DR REDDY'S

LABORATORIES
LIMITED

Dr. Reddy's Laboratories is one of the largest

research-driven pharmaceutical companies in India.

Background

Dr. Reddy's Laboratories is a vertically integrated,

global pharmaceutical company with proven
research capabilities.The second largest
pharmaceutical company in India, Dr. Reddy's
manufactures and markets a wide range of
pharmaceutical products in India and overseas.
Founded by Dr Anji Reddy, an entrepreneur- In the same year, Reddy US Therapeutics, a wholly-
scientist, in 1984 at Hyderabad, the company owned subsidiary, was established at Atlanta, US to
produces finished dosage forms, API, diagnostic kits, conduct target based drug discovery.
critical care and biotechnology products.The
company has over 190 finished dosages and 60 API In 2002, it made its first overseas acquisitions and
currently in production. acquired two UK companies, namely BMS
Laboratories Limited and Meridian Health Care
In 1986, Dr. Reddy's entered the international (UK) Limited.The two firms produce oral solids
markets with exports of Methyldopa. In 1987, it and liquids. In 2003, Dr Reddy's set up a joint
obtained its first US FDA approval for Ibuprofen venture with Venturepharma in South Africa called
API and started its formulations operations. In Dr Reddy's Laboratories (Proprietary) Ltd, South
1988, the company acquired Benzex Laboratories Africa to establish its presence in the Southern
Pvt. Limited to expand its bulk actives business. Dr. Africa Development Community (SADEC)
Reddy's raised a GDR issue of US$ 48 million in countries and sub-Saharan African territories.The
1994 and laid the foundation stone for a finished company has six US-FDA inspected plants. In
dosages facility to cater to the highly regulated November 2005, the company entered into a
markets such as USA. In the year 2000, the definitive agreement to acquire Roche's API
company merged with Cheminor Drugs Limited. business at the state-of-the-art manufacturing site

Company Products Established Founder Distribution Production plants

Dr. Reddy’s Pharmaceuticals 1984 Dr. Anji Reddy India, Americas, India, UK, Mexico
Laboratories Europe, Middle East,
Asia Pacific, Africa
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 Key Products 2003. Sales of Ramipril amounted to over 6.5 per
Product Category cent of the total company revenues in 2004. Other
major sellers for the company's API business
Ramipril Anti hypertensive included ciprofloxacin, ranitidine hydrochloride,
Ciprofloxacin HCL Anti bacterial
Ranitidine HCL Anti ulcerant naproxen sodium and ibuprofen. In 2005, branded
Naproxen Sodium Anti inflammatory formulations accounted for 40 per cent of total
Ibuprofen Anti inflammatory sales, API accounted for 36 per cent of total sales
Losartan Potassium Anti hypertensive
Atorvastatin Anti hyperlipoproteinemic while generics accounted for 18 per cent of total
Sparfloxacin Anti bacterial sales.The company's API division reported filing 16
Dextromethorphan HCL Anti tussives DMF with the US FDA in 2004.This took the total
Nizatidine Anti ulcerant
Enrofloxacin Anti bacterial number of DMF on file in the US to 56, and the
Terbinafine HCL Anti fungal company filed a further 9 during 2005. Dr Reddy's
Doxazosin Mesylate Anti hypertensive
had three ANDA approved in 2004, for
Source: IMaCS Analysis ciprofloxacin, fluconazole and citalopram.

in Cuernavaca, Mexico including all employees and Dr Reddy's generic formulations business has been
business supply contracts. operational since 1998. In 2005, Dr Reddy's filed 13
ANDA with the FDA.The company's generics
Foreign Investors are the largest shareholders pipeline included 45 ANDA pending approval with
in the company (46.77 per cent equity stake) the FDA. Of these, the company reported that 9
followed by the promoters (26.29 per cent contained Paragraph IV certification. Dr. Reddy's
of the equity stake). Mutual funds, financial plans to maintain its momentum by filing between
institutions and other institutions hold 13.15 15 and 20 ANDA during 2005.
per cent equity stake and non-promoter corporate
hold 1.42 per cent of the equity stake.The public Financial Analysis
holds the remaining stake.
While Dr. Reddy's witnessed a healthy growth rate
Products and Brands in its revenues between 2001 and 2004, the year
2005 was a difficult one for the company. Revenues
Dr. Reddy's manufactures API and finished dosage declined in rupee terms (though in dollar terms
forms and markets them globally, with a focus on there was a slight increase) which resulted in a
United States, Europe, India and Russia. In addition,
the drug discovery arm of the company conducts
basic research in the areas of diabetes,
cardiovascular, inflammation and bacterial infection.
The core businesses of API and branded
formulations are well established with an impressive
track record of growth and profitability.The generics
business started operations in 2001 and focuses
primarily on the North America and EU markets.

