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R & D, exports and consolidation are the value drivers - Views on News from Equitymaster
 
 
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  • Jul 22, 2000

    R & D, exports and consolidation are the value drivers

    ‘A research based pharmaceutical company’ that’s the way Dr. Reddy’s Laboratories (DRL) describes itself. Over the years, the company has made its mark as an aggressive, focused and export led Indian pharmaceutical company.

    It is now gearing up for the new patent regime (to be put in place by 2005) through a focus on select therapeutic areas, export to non–CIS countries and above all through its R & D efforts where it has led the way for the other Indian pharmaceutical companies. We take a look at each of these factors.

    Division wise performance FY1999 FY2000 Change
    Finished dosages 2,485 3,194 28.5%
    India 1,796 2,404 33.9%
    CIS & Central Europe 509 538 5.7%
    Other Markets 180 252 40.0%
    Bulk Actives 1,632 1,622 -0.6%
    India 1,051 1,003 -4.6%
    International 581 619 6.5%
    Diagnostics 141 117 -17.0%
    Total 4,258 4,933 15.9%

    Dr. Reddy’s product profile is focused on anti–ulcer, anti–pain and anti–infectives segment. For its R & D efforts it has focused on the anti–diabetes segment so far (more on that later). It is this focus on its core competence that has enabled DRL to report a 34% growth in finished dosages in FY2000 when the overall formulation market grew by 9.2%. These were led by a 25% growth in Omez (the company's anti–ulcer drug), a 28% growth in Nise (anti–pain) and a 49% growth in Ciprolet (anti–infectives). These three brands contributed 40% to the total turnover of the company. Cirprolet's success is particularly noteworthy since the anti–infectives market has grown by hardly 4%. The company's newer products Reclide (the company's anti–diabetes brand) and Stamlo Beta (cardiovascular drug) have also done well.

    In a sense, it was DRL, which pioneered pharmaceutical Research & Development among Indian pharmaceutical companies when it licensed its anti–diabetes insulin sensitiser DRF 2,593 to a Danish company Novo Nordisk. DRL subsequently licensed a second molecule DRF 2,725, for regulating blood glucose to Novo Nordisk.

    Meanwhile DRL itself has three new original molecules in its research pipeline. One is an anti–cancer compound, another is a Cox II inhibitor (anti–pain) and third is a compound indicated for metabolic disorders. The company foresees licensing out two of these to MNCs for clinical trials in the near future. Any deal DRL enters into is likely to be modelled along the line it has with Novo Nordisk. Besides, DRL is also working on a new class of diabetes products called PPAR, expected to have considerable potential.

    The cracking pace of DRL’s growth has not been without its pitfalls. Its significant exposure to Russia resulted in significant write off’s for the company in FY99. DRL however got its act together and started exporting on the back up of letters of credit. It also entered into markets as diverse as China and Brazil. At present, the company exports to nearly 70 countries and the most encouraging part was the fact that in FY2000 the company’s exports to markets other than the Russia and the CIS countries grew by 40%.

    The final piece of DRL’s future strategy is consolidation of group interests. The acquisition of American Remedies and the amalgamation with Cheminor Drugs would catapult DRL to being the third largest pharmaceutical player in India.

    Cheminor has been the main supplier of bulk drugs to the USA via its US subsidiary Reddy Cheminor Inc. (almost 67% of the turnover of the company, comprised exports to the USA). The company has capacities for Dextromethorpan (a cough suppressant), painkillers such as ibuprofen and naproxen (both used for arthritis), anti–ulcer medicines ranitidine and famotidine and diltiazem (a cardiovascular drug used for controlling blood pressure).

    Besides, Cheminor has filed six abbreviated new drug applications (ANDAs) in the US, four in the European Union apart from another six, which are in the pipeline. The company has set a target to file three to five ANDAs every year and have already received approval for ranitidine (75 mg), the anti–ulcerant omeprazole and anti–depressant fluoxetine.

    Cheminor's merger would lead a turnover of over Rs 8 billion for DRL in FY2001. This would also ensure better valuations for its proposed $ 200 m ADR issue.

     

     

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