Formulating success

Updated: Jan 21 2002, 05:30am hrs
DR Reddy’s Laboratories (DRL) had an eventful 2001 outlicensing the molecule DRF 4158 to Novartis, obtaining 180-day marketing exclusivity for fluoxetine 40 mg capsules in the US market, and above all, listing at the New York Stock Exchange. However, the company had a setback in losing the 180-day exclusivity for omeprazole in the US market and the backing out by Novartis from the future development of the diabetic molecule DRF 2725 outlicensed to Novo-Nordisk.

Analysts, however, bracket the company as a high risk, high return model for the next couple of years till at least a few of its molecules turn out block busters. Despite the attractive pipeline of molecules it has in various phase of clinical trials, the key remains in its ability to outlicence them at a proper valuation. Much depends on the success of DRF-2725, outlicensed to Novo-Nordisk and in the third clincial phase, which would reduce its risk and provide it with a regular income stream by way of royalties. Analysts believe that it could take another year before the company can outlicence a few more molecules in the pipeline.

The main growth drivers for DRL, other than drug discovery, has been generic formulations in the regulated markets of the US. The company is targeting over 60 per cent of the drugs going off-patent upto 2008. The entry to the generic markets of the US is embroiled in costly legal litigations. Patent challenging, not being an easy game, requires identification of loopholes and weaknesses in the patents registered and in attacking these aggressively. DRL banks upon its expertise in legal and regulatory issues, synthesis and formulations to challenge patents.

The company believes that litigation delays, legal hurdles while challenging patents, innovator defenses and regulatory stringencies could impede its progress. The company has ongoing patent challenges for ciprofloxacin 100 mg tablets, olanzapine 20 mg tablets and ondansetron 4 mg and 8 mg and 24 mg tablets. Several other patent challenges are being planned for filing in the current year. DRL is expected to launch a few branded generics in the US markets at the highest-end of the US generic value chain.

"The critical factor for getting the 180 days exclusivity is the ability of the company to identify the unique patent position, achieve the first to file position and navigate litigation successfully," says a company official. The company identifies top tier generic players such as Teva, Andrx, Geneva, Ivax, Mylan, BARR as potential competitors.

Fluoxetine has contributed immensely to the company’s top and bottomline in the second quarter, which should continue in the third quarter to be announced shortly, on account of its 180-days exclusivity. The key, therefore, lies in the filing of other off-patented generics like ciprofloxacin for 180-day exclusivity which may come in handy for DRL in the last quarter of 2002-03, point out analysts.

The company had launched its first biotechnology product Grastim (generic name filgrastim) which should contribute significantly to DRL’s topline due to good margins and growth potential.

The company recognises the fact that it requires a direct marketing presence in the US. Its restricted presence in synthetic chemistry, non-penicillin segments and in oral solid dosages could cause a certain degree of weakness.

"The current business is based on an alliance model with strategic product-specific partnerships with PAR, Warrick and Leiner. Dr Reddy’s plans to establish its own marketing and distribution set-up during the next one to two years, which would enhance the presence in the market place and also enable realisation of greater value," says a company official.

The forthcoming year will be crucial to ascertain whether DRL is able to convert its potential into actual revenues on the strengths built over the past few years.