Dr Reddy's to pen global R&D pact by fiscal end

Dr Reddy's Laboratories, in an effort to contain research and development (R&D) costs, will finalise a R&D alliance with an international player by the end of the fiscal.

The company, with the absence of any major drug launches and increased pressure on the revenue and profitability fronts in recent years, is trying to cap its R&D costs at the current levels of about $50 million every year.

"We have an increased focus on reigning costs right now and that has led to an increased focus on partnerships for R&D. We are in talks with some players abroad and we hope to finalise a tie-up by the end of the fiscal year. At the moment, to ensure that our costs do not go up, we are prioritising our R&D," said G V Prasad, vice-chairman and chief executive officer, Dr Reddy's.

Dr Reddy's spent close to $47 million in the last fiscal on R&D.

"Only drugs with the best potential will be invested into," Prasad said.

In the first half of the current financial year Dr Reddy's has spent close to $27 million in R&D.

"Once the R&D tie-up is put in place, we will be in a position to ensure that costs come down," Prasad said.

With bulk of its applications for generic drugs in the US being patent challenges, Dr Reddy's legal costs are also substantially higher than other Indian pharma players.

In the last fiscal, the company spent close to $15 million in legal costs.

"We have mounted about 24 patent challenges, of which between three and five are in active litigation," he said.

Dr Reddy's is represented by New York-based legal firm Budd Lermer. The company, in its efforts to cut legal costs, started an in-house legal team which pores over documents and does the basic background research.

The company had earlier pointed out that as a short-term strategy it was not averse to leveraging the status of its 12 first-to-file para IV challenges through marketing alliances with other pharmaceutical companies for shoring up falling margins.

Dr Reddy's believes that it has the first-to-file status on 12 of the 24 Para IV filings. Some of its patent challenges are now maturing and could bring it major opportunities over the next few years (subject to court decisions).

Patent challenges include the generic equivalents of Eli Lilly's Zyprexa, Pfizer's Zofran, Novartis' Lamisil, Sanofi's Clopidogrel and Pfizer's Zoloft.

Prasad also pointed out that in the short-term the options before the company was limited.

"In the short-term, the options are limited. The pharma cycles are long and we need to look at increased revenues from other geographies and from the domestic market also to shore up our topline."

"We have been hit because we did not have any major drug launches for the last two years. This was a mistake. We need to have a pipeline of products and ensure that every year there are a certain number of launches."

The net profit of the company in the latest quarter fell sharply 45 per cent owing to higher expenditure on research costs and sliding sales.

Net profit for the quarter was Rs 51 crore as compared with Rs 93 crore for the same quarter last year.

Revenues for the second quarter at Rs 540 crore was almost flat and represented a 0.6 per cent rise over the Rs 537 crore it recorded in the corresponding period last year.