Dr Reddy's Laboratories eyes acquisitions to drive growth in India

The share of chronic has been steadily rising in the Rs 2 lakh crore domestic pharma market- from 36.4 percent in January 2022 to 38.1 percent in January 2024

Hyderabad-based Dr Reddy’s Laboratories (DRL), which aspires to break into the top 5 among domestic pharma companies, has been strengthening its portfolio through in-licensing opportunities and partnerships. However, the essentially acute-therapy-focused company is now eyeing inorganic growth in the medium term to boost its chronic portfolio, a fast-growing evergreen segment of the Indian pharma market.

Speaking to Business Standard, MV Ramana, chief executive officer, branded markets (India and emerging markets), Dr Reddy’s Laboratories (DRL), said that they are indeed scouting for inorganic opportunities to add to their India growth plans.

“We want to grow our existing base business and also focus on the future businesses for India. These future businesses are in three verticals – innovative assets (including cell and gene therapy, vaccines, novel chemical entities, and novel biological entities); consumer health (nutrition as well as over-the-counter products); and digital health (therapeutics and condition management),” Ramana elaborated.

He said that the ‘additional layer of growth’ will come from these new businesses.

“We continue to look at inorganic opportunities – that is the other leg of our India growth plan,” Ramana told Business Standard. DRL now draws only 30 per cent of its revenues from chronic therapies, which involve patients continuing medication for several months or even lifelong.

The share of chronic therapies has been steadily rising in the Rs 2 lakh crore domestic pharma market – from 36.4 per cent in January 2022 to 38.1 per cent in January 2024.

Reports have suggested DRL’s interest in specialty pharma companies like Bharat Serums and Vaccines (BSV). DRL has not commented on market speculations.

The company feels that there are unmet medical needs in several therapies where innovative assets can address those. “We aim to support patients both in India and in emerging markets. The NCEs, NBEs, vaccines, etc., would essentially come to our fold through partnerships. We are a partner of choice for many global pharma players,” Ramana said.

Analysts agree. Motilal Oswal said in a recent report that in FY24 the India sales witnessed a modest growth rate of 5 per cent year-on-year (Y-o-Y) to Rs 4,640 crore. “The growth was driven by strong performance in gastrointestinal, pain management, dermatology, and anti-diabetic segments, and offset by a decline in cardiac and respiratory therapies,” the brokerage said, adding that DRL is focusing on launching new products in India along with some in-licensing and partnership opportunities.

DRL’s vaccine journey started during Covid-19 when it brought the Russian Sputnik V vaccine to India. In March, DRL entered into an exclusive distribution partnership with Sanofi Healthcare India to promote and distribute their vaccine brands across private markets in the country. The pact is aimed at expanding the availability of Sanofi’s vaccine brands, both paediatric and adult, within private markets in India - DRL will have exclusive rights to promote and distribute Hexaxim, Pentaxim, Tetraxim, Menactra, FluQuadri, Adacel, and Avaxim 80U. These brands have collectively generated approximately Rs 426 crore in sales annually (IQVIA MAT February 2024). Sanofi will continue to retain ownership, manufacture, and import these brands into the country.

DRL, however, is trying to expand its vaccine presence. Ramana said, “We will continue to look for more such opportunities to make our vaccines portfolio more comprehensive.” He clarified that there have been no talks with Sanofi to acquire its vaccine business in India.

In April, DRL said it has signed a definitive agreement to form a joint venture to bring innovative nutraceutical brands from Nestle Health Science to consumers in India and other agreed territories. “We would look at broadening this portfolio,” Ramana said.

As such, the consumer health vertical is doing well for DRL and, as Ramana said, they have been switching assets from the prescription business to the OTC vertical wherever it made sense.

“The size of the consumer health business is relatively small. FY25 onwards we estimate growth in the consumer health business. Right nutrition helps the patients in therapy areas like gastrointestinal, oncology, etc. We are working on such illness-to-wellness products also,” he added.

Consumer health is less than 10 per cent of India's business now, he said, adding that it would have a meaningful contribution by 2030.

Sumit Gupta, research analyst at Centrum, said that he expected revenues from the Nestle JV to flow from FY27 as the initial years will go into efforts to build the brands.