As investors raised concerns on dwindling sales and slowing growth at Dr Reddy Laboratories, India’s second-biggest drug maker by sales, the company has now charted a four-pronged strategy aimed at reviving dwindling sales and improving profitability.
The Hyderabad-based company plans to expand into more countries, especially in Europe; invest in new drugs that offer higher margins such as complex generics, biosimilars and proprietary products; and strengthen its research and development for developing finished dosages. The company also plans to launch new products that have less competition, giving it an edge over its peers.
“Around 95% of our business is generics and this will continue for the next few years with the addition of proprietary products in the next three to five years and perhaps biosimilars also,” GV Prasad, co-chairman and chief executive of Dr Reddy’s Laboratories, had said on August 6.
Generics account for about 80% of the company’s total revenues.
The renewed focus on its core business comes amidst concerns among investors on dwindling sales, and the various challenges it faces in its overseas operations, especially in the US, the world’s biggest drug market. The region—the single biggest market for the company—contributes about 44% to Dr Reddy’s revenue and has seen sales decline due to high competition and regulatory hurdles.
In the US, pharmaceutical majors are scaling up their businesses by combining their sales network and reducing their costs, making it difficult for companies such as Dr Reddy’s to expand their network to boost revenue. Added to this are the long delays the company faces in getting approvals from the US Food and Drug Administration (FDA) to sell new medicines.
Dr Reddy’s is also yet to address the concerns raised by the US FDA on its Srikakulam plant in Andhra Pradesh. This plant makes active pharmaceutical ingredients (APIs) and bulk drugs. The US FDA had found fault with Dr Reddy’s way of operating the plant during its visit late last year, and had sought an explanation from the company.
“The US market is so big that there is no equivalent alternative,” Prasad said. “We just have to get stronger in the US, resolve our issues, build a pipeline and be more innovative to drive growth.”
The plan to launch proprietary drugs and biosimilars faster than its competitors is part of the strategy to counter its challenges in the US, and fuel growth. These products offer higher margins than Dr Reddy’s traditional generic medicines. The company currently has six biosimilar products which are yet to be launched, and expects another five more to enter clinical development between now and March 2020. Apart from this, its proprietary product portfolio includes drugs for skin problems and the central nervous system.
Dr Reddy’s expects revenue worth $50-75 million for three of the filed products in the near term. It is also hopeful of filing two new drug applications every year and expects a five- to ten-year exclusivity for some of the products. Currently, approximately 57% of the products in the pipeline are complex generics in areas such as injectables, topical, controlled substances and respiratory products. Analysts are also backing this strategy.
The growth rate in complex generics is twice that of commoditised generics. It accounts for about half of the US generics market and is valued at $25 billion, with the potential to outperform the growth rate of the overall market by at least two times. Currently, Indian drug companies get less than 15% of their US revenue from sale of complex generics.
Dr Reddy’s “focus on complex generic, proprietary products and bio-similars will support long term growth,” analysts at JP Morgan wrote in a note to investors earlier in August. “In the near term, US revenue growth (will be) supported by new (including few complex) launches.”
Apart from its US woes, Dr Reddy’s is also facing headwinds due to currency fluctuations in Russia and Venezuela.
Dr Reddy’s chairman Satish Reddy says Russia is too important for the company. “We will adjust our strategies going forward, but Russia remains a core market for us. It is the single, biggest international market outside the US for us,” Reddy said.
Apart from these two markets, Dr Reddy’s is also looking to shore up its revenue from Europe, by buying out companies in Italy, France and Spain. The continent currently contributes nearly 4.5% to the company’s overall revenues.
“The Europe business is much smaller and dependent on products developed globally. But Europe has interesting opportunities and we plan to expand to three more western European markets in the near future,” said Abhijit Mukherjee, chief operating officer at Dr Reddy’s.
Back home in India, the company plans to improve new launch productivity and is shifting focus on chronic and super specialty therapies. “The institutional channel in India is poised for rapid growth in the private and government sectors,” Mukherjee observed.
Dr Reddy’s is also looking to tap organic growth options via acquisition or in-licensing agreements of differentiated assets. However, the company is skeptical about mergers and acquisitions in the Indian pharmaceutical sector, as the industry is highly fragmented. “I don’t think conditions are very conducive right away,” Reddy said.
In April, Dr Reddy’s had acquired 28 brands from the portfolio of UCB in India to expand its footprint in therapy segments such as dermatology, respiratory and pediatrics, and boost its domestic revenues.