With the global pharmaceutical business becoming more complicated and older business models being challenged by competition, Hyderabad-based Dr Reddy's Laboratories (DRL) is carrying out changes across the company to create what it terms as the 'winning infrastructure'. DRL has targeted to achieve a turnover of $3 billion by 2013 and emerge as the top five pharmaceutical companies in the US.
In an interview, DRL's Managing Director and Chief Operating Officer Satish Reddy said the new initiatives would deliver value and drive the company's growth. Edited excerpts:
What are the changes being carried out across the company to create what you call the winning infrastructure?
In the last three years, the major changes that have taken place in the company are choosing the strategy of alliancing with multinationals and exiting from 31 countries (earlier present in over 40 countries) belonging to emerging markets. Thus, we have narrowed our presence to just a few countries where we want to compete. This apart, we have simplified our company into three clear business units: global generics, pharmaceutical services and active ingredients (PSAI), and proprietary products including biosimilars, differentiated formulations and new chemical entities.
Why do you want to exit from most of the emerging markets?
What we had been doing earlier for the emerging markets was to develop products and then take them to as many markets as possible. The problem in that kind of a model was complexity in operations. For instance, huge quantities had to be supplied to markets like India or Russia while we had to make very small batches for smaller countries like Trinidad. We wanted to reduce this complexity.
Besides, large markets like Brazil, Mexico and Turkey require huge investments and the outcome of the investments will be over a long period of time. So, we thought we can find a better way to deal with such markets than waiting for a long time. As a result, we forged an alliance with GSK (GlaxoSmithKline Plc) through which our products are now present in more number of countries in the emerging markets than before.
What kind of alliance do you have with GSK?
The whole deal is a revenue sharing arrangement. It is a very strategic kind of a partnership and not a cost-plus outsourcing kind of model. This is a big change in our model. Now, we can stick to what we are good at — product development and manufacturing — and continue our presence in the emerging markets through GSK.
Like GSK, are you planning to forge some more strategic alliances?
Not really. The GSK alliance is specifically for emerging markets. It does not leave room for any other alliance.
What targets have you set for the company?
The immediate target is to emerge as one of the top five pharmaceutical companies in the US (now it is among the top 10) and achieve a revenue of $3 billion by 2013 (last year's revenue was at $1.56 billion). We are also targeting leadership positions in global generics and PSAI. In PSAI, we want to be the preferred partner of choice.
What kind of revenues do you expect from Betapharm this year?
Betapharm has somewhat bottomed out in terms of revenues. Last year, its revenues stood at euros 110 million , much less than what we had projected two years back. It will not be a significant contributor to the company.
So, you don't expect Europe to contribute significantly to your revenues?
Not Europe. Germany will not be. The contribution from Germany will not be what it was two years back.
What will be the impact of healthcare reforms in the US and cost-saving legislative or regulatory action in other countries?
The impact of healthcare reforms is something that would be clear in three or four years. The positive side is that the volumes will increase because more and more people will be covered under insurance. But this positive aspect is for the entire industry and not confined to one company. I think it increases the size of the pie.
What are your plans in the biosimilars segment?
Biosimilars is a lucrative segment for growth. In this segment, we are currently focusing on the complex products, which enables us to be first in the market. The immediate strategy is to launch the products in India and then launch them in the emerging markets, which do not have patent protection for these products. This will not only generate revenues but also provide us enough data for analysis. The bigger opportunity comes when these products make it to the regulated markets, particularly the US and Europe. That presents a huge opportunity for us and by 2013 Dr Reddy's expects to get a bigger chunk of revenues from biosimilars.
So, what will be the share of biosimilars in your total revenues three years down the line?
There is time to assess that. We are still in the initial stage.
What kind of partnerships do you want to forge in Japan and at what stage are the company's initiatives in this regard?
People say Japan is a lucrative market. More generic penetration is expected in the country through government initiatives. Our thinking is that there are various options available for expanding our presence in Japan. We are in very early stages of exploring partnerships.
In the past 26 years, DRL emerged as one of the most successful pharmaceutical companies in the country and to some extent in the world. What is the road ahead?
The journey of the company in the past 26 years can be divided into three phases. The first phase was all about developing strong capabilities on the active ingredients side, which enabled us to compete in the generics space. The second phase, mostly in the 1990s and early 2000, was about internationalising the company. The third phase is about discovery, innovation, proprietary products and biosimilars. Now, we are capitalising on these strengths to achieve leadership position in the markets that we have chosen in the global generics space and to be a preferred partner of choice in the PSAI segment.
