'Our risk is now being managed'

Q&A: Satish Reddy

Satish Reddy

Dr Reddy's just made the biggest acquisition ever by an Indian pharmaceutical company when it acquired German generics company Betapharm for ¤480 million. As Dr Reddy's took on Ranbaxy on a cricket pitch in Gurgaon for the third pharma cup, Managing Director and Chief Operating Officer Satish Reddy fielded questions from Business Standard. Excerpts:

What do you intend to do with Betapharm?

Betapharm is the fourth-largest generic company in Germany with strong brand equity among doctors, chemists, the medical circle in general... we won't like to lose that advantage. We intend to operate it as a wholly-owned subsidiary with its own identity.

Over time, the advantages of our pipeline will be leveraged there. There might be some integration at the top management level, but beyond that, Betapharm has a bunch of seasoned professionals.

Is it true that Betapharm has no manufacturing operation?

We looked at its turnover and profitability. Betapharm has 3.5 per cent market share in Germany; as many as 370 employees, of which there is a strong sales field force of 200; and 145 brands, with a clear launch calendar until 2009. If we had to do all this from scratch, the cost would be prohibitively high... The acquisition was a market entry strategy for us.

With all the brands, are you moving up the value chain?

I would rather say that certain elements that create value are being focused on.

A lot of people say you paid more than you should have.

We feel absolutely justified. We had no presence, no pipeline at all in Germany and though we have paid a premium, this was the best option.

What's up with Perlecan Pharma (DRL's research wing hived off as separate company)?

There are four assets with Perlecan and a lot would depend on the timelines of these NCEs (new chemical entities), how the trials progress, what partnerships and alliances we can forge on the way and so on.

The first molecule that would come out of Dr Reddy's Labs, Balaglitazone, is set to enter Phase III trials in July this year. We have co-developed it with RheoScience and expect to launch it in three years.

Is DRL taking fewer risks than before?

The strategy has been the same. The focus remains on being an innovation-driven company, no matter what the setbacks. We faced a trade-off between short-term interests in terms of profitability, and long-term interests in the form of scientific research. I would say that now we have regained the balance of these short and long terms interests...something that we had lost a couple of years ago. We are now managing our risk "" that's how I will put it.

There has also been a revival in all businesses in the past nine months. The branded formulations segment is doing well, especially on account of Indian and Russian markets. In India, not only has the market grown, we have also added new products to our otherwise-aging portfolio. In Russia, we have penetrated the market better with an emphasis on OTC marketing and increased field force. Our API division has also done well with some of the launches, especially in Europe.

We have not done well in the US. There are issues in the US generics market. But then all else is on track.

After an initial victory in a patent challenge in the US, Dr Reddy's faced reverses in two cases. Would you put your money on a Para IV challenge today?

A patent challenge is still worthwhile in the US. The important part is which molecule you bet on. We are now more diligent in our legal expenditure. Right now, we have around 25 Para IVs filed in the US, of which 12 are litigated.

Does the US generics market stay attractive?

Even though there have been pricing pressures in the recent past, along with the advent of authorised generics, fewer patent expiries and a lot more generic companies on Day 1 of such expiries, the attractiveness of the market hasn't reduced. A big pie has shrunk to a reasonable pie but it is still large enough.

The US continues to be the most important part of our overseas portfolio and contributed about 22 per cent to our revenues last year. Even from the viewpoint of innovation, we have to address the public health issues in US. I believe prices would stabilise and consolidations would occur over time...one wouldn't see the kind of onslaught that there is now.

How did you deal with setbacks?

Last year, we incurred loss in one quarter. That had not happened before. We learnt to manage costs better and moved to a more productive spend. There were no layoffs but the manpower was rationalised in terms of the focus. The businesses doing better were given more people. The costs of processes and logistics were closely monitored and aggressive targets given to the supply chain.

An analyst once said DRL had been to hell and back...

No, we have never been to hell. We did undergo difficult times and came out of it, but never been to hell.