival Ranbaxy. The view was to be among the top five players in Europe’s largest market. A subsequent change in legislations in Germany hugely eroded its profitability and is still being seen as a big pain.

Supply chain streamlining, changed marketing approach and a frugal setup may get the company out of that rut, too.

The senior management has again demonstrated its patience and feels it is in better control of things than it was a few quarters ago when goodwill write-offs on account of Betapharm used to figure prominently in each of its announcements.

What next? After reaching the $1.5 billion mark, a generic company faces a humongous task of growing further.

In a presentation a few weeks ago, DRL said it will not spread too thin into the world markets but go deeper into larger markets such as Europe, the US and India.

Better product mix, supply chain efficiency and an integrated research approach with its Bangalore arm Aurigene is expected to give the company the necessary growth. The target has been set at $3 billion by 2013. That will mean more than doubling sales in the next four years.

The target is ambitious, but doesn’t look unachievable. DRL has not been very aggressive in the domestic market and still ranks lower down on the charts. It has a strong branding with the doctors and that can only be explored better by introducing new products and entering the largely untapped rural markets. Remember, it isn’t just Indian companies; multinationals, too, which are suddenly finding the rural markets to be very attractive.

On the exports front, DRL has matured into a global generics company. The next level will involve sharpening its proprietary business.

It has established Promius Pharma, its brand company, especially in the dermatology segment. The company will need to increase its investments into this segment and see if this model can be acceptable in the US. It’s a risky start, but there are only a few options.

DRL has also cut its research costs. Over the years, its drug discovery research, which had been an example of high productivity, had become a cost centre. Now, the company has integrated its research structure with Aurigene and new filings will be done through that combined entity. The company says it will keep a lean structure of 30 people for developing the proprietary branded research portfolio. By being smaller, costs will be lowered and a tab on accountability could be kept.

DRL is taking a strong interest in the biosimilars market. After developing a rituximab clone called Reditux, its scientists are aiming at two or three new monoclonal antibodies in the next 12 to 18 months. If successful, that will be the next big booster for the company’s earnings.

Biosimilars are seen as the next big opportunity and a portfolio of four products or more would make a formidable profile. However, that market will see some of the toughest fights, what with branded and generic companies taking equal interest.

DRL can still keep the Indian flag flying high. It has countered many adversities in the past and emerged a winner.

Pillman is an executive closely linked to the global pharma industry.