We are strengthening our focus in the anti-diabetes segment. It's a fast growing area where new and exciting discoveries are coming about
Hyderabad-based Dr Reddy's Laboratories (DRL) is one of India's leading drugs companies. Recently, it underwent a bout of restructuring after completing its merger with bulk drugs maker Cheminor Drugs.
Armed with $150 million from its American Depository Receipts (ADR) issue, it is now eyeing more acquisitions and planning a stronger thrust on research. It also has ambitious plans of improving its presence in the US, as well as exploring other new markets. Satish Reddy, managing director, Dr Reddy's Laboratories spoke to Kripa Mahalingam and Indira Vergis on the company's plans.
What do you plan to do with the ADR proceeds?
There are two reasons why we raised the ADR. One is for research and development (R&D). The other is to expand our presence in the US market which could be either through acquisitions or through other means. What we have done so far in the generics business, is invest in building our infrastructure. Our plant in the US was subsequently approved by the US Food and Drugs Authority. We have now started selling formulations too.
If we look to the future, the US is one of the largest growing markets in the world. It's almost 45 per cent of the world market. Unless we have a significant presence there, we really can't be at the forefront. That's one of the reasons we are expanding in the US.
What are your plans for biotechnology?
If you talk about biotechnology, there are different areas to look at. One is to build a technology platform. We have started developing a programme to create recombinant DNA products. That is under DRL. We also have a lab in the US -- Reddy Therapeutics -- which is more or less like a biotech company. It concentrates on the other side of research like using biology skills and it looks at mechanism-based or target-based research.
Then we also have a wholly-owned subsidiary of DRL, based in Atlanta. This subsidiary started recently concentrates on technology platforms. Here, we are looking at monoclonal antibodies. We plan to come out with products using this technology platform. Currently, our investment in biotechnology is very small.
Could you elaborate on your project in China?
In China, we have a 51 per cent joint venture which involves manufacturing. Currently, we are in the process of registering our products through this joint venture. Once this registration comes in, we will be able to start selling and also manufacturing. The joint venture company is already marketing products which belong to the joint venture partner. Products from our stable still need to be registered. How much time this will take, I can't say. ze are developing products specifically for China.
Most of DRL's exports are to the Commonwealth of Independent States (CIS). In the past, the company has taken a hit when the rouble was devalued. What are you doing to ensure that this doesn't happen again?
It has been a conscious strategy to derisk the business, in terms of region. We have now brought about changes in the distribution structure. Now we distribute directly to the top distributors in Russia. Earlier, we used to have our own distribution operations. This move towards other distributors helps us reduce our credit period.
Are you looking at other markets to diversify exports?
We certainly are looking at other markets. These include China, Brazil. and other smaller markets like Vietnam, Myanmar and Sri Lanka.
So, are you looking to move away from your dependence on the Russian markets?
It is not a conscious effort on our part, as such. Let me put it this way - the growth in other markets will tend to be much more than in the Russian markets. So, we are managing our resources similarly. Our development will be more in other markets. But we are not reducing our exposure to the Russian markets. We believe it is still a good market and we do have a well-established position there.
Your merger with Cheminor has raised some worries about your product mix which could see more of low-margin bulk drugs. Will this not hurt DRL's margins?
As far as DRL is concerned, there was a conscious decision to expand our presence in the formulations market. We consciously moved towards reducing dependence on bulk drugs in India. Formulations was, obviously, the more profitable business.
Cheminor started out with bulk actives exports which were predominantly to the US. It has been investing continuously in the business of generics formulations. It has now commenced operations (sales) to the US just a few months back.
Now, with both companies merging, the proportion of bulk drugs to formulations does tend to change a little bit. But will it affect margins? Not really. Because the bulk portion of DRL which has reduced now gets supplemented by Cheminor's products which are exported to the US. And that is not the low-end of the business.
But haven't sales for Cheminor's bulk drugs fallen recently?
Well, the profile of the products on the bulks side is changing. And if you notice there has been an improvement in margins. We are consciously not chasing the topline but are rather, trying to make it a profitable business. Traditionally, Cheminor's products have been old. We have changed the product mix.
What kind of strategies are you using to tap exports? Are you looking at marketing tie-ups?
We have different market strategies for different markets. For example, in Vietnam we are already present with a direct sales force but it is a small market. Brazil is a much larger market. There we have tied up with some generic companies to supply formulations.
Do you have any plans to increase R&D spend?
We would like the company to be known for its research. We expect to maintain our research expenditure at current limits, around four per cent. Our business model so far has been to discover the drug, do the pre-clinical trials and license it out. We can't do the clinical development in India since it's a very costly affair.
What are your medium-term focus areas in both the domestic and export markets?
We are strong in the cardiovascular, gastro-intestinal, and pain management segments. We are strengthening our focus in the anti-diabetes segment. This is an important area for us. It's a fast growing area where new and exciting discoveries are coming about. We will also be active in women's healthcare -- it's a segment we built up from scratch, while generics will be our focus in exports.l
