city of Hyderabad
Background
With only US$40,000 in cash, a US$120,000 bank loan and a single product, Dr. Anji Reddy had no idea that the small generics pharmaceutical company he started in 1984 would quickly grow to be a worldwide industry leader. Dr. Reddy’s Pharmaceutical Company (Dr. Reddy’s) started out as a bulk actives manufacturer near Hyderabad, India, and rapidly grew after its first foray into international markets in 1986. With expanding global sales, Dr. Reddy’s has transformed the previously import-oriented Indian pharmaceutical industry into an export-oriented industry fueled by innovation. Dr. Reddy’s first export was generic methyldopa, a drug used to treat hypertension. As the company’s international presence increased, it became a successful generic drug supplier. This led Dr. Reddy’s to become the first private Indian pharmaceutical company to launch New Chemical Entity (NCE) research and development (R&D). To facilitate the company’s drug discovery program, it created Dr. Reddy’s Research Foundation (DRF) in 1992. With the help of DRF, by 2010 Dr. Reddy’s became not only a leading international supplier of generic drugs, but also a leading drug innovator.
Research and Development
Dr. Reddy’s drug discovery program is at the heart of its vision – to become a global, innovation-led major pharmaceutical company – and DRF is the principle mechanism the company uses to achieve this goal. DRF is a non-profit institution whose financial statements are consolidated with Dr. Reddy’s. The company funds DRF’s R&D in exchange for an option to exclusively license any drugs discovered in the course of the foundation’s research. In 2010, nearly nine percent of the company’s total turnover went into R&D funding. DRF’s early research focus was on innovating new drugs for diabetes, cancer and pain management, but that role has significantly expanded to cover research into categories that run parallel to the three core businesses of Dr. Reddy’s.
DRF’s efforts can be organized into three main categories: global generics, pharmaceutical services and active ingredients (essentially bulk drug ingredients), and proprietary products. Global generics research is primarily directed at the development of new drug formulations, process validation, testing and any other R&D necessary to prepare brand-name equivalent drugs for sale in emerging markets. DRF also researches patent databases to find patents and regulatory exclusivity periods which have expired or are near expiration, based on which the company can develop quality yet cheaper generic drugs. Research in the global generics category also includes the company’s biological business, with R&D focused on developing biologics products (such as vaccines and gene therapy) for emerging markets as well as highly regulated markets.
innovations such as this PCT
application for preparation of
valsartan, a high blood pressure
drug (WIPO Publication Number
WO/2010/091169)
For pharmaceutical services and active ingredients, R&D is concentrated on developing chemical processes for the synthesis of active pharmaceutical ingredients and intermediates for use in the company’s global generics segment. These innovations are sold directly in emerging markets and to third parties in developed markets. R&D in this category also supports the company’s custom pharmaceutical line, in which it leverages the strength of its development expertise to create solutions for established and emerging pharmaceutical companies.
Integral to Dr. Reddy’s innovation goals is R&D into proprietary products, in which DRF actively pursues the discovery and development of NCEs and differentiated formulations in which they can be used. DRF’s research is primarily focused on developing proprietary therapeutic products for metabolic and cardiovascular disorders, bacerial infections and pain and inflammation. The company’s goal is to capitalize on DRF’s expertise to build a coherent pipeline of new NCEs and formulations that can be commercialized. This area of R&D has been particularly successful, and has helped to launch Dr. Reddy’s into a new era of innovation.
While DRF has provided the company with a steady stream of innovation and many subsequent successes, one of them is particularly close to the founder’s heart. Fighting diabetes himself, Dr. Reddy was well aware of the benefit an orally administered anti-diabetic drug would bring to millions of people throughout the world. Shortly after DRF’s founding, it began R&D in the area of insulin sensitizers, approximately nine years after that class of compounds was discovered. Insulin sensitizers would eliminate the need for conventional drugs which simply stimulate the pancreas to produce more insulin, but do not address the real problem of insulin resistance. At the time these compounds were discovered, many multinational pharmaceutical companies such as Pfizer were undertaking their own R&D efforts. When many of them walked away from it, Dr. Reddy saw an opportunity and stepped in where others left off.
