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Showing enormous conviction in what they chose to do, Dr Reddy's co-chairman and chief executive officer G V Prasad says he would prefer taking risky bets on research even while adopting a cautious approach to acquisitions. While Sun Pharma's dramatic rise as the largest Indian generics drug player comes on the back of the acquisitions, Prasad continues to aim at building, and leveraging on internal strengths and capabilities to grow as well as transform Dr Reddy's as one of the premier pharmaceutical companies in the world.Yet, maintaining a high growth rate is on top of the agenda for the next five years, according to him.
Apart from sharing his views on issues like price control, Prasad explains to B Dasarath Reddy about the steps and initiatives being undertaken on product and marketing fronts by Dr Reddy's , which could possibly push the company to the next tipping point. Excerpts of the interview:
Have the recent management changes made a difference to your role in the company?
Nothing has changed in that sense. I have always been an operational CEO. I provide the executive leadership for the company, lead all the operations and the business. Satish (chairman K Satish Reddy) used to work as COO and we used to work together. Over time, we felt it was too much for one person to be both chairman and CEO. From the governance angle too, we thought that one person should not handle so much weight. Abhijit's coming as a COO is also a good move because he has tremendous experience in running the business and operations. So between Abhijit, me and the executive team, we run the company and Satish manages the governance and the brand.
What are your focus areas as the company CEO?
While we have had a clear strategy in the last few years, I have been focusing on building capabilities and competence in the organization. I also want to leverage the capabilities built in each part of our business and bring them together to drive growth. We will do this by focusing on products, customers and markets. In the last few years we have focused on building capabilities and the time has come now to fully leverage these capabilities.
What kind of competencies and capabilities has the company acquired in recent past?
In many ways we have changed Dr Reddy's quite dramatically in the last 3-4 years. Our plants are much more modern now. Our philosophy of managing the plants has changed quite dramatically. We improved the way we manufacture products and the way we develop processes. We are much more mechanized and have dramatically reduced our dependence on individual worker discretion. The next horizon for us is computerising all our operations.
We also worked to build a new HR system in our manufacturing sites, which does not depend on low-cost casual workers but on modern ways of manufacturing and trained people. We have a very unique system where we take young people educated only up to plus 2 and provide them the opportunity to get higher education and also work so they actually earn while they learn. Everyone has an opportunity to get higher education and move up to higher positions.
The philosophy behind this is that nobody should be in a dead-end job. One can choose not to grow, but we must give everyone the opportunity. Most of our plants are moving towards this system.
Will the present technology address the challenges of manufacturing?
Not entirely. The next wave for us is to digitalise manufacturing. The machines will be controlled by computers while the knowledge will be integrated and the people will be involved in understanding the processes rather than operating the machine. In a way, we are taking manufacturing into the 21st Century. We are removing human intervention. To do this, the process must be much more robust because the machine has to detect the anomaly and stop the process or continue accordingly. We now have this kind of a mind-set in the organisation. We are looking at product development, manufacturing, commercialisation and everything in very different ways.
Will these measures differentiate your company from the rest to help you stay ahead of competition?
We don't worry about competition. Honestly, even if the competition is not doing anything we will do this. We are not bench-marking ourselves against anybody. All the steps that we are taking now will make us better. We will however differentiate ourselves through science and technology. We will develop products which very few companies in the world can develop.
Multiple Indian companies, big and small, launch generic versions in the US market with equal ease. How does your company plan to grow more than others in this environment?
On the commercial front, we made our choices very clear. We want to go after difficult products, biosimilars and proprietary products that meet patients' unmet and under-met needs. In the branded markets, we will focus on TAs (therapeutic areas) we are good at and in the case of pure generics we will focus on technology-driven products. In the pure generic markets, for the regular products there will be 10 competitors for every product, but for those unique technology driven products there will be only one or two companies. That is where our focus is. For the branded market, we are very focused on the diseases that most affect patients. We are going to learn as much as we can about the diseases to provide greater value to patients and doctors through the product, services and information that we will provide doctors. We are looking at digital applications to play a role there as well.
Any new disease areas being explored?
We have our core disease areas and we are not going to expand them too much.. Of course, cancer is a growing area for us and then diabetes, pain and GI. These are the big areas of focus.
No activity has been seen on either collaborations or small acquisitions in the last couple of years. Any shift in strategy in the offing?
We are not a very acquisitive company. We are filling our capability gaps with acquisitions and we are not necessarily acquiring to achieve scale. So, when we wanted an injectable capability we acquired Octoplus. We are looking at other opportunities but nothing has happened so far. We are always open to opportunities that will help us execute our strategy.
Japan is the second largest pharmaceutical market but not much seems to be working for the company there. Some analysts say acquisitions in Japan would make sense for Dr Reddy's.
We tried exploring that market but it didn't work with the company that we had talked to (terminated the agreement with Fujifilm in June, 2013). We have not done anything recently but are still observing the market, and finding the best way to enter. Acquisition makes sense but there is enough for us to do even without Japan. Right now, we are looking at expanding selectively into some key markets. Japan is certainly one of them.