The company's current best selling API product is

Ramipril, first introduced in non-US markets in
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 Dr. Reddy's has been a pioneer in establishing the
presence of Indian pharma in the global arena. In
1990, Dr. Reddy's became the first Indian
manufacturer to export norfloxacin and
ciprofloxacin to Europe and Far East. In 1991, first
formulation exports to Russia were commenced.
Dr. Reddy's started its drug discovery programme
in 1993 and within three years it achieved its first
breakthrough by outlicensing an anti-diabetes
molecule to Novo Nordisk in March 1997. By
licensing the anti-diabetic molecule, DRF 2593
(Balaglitazone), to Novo Nordisk, Dr. Reddy's
significant reduction in PAT.This has been largely became the first Indian pharmaceutical company to
due to intense competition and severe pricing out-license an original molecule.The same year, it
pressures in the U.S. generic markets for two of its also filed its first ANDA with the US FDA for
key products, fluoxetine and tizanidine, and in Ranitidine. In 2001, the company was the first
Europe for its API ramipril. Although Dr Reddy's Indian pharmaceutical company to obtain 180-day
launched several products across its various exclusive marketing rights for a generic drug in the
businesses, none was significant enough to offset US market with the launch of fluoxetine 40 mg
the decline in overall generics and API businesses. capsules.
The profitability ratios and return indicators have
therefore also moved downwards. The company has joint ventures and subsidiaries in
a number of countries, including Brazil, China,
Profitability has been negatively impacted in the Russia, United Kingdom, and the United States. Dr
past few years as a result of the company's increase Reddy's also has representative offices in
in research and development (R&D) expenditure Kazakhstan, Romania, Sri Lanka, Ukraine and
and long-term investment activities to enhance its Vietnam.The products manufactured by Dr. Reddy's
pipeline and other infrastructure.The expenditure are recognised by WHO and other leading
on R&D has been continuously increasing as the organisations in the healthcare industry. It has been
company stresses on innovation for growth. R&D successfully exporting its products to over one
expenditure as a percentage of total turnover hundred countries world-wide, including the USA,
increased from 5 per cent in 2002 to over 18 per UK, Switzerland, Germany, Spain, Italy and the
cent in 2005. Netherlands.