The result was the development of a novel dual-acting insulin sensitizer for type 2 diabetes, internally dubbed DRF 2725 and officially called balaglitazone. This new drug caught international attention, and in 1997 Dr. Reddy’s licensed out balaglitazone to Nova Nordisk, a Danish pharmaceutical company, for testing and commercialization. Nova Nordisk and Dr. Reddy’s conducted long term clinical trials of the drug, the first NCE to come out of India, starting in 1998. In early 2010, Dr. Reddy’s announced that the drug met its primary goal of lowering blood sugar with few adverse effects, and patients experienced less weight gain and water retention. Balaglitazone is scheduled to be commercialized sometime in 2011, and excluding China and Europe, Dr. Reddy’s retains exclusive rights to the drug.
The benefits derived from DRF’s R&D are multifaceted. First, the company has been able to commercialize new products, which has helped it grow, particularly in export markets. Second, it has saved the company significant time and resources by developing modified manufacturing processes for some of Dr. Reddy’s most important products. Lastly, the company has built a significant cache of intellectual property (IP) which it has protected by securing national and international IP rights (IPRs), through which it has developed an important competitive advantage. Thanks to a successful line of products protected by IPRs, Dr. Reddy’s has developed leading brands for markets around the world. The company’s IP and IPRs also provides it with lucrative licensing and partnership opportunities.
IP Management
Ever since Dr. Reddy’s was able to transform itself from a generics supplier to a pharmaceutical innovator, IPRs have been an integral part of the company’s strategy and they are intimately linked with DRF. Dr. Reddy argues that “Smart companies know how to manage intellectual capital. That is how they uncover the hidden value within every transaction and relationship.” Dr. Reddy’s believes that nurturing and protecting IP is one of the most important tools with which India can use to emerge as a nucleus of drug discovery. In line with this philosophy, Dr. Reddy’s and DRF protect nearly all of their innovations with IPRs.
Before Dr. Reddy’s made this transformation, the dynamic nature of the generic market meant that the company had to make a decision on how it would protect its burgeoning innovation. Many of the company’s researchers were excited about their innovations but were worried that they would be copied. However with India’s increased efforts to strengthen its IP system, including ascension to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 2007, Dr. Reddy’s has been able to rely on IPRs to not only protect its IP, but also stimulate higher quality and faster innovation.
and respected name protected by
trademarks (USPTO Registration
Number 3436515)
Patents and Trademarks
The company’s first international patent was filed in 1995, and in 2004 DRF filed an international application using the Patent Cooperation Treaty (PCT) system for balaglitazone. By 2010 Dr. Reddy’s alone filed 267 PCT applications, with DRF filing an additional 56 international patent applications in countries such as Israel, Mexico and Spain, and 43 of which were PCT filings. The company also has over sixty granted patents with Intellectual Property Office of India (IP India) and, as of late 2010, 23 pending patent applications with IP India. The United States of America represents one of the company’s largest export markets, and as such it has filed some one hundred patent applications with the United States Patent and Trademark Office (USPTO).
Protecting the company’s image is important to developing a strong brand name, which instills customer confidence by guaranteeing quality products. Dr. Reddy’s therefore files trademark registrations for many of its products in major markets, and also for the overarching brand name. Since the United States of America represents an important market for Dr. Reddy’s, it made a trademark registration for the company name and logo with the USPTO in 2003. In 2009, the company registered Innolex, a drug targeting Russia and the Commonwealth of Independent States (CIS), through the international Madrid system.