The US market continues to drive growth for Dr Reddy's and other Indian generic drug companies. What if this paradigm changes in the global context?
The US drives the growth but we have to diversify our sources of growth even though the relative importance of the US may not change. Emerging markets are a very important part of our portfolio and they are a focus area for us. Our footprint is quite good but there is still scope for expansion. We will enter a few more emerging markets in the future. These markets offer very good growth possibilities if you stay committed.
Take Venezuela for example, we are growing very well in this market. Everybody is fleeing the country but we are not. South Africa is another interesting market where we are growing well. The US offers a phenomenal opportunity for science- and technology-driven innovation. And in a next wave, when we bring in biologic and proprietary products that will also create a lot of growth in the US market.
Are big companies like Dr Reddy's caught in top line-bottom line dilemma, undecided on what to prioritise first?
We are not focused on bottom line or top line. We are focused on doing what we do very well for the patient. We are motivated by this quote from George W Merck that Dr Reddy (company founder Anji Reddy) always used to tell us: Medicines are for the people and if you remember that the profits will follow, the more you will remember it the more profits will follow.
Profits are a consequence of our doing our job well and it's an indicator of how well we are doing our job. In the end, profits are important but we won't chase profits. We will chase excellence and profits will follow.
What kind of goals are you looking at accomplishing in the next five years? How do you visualise Dr Reddy's in five years from now.
Maintaining a high growth rate in the next five years through our own efforts and through partnerships or acquisitions is something we should do. We have to find sources of growth, which are consistent with our strategy. I think there is enough growth in all our markets. The US is a priority market and we are growing quite well in this market. Russia is another high growth market. In India, we have not done so well in the past, but we are turning around and doing much better now. Europe is still lagging. We have to fix it. Five years from now, we should be a specialty generic company ready to move into innovative products and biosimilar products in the regulated markets.
Does Sun Pharma-Ranbaxy deal show a way for other big domestic players to grow in scale? After all, the size gap between the top two Indian companies widened after this deal.
The Sun-Ranbaxy deal is a good one, while it does have some execution challenges. Even if you just take the emerging market's portion it has phenomenal value for Sun. Whether to go after similar acquisitions will depend on each company's strategy.
We are looking at innovation using science and technology and looking at therapeutic areas focus in our branded market. We don't aim to be the largest company from India. We aim to be the best company.
But Sun set benchmarks in the Indian Pharma space in terms of high growth and high profitability.
Of course, Sun is an admirable challenge and I think they have done it brilliantly. Their profitability has been industry leading from a long time.
However, I don't feel that we are less than anything that we ought to be. We are investing a lot in R&D and manufacturing and this will begin to differentiate us in the longer term.. Our R & D budgets are bigger than those of our peers. This is because we are going after some of the most difficult challenges. And we are taking risky bets there. We can't take risk on every front so we tend to be more cautious on acquisitions.. The results will come a little later but they will come.
How do you categorise the R&D spend as a risky bet?
The proprietary products business that we are developing, is based on products that do not exist today and hence there is likelihood of uncertainty around clinical outcomes. A lot of investment is going into clinical trials. Also in biosimilars the cost of development is very high. The cost of clinical trials for regulated markets is very large. We are also investing aggressively in developing complex generics.
We are the only company from India that has a global R&D footprint today. We have a UK R&D site, we have a site in Amsterdam and we are just starting a site in New Jersey. Within India, we are also looking at diversifying our locations. All these initiatives cumulatively make us the most research-driven pharmaceutical company in India.
How do you view the recent product recalls, even though they are voluntary?
It is an industry practice to recall products which may potentially have a quality or safety issue. Most pharmaceutical companies do have recalls. If the quality system is working well, it should be able to detect weak signals and recall the drugs in time to prevent anything untoward.That is common to the industry. We have no major concerns about that.
What are the challenges the Indian pharmaceutical industry faces today?
Competition is intensifying. The failure of quality systems and the bad name it is bringing to Indian manufacturers is a big challenge. Some newspapers are publishing damaging articles on Indian medicines without basis.
The other challenges are India's price control regime and political uncertainty. I am not sure if a government should control drugs where the cost of treatment is less than ten rupees per day. Today our system regulates pricing of drugs where the cost of treatment is even below one rupee per day. The industry and the country can benefit from getting away from regulating prices of very low cost drugs.
Will it affect companies like Dr Reddy's, which invests so much in quality standards?
It is a drag on the company. I agree price control has to be there because medicines are an essential part of people's lives and given the large population our country has. However the government should look at other levers such as a reimbursement system to mitigate the high cost of drugs. They could then use the reimbursement system to drive pricing down rather than adopt across-the-board price controls where the rich and the poor pay the same prices. Another relief the government can provide is lifting controls on therapies which cost less than a certain threshold value per day. The pharmaceutical industry is one of the few industries where Indian companies have done well. The government should encourage the industry and make it globally relevant by enabling a greater investments in R & D and innovation.