Dr. Reddy's contribution in making Dr. Reddy's entered the global generic market with
‘Made in India’ global exports of Ranitidine-75 mg and Fluoxetine to
North America. In 2001, the company entered into
The company enjoys a strong presence in USA, an exclusive co-marketing and development
Western Europe, Russia and India.While India agreement with Par Pharmaceuticals Inc. covering
accounted for 35 per cent of total turnover in 2005, fourteen generic pharmaceuticals products to
USA accounted for 22 per cent of total turnover. strengthen the company's position in the US
Russia and CIS accounted for 15 per cent of sales generic market and to get a substantial cost
while Europe accounted for 14 per cent of sales. advantage on account of its vertical integration
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 capabilities. In 2003, Dr Reddy's entered into an providing for the strategic investment by Dr.
exclusive 15-year product development and Reddy's to acquire 100 per cent of betapharm
marketing agreement for OTC products with Group, Germany for 480 million in cash.
Leiner Health Products.
Factors fuelling Dr. Reddy's global
In 2003, Pliva signed an agreement with Dr Reddy's initiatives
for development and marketing of 11 oncology
products. Dr Reddy's would be responsible for Aiding the company's growth is Dr. Anji Reddy's
developing the API and preparing the DMF for the passion for research and drug discovery and his
products, whilst Pliva would be responsible for vision to establish India's first discovery led global
formulating the products and filing the necessary pharmaceutical company.Today, the company has
marketing authorisation applications. Pliva would over 950 scientists working across the globe,
have the exclusive marketing rights for 11 Central around the clock. Dr. Reddy's actively pursues a
and East European countries, while Dr Reddy's basic research programme and focuses on cancer,
gained an opportunity to enter this market. diabetes, bacterial infections and pain management.
The company has several pharmaceutical products
In September 2005, Dr Reddy's entered into a co- in development.
development and commercialisation agreement
with Denmark's Rheoscience AG involving a In fact, Dr. Reddy's was able to establish itself as a
diabetes drug.The agreement, over balaglitazone, supplier of high quality pharmaceuticals very early
will involve Rheoscience funding all costs for the on in the global market. In 1988, the company's
Phase III clinical trials, while Dr Reddy's will process for Ibuprofen, a popular anti-inflammatory
compensate Rheoscience a share of the drug, was so advanced that Ethyl Corporation, US,
development costs. In turn, Rheoscience will obtain had to accept its superiority in front of the US
the marketing rights to the EU and China, while Dr Trade Representative and ask for tariffs to be put
Reddy's will garner the marketing rights for United against Dr. Reddy's to achieve a level playing field.
States and rest of the world.The agreement will Dr. Reddy's started its drug discovery programme
cover a period of 10 years from commercialisation. in 1993 and within three years, it achieved its first
breakthrough by outlicensing an anti-diabetes
In 2005, the company entered into a definitive molecule to Novo Nordisk in March 1997.With
agreement to acquire Roche's API business in this significant step, the Indian industry went
Cuernavaca, Mexico, including all employees and through a paradigm shift in its image from being
business supply contracts.The total investment
outlay is about US$ 59 million including working
capital.This business involves the manufacture and
sale of API including intermediates to Roche and
other innovator companies.This acquisition adds
unique steroids manufacturing capabilities to Dr.
Reddy's.

In February 2006, Dr. Reddy's and 3i, Europe's

leading private equity house, jointly announced that
they had entered into a definitive agreement
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known as just 'copycats' to 'innovators'.Through its R&D and creation of successful IPRs. Dr. Reddy's
success, Dr. Reddy's pioneered drug discovery in has also been taking adequate measures on this
India. behalf.

Future plans Dr Reddy's acquisition of betapharm gives it a

strong presence in Europe and it will target 60 per
Dr Reddy's is taking steps to grow its business cent of the pharmaceuticals expected to lose
across regions, and expects Brazil, Europe and India patent protection between 2002 and 2008. Dr.
to emerge as the key growth drivers in the next Reddy's has also roped in venture capitalists and
few years and is thus focusing aggressively on these set up a separate integrated drug development
markets. It is very positive on growth prospects in company called Perlecan Pharma with an aim to
Russia as well, with price realisations being better mitigate the risks involved in drug research, reduce
in Russia (sells branded formulations) than in the R&D expenses and push up overall future
regulated markets. profitability of the company.

Dr Reddy's recent US$ 59 million acquisition of

Roche's API business in Mexico will help it jump-
start its plans for the custom pharmaceutical
services (CPS) business.The CPS business involves
providing solutions to innovator pharmaceutical
companies right from the time a potential drug
molecule is in the research stage till the product
reaches the market.The acquisition provides an
opportunity for the company's CPS business to
grow ten-fold to US$ 100 million over the next 18
months and further de-risk the company's strategy,
which is currently focused on research and
generics.

At the level of API and generics, the global market

is getting increasingly competitive and
commoditised. In the developed markets of the Globalisation at a glance
U.S. as well as Europe, pharmaceutical majors are • Revenues from international markets constitute
getting cleverer at preventing entrants from getting nearly 66 per cent of total sales, with most
exclusivity through aggressive legal defences, of them coming from US and Europe
authorised generics deals, development of • 15 ANDA approvals for drugs in its portfolio
combination products and strategic over-the- in the US
counter switching. Added to this is the rapidly • Acquisitions of international pharmaceutical
growing competition from low cost generic and API companies in Germany and Mexico
suppliers from India and Eastern Europe.To • Business interest in over 60 countries and exports
maintain a long term presence in the global to over 100 countries
pharmaceutical markets and to grow profitably will
require companies to be even more focused on www.drreddys.com
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