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Reddy’s Labs


Patent Expirations - Trends
New drug discovery and development
DRL’s strategic goals

M/S Cheminor Drugs

DRL’s strategic goals cont…
DRL Revenues (By Product line)
DRL Revenues (By Region)
DRL Strategy Overview by
DRL Strategy Overview by
Division cont…
Issues before Dr. Reddy’s
Problem: Labs
► Balancing the *two business models:
 Maintain the image of Generic led business (short
term), &
 Transform into drug discovery led business for long
term to form a Global drug company.
► Producing profits today and invest in future growth.
► Managing interconnected synergies; organizational
expansion & People issue.
DRL’s synergies
Active Pharmaceutical
Ingredients (APIs)

DRLDrug discovery research

BUSINESS Dr. Reddy’s Research
synergies Foundation (DRF)

Discovery research Cost

facility for R&D
deptt.s of other Centers
drug discovery
Government Regulation: Patent
►In 1970s, Indian government had open the
gate for Process Patent regime.
►Manufacturer can produce the formulation of
the patented drug, if the process differs the
original drug/ innovator.
►Opportunity: offering same formulation with
the similar efficacy at the affordable (lower)
STAGE 1: APIs Business
► Personal investment : $ 40,000
Borrowings from Banks : $ 120,000
Total Investments : $ 160,000
► Supplier of active ingredients for other
drug companies
► Advantage: Can control the backward
support for the supply of active
ingredients to product formulations – long
term leverage
STAGE 2: Branded
► DRL started manufacturing
formulation and selling
under its brand name.
►Problem of many ‘me-too’
drugs in the segment.
► In 1984, Cheminor Drug Ltd. was formed.
► Purpose: Selling high quality bulk actives for Western
markets specifically US.
► Active constituent of off-patent drug can be
manufactured and sold under different generic
name, after satisfying regulatory clauses for
manufacturing and marketing.
► By 1989, Co. become largest exporter of “ibuprofen”
(bulk active salt) to the markets like US, Italy, Spain &
(Dr. Reddy’s Research Foundation)
► Started in 1993 – focus on drug discovery. (research lab in Hyderabad and
discovery research lab in Atlanta, Georgia)
► Separate entities – separate core competencies –Profit centers.
► DRF: Employee – 200 (split into 30-40, each focusing on distinct
therapeutic area)
► Fresh PhDs
► Talent pools from Universities – ‘spirit of excellence’ – scholarships
► Incentives: Good Salary + Stock options + Financial sponsor for national
& international workshops/ conferences
► Motivate to pursue doctorate
STAGE 5: Outsourced
discovery research for
regulated markets
► Aurigene Discovery Technologies – separate
Service entity – undertaking outsourced discovery
assignments of other drug companies (research
facilities in Boston & Bangalore).
► Working in collaboration with R&D departments of
other drug discovery companies.
► Purpose: Build competencies – drug discovery
process among clients including Dr. Reddy’s Labs.
► Advantage: Knowledge enhancement based on
variety of research assignment and can align with the
corporate knowledge which can be leveraged for long
run to access regulated markets.
Business domains: Scenario
► Opportunities: growth Business domains
Bulk actives & Generics
segments. branded
 Thrust areas: Bulk actives & formulations
branded formulations - ► Ranbaxy (both ► Teva
domestic & global (Israel) –
presence) – can competence
► Threat: Entry barriers in compete due to in respective
deep pockets and domain
the form of stiff rich research backed by
domestic competition. knowledge R&D support.
► Cipla (strong in ► Novartis
► Focus for future: Shared domestic market butGenerics
risks. started making (Swiss) –
marks in foreign known player
markets) – not a with global
serious threat in presence
near future for ► Mkt share:
foreign markets
Financing the expansion &
► Source of funding : Financial capital market
► Purpose:
 Diversification into Vertical & Horizontal integration
 Expanding generic business &
 Drug discovery infrastructure
► Financial Instruments for funding:
 GDR (Global Depository Receipt) issue in July 1994 -
$ 48 million
 ADR (American Depository Receipt) issue in April 2001-
$ 115.5 million
Total funds raised = $ 163.5 million
► Used for:
 Generic Markets: market building and penetration
 Drug discovery & research: infrastructure and hiring
knowledge pool
Formation of Corporate Brand
► All the three entities brought
under same roof – 2000.
►New ‘Logo’ and ‘Brand identity’
identified for the Corporate brand.
► New Vision:
“ To become a discovery led global
pharmaceutical company”.
Dr. Reddy’s Laboratories (Dr.
1990s: DRLs Parallel group
PRODUCT strategy
Diversified into no. of APIs – BRANDED
manufactured & sold in FORMULATIONS
(2000) Industry leader in three
branded formulations
& 50 foreign destinations (therapeutic areas):
► Pain management,
Gastroenterology & Cardio-


► Also started making CAPABILITIES
neutraceuticals, women’s ► Enter into R&D based
healthcare, styptics & dental
► Build formidable marketing
DRL’s Manufacturing
► 6 factories for manufacturing active ingredients

– as per FDA standards.

