Side effects of admiration

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Dr. Reddy’s presence across the value-chain is set to reap benefits

While walking through the corridors of one of the most effective research labs in India, one might miss out on the boring blue and grey colours of the walls. But one can’t ignore the people working in white attires and hiding behind a cluster of hi-tech apparatus to evolve a range of molecules to cure diseases.

The description might sound dreary to that whole bunch of forgiven scientists, who in their school days were more interested in testing acids on their classmates uniforms rather than mixing them with other chemicals. But, for Rajeev Kumar, a scientist working in this drug discovery unit of Dr. Reddy’s Laboratories, it is “an excellent place to work in.” He has his own reasons but he is reluctant to share them. However, that doesn’t affect the reputation of this pharma company. In fact, it only drives it strong with over 350 dedicated Rajeevs, who work at the two research facilities in Hyderabad and Atlanta (US). Moreover, a wide presence across the value chain, including APIs, branded formulations, generics, biologics, speciality products and new chemical entities (NCEs) makes it one of the most admired companies.

No doubt, while FY 2005-06 was characterised by a rebound in profitability and value-creating partnerships and acquisitions, the last fiscal (FY 2006-07) saw the drug maker acquiring a new growth trajectory and momentum across its businesses and markets. The company reported over two and a half times growth in its topline with consolidated revenues of Rs.65,095 million against Rs.24,267 million in FY 2005-06. Profit after tax increased almost five-fold to Rs.9,327 million in FY 2006-07.

A superlative performance that not only made Dr. Reddy’s the largest and most profitable pharma company, leaving behind Ranbaxy, but also one that’s well entrenched to get into the list of top 10 global generic players. But the one aspect that transformed Dr. Reddy’s over the last two years is its growing focus on R&D. With seven molecules or NCEs, of which five are in clinical development and two at pre-clinical stages, Dr. Reddy’s will be the envy of any pharma company.


Moreover, the company’s unrelenting focus on access and affordability while finding treatment options for un-met and poorly-met medical needs has placed it in a different league. These twin objectives have been further enhanced through a business model that prioritises the manufacture of affordable generic medicines on one hand and a growing investment in discovery of new molecules on the other, both translating into a positive impact on patient lives.

Going a step forward, the company promoted India’s first integrated drug development firm, Perlecan Pharma, which is engaged in clinical development and out-licensing of NCE assets. It was primarily a derisking strategy but the move was appreciated by several critics. “The formation of Perlecan pharma was an innovative agreement, which brought to table the strengths of the three firms (Dr. Reddy’s & 2 private equity firms). It provided Dr. Reddy’s with a model to rapidly advance its existing as well as future NCE assets through Phase II trials and seek out-licensing, co-development or joint commercialisation opportunities thereby enhancing the value of the pipeline,” says a Dr. Reddy’s spokesperson.

The company seeks to diversify into new markets, especially the low penetrated and regulated ones. To achieve this objective, it has acquired firms in Germany and Mexico. There is no doubt that Dr Reddy’s, like other pharma firms, has been an under-performer in the recent past, but industry experts believe that the company can elevate these concerns through enhanced presence in other regulated markets, and outsourcing its larger requirements through India. “While the concerns persist, the profitability of the company should be on an uptrend from here on. We believe that the risk-reward ratio is highly favourable,” says Sarabjit Kour Nangra, VP (Research), Angel Broking. This expectation is due to an interplay of several factors, which has made Dr. Reddy’s the most admirable pharma company. A clear focus on basic research along with an evolving growth strategy has placed this one on the elite list.


Edit Bureau: Manish K. Pandey

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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