Dr Reddy's moves its R&D systems to subsidiary

Dr Reddy’s Laboratories is moving all its drug research and development assets to its wholly-owned, independent subsidiary Aurigene, effective July 1, as part of a restructuring plan to rejuvenate its drug development activities.

The company’s move to reorganise its drug research comes after the failure of Perlecan Pharma, an experimental drug research outfit floated by Dr Reddy’s with support from ICICI Venture and Citigroup Venture Capital.

The company also announced the closure of its research and development facility in Atlanta and exit of Dr Rajinder Kumar, president - R&D and commercialisation, and a top drug research scientist who was brought from Ranbaxy Laboratories in May 2007. He will pursue interests beyond Dr Reddy’s once the transition is completed, but will continue to advise the proprietary products group on various matters beyond July 1, 2009, said a company release.

Dr Reddy’s said it will create a new group to focus on proprietary products development, which will be responsible for building the proprietary and branded drugs, in collaboration with various partners and service providers. All the existing intellectual property (IP) will be owned and managed by this new unit, which will also develop various formulations. The R&D facilities at Hyderabad and Bangalore will be headed by C S N Murthy, chief executive of Aurigene, said Dr Reddy’s.

“We have been working at delivering sustained growth with profitability to significantly improve shareholder returns. As we prioritise our company-wide research and development spending, we will now be placing greatest emphasis on R&D activities that can have a significant impact on near-term earnings, while not losing focus on long-term interests of the company,” said G V Prasad, vice chairman and chief executive.

The Rs 6,900-crore Dr Reddy’s invests about 6-7 per cent of its total annual turnover in research and development. R&D investments were 6 per cent of of total revenues in 2008-09, against 7 per cent in 2007-08.

Analysts view the move as a renewed attempt of Dr Reddy’s to insulate investors from the risks associated with long-term drug discovery research and streamline costs involved in it.

Dr Reddy’s had experimented with Perlecan Pharma in 2005, a venture capital supported drug discovery company with equity participation from Dr Reddy’s, ICICI Venture and Citigroup Venture Capital (CVCI).

The VCs later backed out from the project, selling their stake back to the promoter. Perlecan had four molecules moved from Dr Reddy’s research and development pipeline, but failure of some of the molecules resulted in VCs exiting the venture.