Commercialization
As soon as a new product, technology or process improvement is developed, it is generally tested in the company’s testing pilot plant. Certain products such as balaglitazone require substantial clinical trials, which are conducted by the company itself, through its subsidiaries or with its partners in other facilities. After successful testing and clinical trials, the products resulting from DRF’s innovative research are marketed globally, with a focus on the European Union (EU), India, Russia, and the United States of America. All of the company’s raw materials are supplied by its Active Pharmaceuticals Ingredients (API) division, which means that it can produce its innovations with low raw material cost and a reliable sourcing base. Dr. Reddy’s has sixteen world-class manufacturing facilities, of which nine exceed international inspection requirements, such as those of the United States Food and Drug Administration. The company’s largest manufacturing facility has an annual capacity of nine billion tablets per year, making it among the largest of its kind in Asia. Robust, large scale manufacturing capabilities combined with seamless supply chain management ensure the company stays at the top of its game by commercializing its new innovations.
As of 2010, Dr. Reddy’s has 34 product families marketed in the United States of America, 160 products marketed in the EU, and over 200 branded formulations marketed in the rest of the world. The company’s branded products are marketed under the Dr. Reddy’s name by the company itself or through its subsidiaries (such as Promius Pharma in North America) and partners. Some of Dr. Reddy’s more popular branded products include Omez, Ciprolet, Nise, Enam, Ketorol, Exifine and Cetrine, all of which enjoy leadership positions in various international markets. The company has 140 APIs in the market which are used in various products commercialized by Dr. Reddy’s, its partners or through licensing agreements. Dr. Reddy’s is one of the top three API suppliers in the world.
Social Issues
Access to effective and affordable medicine is a problem people face in both developing and developed economies. With the help of DRF and an ever increasing production capacity, Dr. Reddy’s has been able to alleviate the financial burden many people face when trying to obtain life saving medication. Particularly in India during the company’s early days, its strategies allowed it to introduce branded formulations at 50% below the prevailing prices. Emphasizing the importance of access to medicine for everyone, many of the medicines Dr. Reddy’s launched into the Indian market are so affordable that even a rickshaw driver in a remote village can afford them.
In international markets Dr. Reddy’s presence has had a similar effect. Many drugs are prohibitively expensive even in high income countries, particularly for the growing numbers of the uninsured. The company’s generics business provides high quality, low-cost alternatives that give people access to medicines they would otherwise be unable to afford. Dr. Reddy’s strong portfolio of businesses, international presence and product diversity allows the company to provide affordable medication to people across the world, regardless of geographic and socio-economic barriers.
An important aspect of Dr. Reddy’s is the support it provides for innovative education and livelihood creation programs for underprivileged youth. To that end it established the non-profit Dr. Reddy’s Foundation (the Foundation), which addresses issues such as education and unemployment in India. Some examples of the Foundation’s efforts include its Livelihood Advancement Business School (LABS), which trains low income or disadvantaged youth for entry level jobs in high growth sectors. By 2010, LABS has given over 150,000 people the tools they need to secure employment in the corporate and public sectors. To improve the quality of primary education, reduce dropout rates and bring marginalized children into the mainstream, DRF started the Pudami Primary Schools initiative, which provides quality English education to low income children in Hyderabad through a network of neighborhood schools.
Business Results
Starting out as a generics supplier of a single drug, Dr. Reddy’s has successfully used R&D and IPRs to become one of the largest pharmaceutical companies in the world. Its market reach extends to a wide variety of regions and economies, and its financial success has given it the ability to continue developing new IP through innovative research. In 2001, this success translated to the company becoming the first Indian pharmaceutical firm to be listed on the New York Stock Exchange. Between 2000 and 2010, the company’s revenue rose at an average rate of 23%, with it earning US$ 1.56 billion in 2009.
From Imitator to Innovator
As Dr. Reddy himself so well describes, “Ours is a story about bringing affordable medicines to people in India, then moving on to compete in the advanced markets of the world, and finally, to drug discovery.” This transformation and the company’s R&D, carried out by DRF, gave the company financial success on one hand and made a strong social impact on the other. Acting as a primary link, IPRs helped the company become the innovator that it is today.
