 "Dr Reddy's re-draws new drug plan")
While Balaglitazar, named after God Balaji, was an improvement over a molecule, Ragaglitazar was a first-in-class molecule that could treat diabetes and also lower harmful cholesterol and, therefore, had the potential to become a blockbuster. However, Novo Nordisk discontinued development work on both the molecules, much to the company’s disappointment.
Now the company is trying to align this objective with its mainstream business strategy as the pure generics business is not expected to take it too far in its ambition to become a dominant global player.
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In a recent interview to McKinsey, Dr Reddy's co-chairman and CEO, G V Prasad, said the company’s business model will undergo complete change in ten years. A large part of the company’s revenue comes from generic medicine today, while in ten years much of it would come from innovative products, he said.
While working on niche and difficult-to-make products within the generics space, the company was slowly increasing its focus on building its innovative and proprietary product portfolio to stay ahead in the industry.
In contrast to the science-based research approach followed in the past, Prasad now thinks that innovation would come from collaborative R&D outside their existing core businesses or through acquisition of technology platforms. With more than 2,000 scientists across development centres in India, the UK, the US and the Netherlands, the company believes that it has the ability to leverage the best of global scientific talent pool to be able to grow the proprietary products, mostly organically.
“We are living in the times of great changes in digital health, genomics, and personalised medicines. Companies like ours will probably be more resilient than a traditional pharmaceutical company,” Prasad said in his interview with McKinsey.
New partnerships
Thus, in March, 2016, Dr Reddy’s Laboratories had entered into a licensing agreement with US-based bio-pharmaceutical company XenoPort to develop and market the latter’s clinical-stage oral new chemical entity (NCE), XP23829, which is a potential treatment for moderate-to-severe chronic plaque psoriasis and for relapsing forms of multiple sclerosis, in the US market.
According to Raghav Chari, executive vice-president of the proprietary products group at Dr Reddy's, this is possibly amongst the biggest in-licensing deals by an Indian pharmaceutical company. The deal involves a payment commitment of $490 million by Dr Reddy’s.
Having started out with the out-licensing of potential drug molecules to global companies, the company is now entered a new phase looking at acquiring potential drugs under development apart from marketing licences.
New drug development comes with the usual risks of failure. Considering the size of the deal with XenoPort, Dr Reddy’s seems to be ready to take on such risks as these decisions are aimed at building the future business. However, these molecules are under clinical trials, unlike NCEs, and therefore the risk is not very high, according to a senior company official.
If an average generic product brings $30-50 million in revenues, a potential new drug such as XenoPort’s molecule can generate up to $200 million in a year for the company in the US market. But it is a long-drawn process that can take up to 10 years before regulatory approval is obtained.
Dr Reddy’s recent thrust on proprietary products has evoked a lot of curiosity among the analyst community. One of the questions raised by them in the recent analyst call was whether the agreement with XenoPort will take the company back into absolute innovation from the incremental innovation that was being done so far. Whether the R&D investment will go up on this account, was the other question. The company said that it will still be an incremental innovation considering the fact that the molecule licensed from XenoPort was a phase-2 (second phase of clinical trials) compound.
The company spokespersons made it clear that more capital was being deployed in this proprietary products business to fuel the company’s growth beyond 2019.
Close on the heels of the licensing deal with XenoPort, Dr Reddy's had signed another similar licensing agreement with Japan's Eisai Company for exclusive worldwide development and commercialisation rights over the latter’s anticancer agent E7777 in exchange for an undisclosed amount in milestone payments. Eisai will be responsible for the development and marketing of E7777 in Japan and Asia, while Dr Reddy's holds the option for rights to develop and market the agent in India.
For Dr Reddy’s this represents an extension of its current efforts in dermatology to an important segment of skin-related cancers.
“Our proprietary products business focuses on novel and differentiated formulations targeting the dermatology and neurology segments. In dermatology, we focus our research efforts on indications like psoriasis, atopic dermatitis, seborrheic dermatitis and actinic keratosis,” Raghav Chari says.
The company has recently received the final US FDA approval for two new drug applications (ANDAs) in the proprietary product area: Zembrace, a migraine relief drug, and Sernivo, which is indicated in the treatment of a mild to moderate plaque psoriasis. This is the first breakthrough for Dr Reddy’s in the proprietary product market in the US.
While Zembrace is commercially available in the US, launch preparation activities are underway for Sernivo. "These approvals are critical milestones in our bid to establish a portfolio of differentiated assets in the United States,” Chari says.
Currently proprietary products constitute just around 2 per cent of the company’s revenues. DR REDDY’S IN NUMBERS
Revenue*
Rs 12,806.2 crore
Revenue from generics
Rs 1,783 crore (11.5 per cent of revenues)
R&D spending*
19,800
Global work force
25 countries
Commercial presence *2015-16