Hetero looks to crack $1 bn target in 5 years

Hetero looks to crack $1 bn target in 5 years
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First Published: Sun, Nov 08 2009. 10 08 PM IST

Winning strategy: Hetero Drugs chairman and managing director Bandi Parthasarathy Reddy attributes the success of his firm to its initial business model of focusing on cost-effective drugs that were i
Winning strategy: Hetero Drugs chairman and managing director Bandi Parthasarathy Reddy attributes the success of his firm to its initial business model of focusing on cost-effective drugs that were i
Updated: Sun, Nov 08 2009. 10 08 PM IST
Hyderabad: Bandi Parthasarathy Reddy’s key ambition has remained pretty much unchanged for some years now—growing his business at a healthy pace while offering affordable medication, especially in the life-saving drugs category.
Still, before he came to set up Hetero Drugs Ltd, Reddy did think of various options. Farming was a way of life early on. During his high school days, Reddy spent a good amount of his time ploughing his family’s lands at Kandukur village in Khammam district of Andhra Pradesh.
While studying for his degree, he wanted to become a teacher. Then he thought he might become a lecturer and by the time he was doing his doctoral research, his ambition was to become a scientist.
The 52-year-old scientist in synthetic chemistry now employs at least 7,000 people and owns one of the country’s largest closely held pharma firms in terms of revenue. Hetero Drugs posted Rs2,000 crore-plus revenue in the last fiscal.
Winning strategy: Hetero Drugs chairman and managing director Bandi Parthasarathy Reddy attributes the success of his firm to its initial business model of focusing on cost-effective drugs that were in high demand. Bharath Sai / Mint
His next target is to cross $1 billion (around Rs4,700 crore) in revenue, or more than double the current level, in the next five years, for which he is busy creating globally compliant manufacturing infrastructure at a fresh investment of at least Rs1,000 crore. Two large-scale facilities to produce bulk drugs and finished dosages will take off by the next year across two special economic zones that offer the firm major tax incentives.
“The opportunity before us this time around in the form of the generics business is pretty huge,” Reddy said. “The Indian generics market itself is expected to grow to Rs1 lakh crore (Rs1 trillion) from Rs35,000 crore by 2020, while the global generics market is set to grow to $250 billion.”
Hetero Drugs was hitherto not widely known to the general public since it did not serve retail customers and most of its clients were global and domestic pharma giants. It has come into the limelight lately, thanks to the outbreak of A/H1N1 influenza across the globe. Hetero is the first drug maker in the world, only next to the innovator company, to develop and supply oseltamivir, the drug to treat the highly contagious disease.
Such accomplishments are not new to Reddy, who has been associated with developing new compounds ever since he started his career as a research scientist in 1980 at Uniloids Ltd, then a pioneer in the Hyderabad pharmaceutical industry led by K. Anji Reddy, who founded India’s second largest pharma firm in revenue, Dr Reddy’s Laboratories Ltd.
Hetero’s Reddy also played a key role in discoveries at Dr Reddy’s as its chief scientific officer for more than a decade. He took part in the firm’s efforts to develop the popular anti-bacterial drug ciprofloxacin for the first time in the world, next only to the firm that innovated it. This drug had revolutionized the treatment of various diseases and put Dr Reddy’s at the forefront of the pharmaceutical industry in India.
In 1993, after a successful stint at Dr Reddy’s, he founded Hetero Drugs with an initial investment of Rs1 crore. Thanks to the business model he adopted, the company posted a revenue of Rs3.8 crore and profit of Rs90 lakh in the very first year of operations. There was no looking back after that, he said.
Reddy said the firm focused initially on exploiting the advantages of Indian patent laws that allowed domestic manufacturers to produce and sell generic versions of pre-1995 molecules. Even now, pre-1995 molecules constitute some 40-45% of Hetero’s revenue, he said.
The uniqueness of Hetero’s business model, Reddy said, is its vertically integrated nature. It started with R&D (research and development) and expanded into making basic chemicals, bulk drugs, intermediaries and formulations. Of late, it has entered into the pharmacy business as well to become the only Indian drug maker to own such a chain.
This kind of end-to-end strategy is what has allowed the firm to forge ahead. “Complete control over the entire supply chain enabled us to aggressively price our products across various markets around the globe,” Reddy said.
Over the years, the firm has built nine facilities to make active pharmaceutical ingredients or bulk drugs and four units to produce finished dosages in India. Besides this, it has a finished dosages plant close to New York and a similar facility in Spain in a joint venture with Ara Pharma to serve European markets.
The initial challenges were to compete with the then market leaders such as Ranbaxy Laboratories Ltd, Dr Reddy’s and Cipla Ltd, and gain market acceptance. Now, Hetero produces drugs for almost all the leading global and Indian pharma companies, including most of its initial competitors, under contract manufacturing arrangements.
Finding a huge opportunity in anti-retroviral drugs for HIV and AIDS patients in underdeveloped countries, Reddy prepared a business plan in 1997 to tap the opportunity. He said he was aware that he was not going to make much money and could, in fact, end up incurring losses in some of those markets. But in the process, Hetero Drugs has emerged as the largest manufacturer of anti-retroviral drugs both in terms of volumes and in terms of portfolio of drugs, Reddy said.
Was he wrong to focus on loss-making businesses? No, said Reddy. “To cover my margins and losses in this kind of businesses, I chose to tap developed and regulatory markets with a product basket that enabled me to have higher margins and (which) more than compensated losses in underdeveloped markets,” he said.
The company did not want to continue its dependence on pre-1995 molecules. “Now the focus has changed to developing our own patents in novel processes, novel polymers and novel indications to cover patents in India,” Reddy said.
Hetero’s R&D department houses 300 scientists in bulk-drugs research and 150 working on finished dosages. Their output has enabled the company file around 115 patents so far, a good number of them having high commercial value, he said.
Reddy attributes the success of Hetero Drugs also to the business model he followed. The firm built itself up with cost-effective drugs that were in high demand using innovative chemical processes and in the shortest possible time, even before competitors could think of it. The drug maker then approached the innovators well in time to enter into collaborations with them as a contract manufacturer. “We always keep technologies and production facilities ready before approaching innovators, seeking the licence to manufacture and market” the drugs, he said.
Reddy cited the H1N1 drug as an example. The firm had readied the technology way back in 2003 and approached Roche Holding AG in 2005, seeking a licence to manufacture and market the product. Hetero now supplies the drug to at least 50 countries under the licence arrangement with Roche.
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First Published: Sun, Nov 08 2009. 10 08 PM IST