Dr Reddy's prescription does wonders for pharma

Posted AtThe Economic Times

Kallam Anji Reddy is rather dismissive about it. But he was already a legend in the making in the early 1990's. One of the stories that elevated him to that position goes like this. In the early days of Dr Reddy's Laboratories, he had approached global Big Pharma with proposals to supply bulk drugs.

At that time, Japanese suppliers ruled the industry and there was a big question mark on the quality standards of Indian pharma companies. Dr Anji Reddy assured global pharma giants that his products would be of even better quality and much more cost-effective than those supplied by the Japanese companies.

Big Pharma was convinced and orders started coming in. With that, Dr Reddy (along with a handful of other industry heads) began scripting a new story for Indian pharma.

This was a big achievement for someone who started out with a public sector company -- Indian Drugs and Pharmaceuticals (IDPL). It was sometime during his six-year stint at IDPL that he thought of setting up his own company. And in 1973 he set up two bulk drug companies -- Uniloids and Standard Organics -- in partnership with two other individuals. However, he soon decided to go it alone, and in 1984, he set up Dr Reddy's Laboratories (DRL) with an initial capital of Rs 25 lakh. The company, which started its operations as a manufacturer of active pharmaceutical ingredients (APIs), was soon at the forefront of domestic companies that had not just mastered the technology to make APIs but also went on to shake up the domestic market by launching branded formulations at half the prevailing prices.

According to Dr Reddy, the key driver then was to provide affordable medicines to people in the domestic market. It took a few years for the company to leverage the skills that helped it to make a dent in the Indian market to enter global markets. What began with exports of bulk methyldopa in 1986 has, in just two decades, evolved into a full-fledged generics business.

In fact, DRL was one of the early Indian entrants into the US market. It was the company's early entry into the generics market that inspired other Indian companies to follow the path it had taken.

In Ã'01, the company made a huge profit with fluoxetine (an anti-depressant) for which it had 180 days of exclusivity. The launch helped DRL's net jump three-fold to Rs 460 crore in FY02. The jump was powered by the monopoly extended to the first successful generic competitor. Behind these successes was a scientist who had an unwavering belief in innovation. It was Dr Reddy's scientific bent that convinced him of the need to invest in R&D in 1993. "We believed that this is where the future is," Dr Reddy told ET. It was also the first to achieve milestones when it outlicensed its anti-diabetic molecule -- DRF 2593 -- to Novo Nordisk in 1997. The company subsequently entered three more outlicensing deals -- with Novartis, Novo Nordisk and Denmark-based Rheoscience A/S.

The company's development portfolio attracted quite some international attention. On a visit to India, Lars Rebien SÃf¸rensen, president and CEO of Novo Nordisk, told ET that he was impressed by the quality of work at Dr Reddy's Labs. However, critics say that Dr Reddy's focus was quite skewed towards research and that was the undoing of the company.

The company's outlicensing deals with Novo Nordisk and Novartis fell through as the MNCs decided to discontinue development of the molecules. "Those were difficult times for us," Dr Reddy said. Even its generics business faltered over the last few years as its pipeline of products thinned.

However, with an innovator at its helm, it is not too surprising to find the company is looking at new ways of coming back on track. Recently, the company entered two unique deals to mitigate risks involved in drug research and the uncertainties in generics. In the most recent development, it roped in venture capital investors and set up a separate integrated drug development company -- Perlecan Pharma. At that point, Dr Reddy said, "Why should innovation happen only in R&D labs? Why can't it happen in finance too?"

The new company has an equity capital of $52.5m, with venture capital investors Citigroup Venture Capital International Growth Partnership Mauritius and ICICI Venture Funds Management Company pitching in most of it. Perlecan Pharma will be engaged in the clinical development of potential new drug candidates, which are called new chemical entities (NCE) in industry jargon.

Dr Reddy's has transferred four compounds -- DRF 10945, DRF 11605 and DRF 16536 (for metabolic disorders) and RUS 3108 (for cardiovascular disorders) -- to Perlecan. Perlecan will also be involved in seeking outlicensing, co-development or joint commercialisation opportunities for these molecules.

Industry heads agree that Dr Reddy's has set a precedent for Indian pharma. And some say the contribution is greater than having set an example. "Dr Anji Reddy has mentored many of us and under his guidance many more leaders have emerged in the industry," says Murali Divi, chairman and MD of Hyderabad-based Divi's Labs. Clearly, there's more that Anji Reddy has done for Indian pharma than meets the eye.

November 22, 2005