In an interview, DRL's Managing Director and Chief Operating Officer Satish Reddy said the new initiatives would deliver value and drive the company's growth. Edited excerpts:
What are the changes being carried out across the company to create what you call the winning infrastructure?
In the last three years, the major changes that have taken place in the company are choosing the strategy of alliancing with multinationals and exiting from 31 countries (earlier present in over 40 countries) belonging to emerging markets. Thus, we have narrowed our presence to just a few countries where we want to compete. This apart, we have simplified our company into three clear business units: global generics, pharmaceutical services and active ingredients (PSAI), and proprietary products including biosimilars, differentiated formulations and new chemical entities.
Why do you want to exit from most of the emerging markets?
What we had been doing earlier for the emerging markets was to develop products and then take them to as many markets as possible. The problem in that kind of a model was complexity in operations. For instance, huge quantities had to be supplied to markets like India or Russia while we had to make very small batches for smaller countries like Trinidad. We wanted to reduce this complexity.
Besides, large markets like Brazil, Mexico and Turkey require huge investments and the outcome of the investments will be over a long period of time. So, we thought we can find a better way to deal with such markets than waiting for a long time. As a result, we forged an alliance with GSK (GlaxoSmithKline Plc) through which our products are now present in more number of countries in the emerging markets than before.
What kind of alliance do you have with GSK?
The whole deal is a revenue sharing arrangement. It is a very strategic kind of a partnership and not a cost-plus outsourcing kind of model. This is a big change in our model. Now, we can stick to what we are good at — product development and manufacturing — and continue our presence in the emerging markets through GSK.
Like GSK, are you planning to forge some more strategic alliances?
Not really. The GSK alliance is specifically for emerging markets. It does not leave room for any other alliance.
What targets have you set for the company?
The immediate target is to emerge as one of the top five pharmaceutical companies in the US (now it is among the top 10) and achieve a revenue of $3 billion by 2013 (last year's revenue was at $1.56 billion). We are also targeting leadership positions in global generics and PSAI. In PSAI, we want to be the preferred partner of choice.
What kind of revenues do you expect from Betapharm this year?
Betapharm has somewhat bottomed out in terms of revenues. Last year, its revenues stood at euros 110 million , much less than what we had projected two years back. It will not be a significant contributor to the company.
So, you don't expect Europe to contribute significantly to your revenues?
Not Europe. Germany will not be. The contribution from Germany will not be what it was two years back.
What will be the impact of healthcare reforms in the US and cost-saving legislative or regulatory action in other countries?
The impact of healthcare reforms is something that would be clear in three or four years. The positive side is that the volumes will increase because more and more people will be covered under insurance. But this positive aspect is for the entire industry and not confined to one company. I think it increases the size of the pie.
What are your plans in the biosimilars segment?
Biosimilars is a lucrative segment for growth. In this segment, we are currently focusing on the complex products, which enables us to be first in the market. The immediate strategy is to launch the products in India and then launch them in the emerging markets, which do not have patent protection for these products. This will not only generate revenues but also provide us enough data for analysis. The bigger opportunity comes when these products make it to the regulated markets, particularly the US and Europe. That presents a huge opportunity for us and by 2013 Dr Reddy's expects to get a bigger chunk of revenues from biosimilars.
So, what will be the share of biosimilars in your total revenues three years down the line?
There is time to assess that. We are still in the initial stage.
What kind of partnerships do you want to forge in Japan and at what stage are the company's initiatives in this regard?
People say Japan is a lucrative market. More generic penetration is expected in the country through government initiatives. Our thinking is that there are various options available for expanding our presence in Japan. We are in very early stages of exploring partnerships.
In the past 26 years, DRL emerged as one of the most successful pharmaceutical companies in the country and to some extent in the world. What is the road ahead?
The journey of the company in the past 26 years can be divided into three phases. The first phase was all about developing strong capabilities on the active ingredients side, which enabled us to compete in the generics space. The second phase, mostly in the 1990s and early 2000, was about internationalising the company. The third phase is about discovery, innovation, proprietary products and biosimilars. Now, we are capitalising on these strengths to achieve leadership position in the markets that we have chosen in the global generics space and to be a preferred partner of choice in the PSAI segment.
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