Major growth will come from generics business

The end of the exclusivity doesn’t bother G.V. Prasad, the firm’s vice chairman and chief executive. To compensate, the company has a new line-up of generic drugs either with potential for similar market exclusivity or limited competition. These include ulcer drug omeprazole and anti-blood clot medicine fondaparinux sodium, with a combined market potential of about $1.5billion (Rs7,300 crore). On Monday, Dr. Reddy’s launched nateglinide, its copycat version of Novartis AG’s diabetes drug Starlix, in the US.

Joining hands: Dr Reddy’s chief executive G.V. Prasad says the alliance with GlaxoSmithKline will start generating revenue from the first year.

There was speculation last week that foreign drug companies are in talks with the promoters of Dr Reddy’s to buy their stake.

No. It is just market speculation. The promoters do not have any intension of diluting their stake in the company.

By when do you see the GSK alliance reaching its potential?

We already have identified the products. In some five-six countries we have already started working with GSK. We will have revenues from the alliance from this year itself. But for it to become a meaningful portion of our revenues, it will take two years.

What revenues are you expecting from the alliance?

We are not sharing the details on expected revenues from the alliance but I can say that it is significant enough for us to announce it in a big way.

How about the margins?

It depends on the country. (But) the margins will be comparable to our branded generics business.

Will you include biosimilars—off-patent versions of biopharmaceutical drugs—in the GSK alliance?

It is likely to be included but it is not confirmed as yet. We are open to joining hands with GSK for biosimilars for markets where we do not have direct presence. We are talking to partners in one or two countries. Right now, we have only two products in biosimilars. For biosimilars to become a meaningful part of our revenues, it will be 2015.

What new businesses are you building to achieve your target of $3 billion revenue by fiscal 2013?

The $3-billion target is not based on new businesses but on the existing businesses—primarily from growth in our global generics business. We have three businesses: pharmaceutical services and active ingredients, global generics, and proprietary products. The pharmaceutical services and active ingredients is about $400 million and is growing at 10-12% and that growth trajectory will go on.

But the major growth will come from our global generics business. Last year, we focused down on five major markets—India, Russia, UK, Germany and US. By focusing on few markets but large enough markets which have headroom for growth, we can reach the $3-billion target by fiscal 2013.

Which are the key markets out of these five major markets that you think would help you more in achieving the target?

I think the US will be the primary driver of growth. It is a large market where we had invested heavily, built a large organization, built huge R&D efforts and we had acquired facilities in the US. The combination of all these efforts should give us significant part of the revenues from the US.

The market is apprehensive that with the sumatriptan exclusivity ended, Dr. Reddys will tread back to its historical revenue and profitability levels from the second quarter.

No. We have plans for significant launches. We have a number of products which will offset the sumatriptan revenues. Omeprazole OTC (over-the-counter) is the most near-term one. After that, we have a number of other products lined up, the details of which we are not sharing now.

We have a product pipeline wherein in the next three-four years, every year we will have either 180-day exclusivity product or other exclusivity via technology or something.

What kind of revenue opportunities do you see in these product?

I can only say that each of these products will have revenue opportunity of $100 million upwards.

Can you elaborate on the time schedules for these launches?

We expect to launch omeprazole next quarter. But in the case of fondaparinux sodium, we are waiting for approvals. It is pending with the USFDA (US Food and Drug Administration) for approvals and we cannot predict when we will get approvals.

What kind of revenues do you expect from these two products?

I can only say that they will be very significant. The current market for branded fondaparinux is some $400 million and the omeprazole branded market is close to a little more than $1 billion.

What are you doing to turn your German business Betapharm (Arzneimittel GmbH) profitable?

What happened in Betapharm is the market has turned from being a doctor-driven market to insurer-driven market. First of all, it calls for bringing the costs down, which we have done. Once the costs are down, I think we have to focus on returning growth into the market, which means adding larger number of products to our pipeline, increasing the market share of our existing products and improving on our ability to compete in tenders...The results will take some more time, may be a year or two years.

Do you regret acquiring Betapharm?

In hindsight, I think if we knew that the market was going to be so commoditized, may be we would not have acquired it. But we still feel that it is an opportunity to turn it around and create value.

Dr. Reddy’s was aiming to become a tier-I player in the US from the current tier-II status (implying an increase in annual revenue to $1 billion from about $400 million) over the next few years. How do you plan to achieve this?

We are significantly focused on that market. We are reorienting our supply chain; we are increasing our product breadth, we are investing in our technology platforms. We are also looking at improving service levels to our customers through coordinated supply chain. We are trying to make the entire process of supply chain high automated that include products going from here to US, putting them in warehouses and shipping to the customer, using information technology and all of that so that the customer gets high degree of confidence. And the product portfolio should help us grow in that market.

It should take three to five years for us to enter the tier-I segment from the current tier-II segment. What are your expectations for proprietary products?

We expect the proprietary products business to start contributing post-2013 and driving growth from that point onwards. While $3 billion is an interim target, we expect to continue our growth trajectory on top of that through our efforts in proprietary products, which include drug discovery, differentiated formulations and biosimilars for the regulated markets.

It is difficult to say on the revenue expectations from proprietary products since this business today doesn’t contribute anything in revenues or very little. But over a period of time, maybe 5-10 years, they should become a very meaningful portion of our market cap and also our revenues. They should contribute some 25-30% to revenues over the next 5-10 years.

Reuters contributed to this story.

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