Driven by a vision to become discovery-led global company

Q&A: G V Prasad

Anji Reddy, founder of Dr Reddy's Laboratories, has a vision to establish India's first discovery-led global pharmaceutical company and he seems to be well on course to realise his vision.

Started in 1984 with $40,000 in cash and $120,000 in bank loan, Dr Reddy's has risen steeply to emerge as India's second largest pharmaceutical company and the youngest among its peer group.

Last fiscal, the company's revenues stood at Rs 1,947 crore (US $446 million). It is also the first pharmaceutical company from Asia Pacific (outside Japan) to be listed on the New York Stock Exchange on April 11, 2001.

Today, the company manufactures and markets APIs (active pharmaceutical ingredients), finished dosages and biologics in over 100 countries worldwide. With over 950 scientists working across the globe, the company continues its march forward to discover and deliver a breakthrough medicine.

G V Prasad, executive vice-chairman and chief executive officer, who drives the overall strategy of the organisation, says Dr Reddy's is in the process of transforming into an innovation-based company. Excerpts from the interview: Which is going to contribute more in achieving Dr Reddy's vision of becoming discovery-led global pharmaceutical company "� the recently formed Perlecan Pharma or Dr Reddy's Drug Discovery Programme?

Over the last decade, Dr Reddy's has created a world-class R&D infrastructure in drug discovery. It has made significant progress in the therapeutic areas of metabolic disorders, cardiovascular, oncology and bacterial infections. Dr Reddy's has six new chemical entities (NCEs) in the pipeline "� two in pre-clinical and four in clinical.

Through Perlecan, Dr Reddy's will be able to leverage the drug discovery platform that it has created particularly in metabolic disorders and cardiovascular areas, expand the pipeline of pre-clinical candidates and further migrate more candidates from pre-clinical to clinical development, in the process creating immense value.

Perlecan will rapidly advance the existing as well as future NCE assets, as the case may be, through phase II trials and seek out-licensing, co-development or joint commercialisation opportunities thereby unlocking the value of the pipeline.

Formation of Perlecan marks an important milestone for the company and will accelerate our journey towards our vision of becoming a discovery-led global pharmaceutical company.

Dr Reddy's seems to be not very successful in its strategy of challenging the patents of original inventors in the US. What are the reasons and what is the impact of strategy on the company's finances?

No generics company can expect to win all its patent challenges. The upside on a patent challenge still justifies the investments despite the strike rate and other factors such as authorised generics.

Having said that, Dr Reddy's portfolio of ANDAs (abbreviated new drug applications) today is quite balanced with a good mix of Para IVs (challenging a patent before its expiry) and non-Para IVs. As of June 30, 2005, Dr Reddy's had 46 ANDAs pending with the USFDA, which include 29 Para IVs and 17 non-Para IVs.

Has the partnership with ICICI Venture Funds Management Company helped Dr Reddy's in development and commercialisation of ANDAs?

The generics deal with ICICI Venture provides an opportunity for Dr Reddy's to leverage its global scale and infrastructure for generic pipeline expansion.

This deal, while mitigating product development costs in generics (and sharing associated risks and opportunities), also enables the company to seek new product development opportunities in other business segments.

The company witnessed a significant decline in its profit last fiscal. How is the situation in the current year?

The full year profit for FY05 was about $4 million. For Q1 FY06, the net profit of Dr Reddy's was at $8 million. The core businesses of API and branded formulations are doing quite well.

On the R&D front, the ICICI generics deal announced in March and the more recent Perlecan deal will benefit the R&D line item. While the company does not give financial guidance, for the full year FY06, the results are likely to be better than FY05.

The company stated that it is focusing on measures to control costs, drive productivity and process excellence. Has it succeeded in this regard? If so, how much did it save in monetary terms?

Key strategies of various companies are tending to be similar. Even if the strategy is superior, the only differentiator is how well it is executed. Hence, we decided to embark on an Execution Excellence journey this year.

Accordingly, we have adopted a framework, which we christened as Dr Reddy Euro Execution Excellence Model (DREEM). We have rolled out this initiative in India and would extend it globally. High priority areas across the organisation were identified under this model.

The key business processes and enabling processes have been established and will be driven eventually under Execution Excellence. These are early days to really conclude on the cost savings this project has resulted in.

However, improvement in financial results is also an indicator of good progress made. Next year should be a time to look forward to and put figures to the cost savings made across the company through Execution Excellence.

What is the response to your recently launched Shadowz sunscreen product?

It's too early to comment on the marketshares as the latest ORG data available is for August 2005 when Shadowz was launched. The product, however, has met with positive reception from dermatologists since it provides a good option for both doctors and patients.

What is Dr Reddy's targeted revenue for 2010 and how is it going to achieve this?

We do not have any fixed numerical targets this time. We are driven by a vision to become a discovery-led global pharmaceutical company. We are in the process of transforming Dr Reddy's into an innovation-based company.