► 3 formulation plants – manufacturing branded


► Supply chain network: 2,000 stockists; 1,00,000

retailers in India; and exporting channels for
over 50 foreign destinations.
DRL’s Target Markets

East European Latin American
Countries Countries
South-East Asian
Target markets: Russia, China, Brazil & Mexico
Generic Market
► Generic drugs represents $ 40 billion market in
► Growing at 10 to 12% per year.
► Reasons for growth: Pressures on govt.s in US,
European countries & Japan – reduce healthcare
► Drug price competition & Patent Restoration
Act – 1984 (US) – Waxman-Hatch Act – allow the
access to active ingredient of original patent drug
(getting off-patent) – file registration before patent
expiry – removing the leap period of market entry.
► Market scope: $ 30 billion post 2005.
Generic Market cont…
Waxman-Hatch Act also permits:
► Generic players to file for Abbreviated New Drug
Applications (ANDAs) – generic versions of all post 1962
patented drugs.
► 5 year exclusivity for innovator (New Chemical Entity or NCE
block) – generic player can file for patent challenge –
criteria: bioequivalence same as of patent drug for approval
– 1 year before off-patent (Paragraph IV application).
► Overall cost: Bioequivalence study cost ($ 5,00,000 to $ 2
million) + Market operational costs.
► Factors for investing in ANDAs: predictability of success or
failure is low and timing of entry is slow.
► Risks: Application processing delays, regulatory changes
and R&D failures.
► Drug prices in exclusivity period – 60-70% of original drug &
after exclusivity – entry of competition – 15-20% of peak
price. (Timing of entry is crucial)
► Cost advantage: 57% (foreign mkts) – 76% (india) of patent
Generic Market cont…
► New opportunity domain: Specialty drugs
► Generic drugs sold under company’s own brand
unlike conventional generics being sold under
molecule name.
► Growth prospects & distinct from original patent
drug – offer improved/different version of original
compound (NDDS) – better
dosage/compliance/convenience) – niche market –
need aggressive marketing to prescribers for market
► Overall costs: Clinical Trial on patients - $ 10 to 30
million + cost on detailing (US).
► Pfizer’s blood pressure drug ‘Norvasc’ (US).
Drug discovery led
► business
Initial focus: Diabetes and similar other therapeutic areas.
► Reasons: less competitive; low entry barriers; nascent
knowledge domain.
► Trials process – expensive and risky
► Concentrated on pre-clinical trial stage; costing $ 10 million
► Strategy adopted: risk sharing –
 out-licensing clinical trials like Anti-diabetic molecules – Novo Nordisk &
 Collaborative research like NDDS for Chronic obstructive Pulmonary
disease (COPD) – UK based Argenta Discovery.
 Balaglitazone – Denmark based Rheoscience.
► Nine NCEs pipelines covering four therapeutic areas:
diabetes, metabolic disorder, anti-infective & cancer (different
competencies, market structures, regulatory framework,
disease patterns, prescribers preferences, diff. promotional
efforts etc.)
DRL’s Global Empire
► 2002 – Operations & Sales offices in 60 countries
► Subsidiaries in US, Brazil, UK, France, Holland & Singapore.
► US share in overall revenues were higher.
† Market size: $245 billion market of $500 billion
global market in 2005-06.
► International vs Domestic revenue sharing: 2:1
► Huge generic growth prospects – post 2008 - $ 82 billion
formulation market getting off-patent globally.
Global Challenges
►Value created in India; realised in US
and other markets.
► Managing across cultures
►Across geographies
► Separate time of entries
► Sustaining the competence in each
four business models; extracting
optimum from all geographies.
Global market entry
Acquisition – Trigenesis (US Specialty Co.) -2004 –
$ 11 million.
► Purpose: Automatic access to niche dermatology domain.
► Risk sharing across therapeutic domains and across
2nd Acquisition – Roche (New Mexico) – 2005 - $ 59 million.
► Purpose: entry into Mexican market.
► Well established markets for manufacture & sale of APIs.
3rd Acquisition – Betapharm (Germany) – 2006 - $ 570 million.
► Purpose: Market & regulatory access and similar synergies and
few new areas. (Table CS 1.6, pg. 809)
European Market
► Scope due to intense competition
by global companies in US.
► Euro 11.8 billion off-patent in 4
generic markets – UK, France, Italy &
Germany (largest market size).
►$14.2 billion market – large,
generics growing faster than
branded formulations
► Rate of growth equal to US
Familiarity/ Indian US Europe Latin
America unfamiliar
► Demographics

► Psychographics

► Cultural

► Legal/Regulatory

► Technological