The market reaction to the settlement of the generic version of Revlimid was quite exciting. The DRL stock did cartwheels, shareholders got excited. What does it mean for the company both in terms of cash flow and the one-time settlement payment that will come?
Firstly I cannot comment on the stock price. Stock prices react to many things but in terms of news, we had some positive news in the last few days. The first one was tying up the vaccine with the Russian company and the RDIF deal which will help us bring this product to India and distribute it in India. More than the financials there, the excitement of having the possibility of an early vaccine is a very big inspiration for us.
Coming to the second deal, Revlimid is an important product for us. We have been on this product for many many years now and have a very good settlement with the innovator. I cannot reveal the details of the settlement. It is under confidentiality but it allows us to enter early into the market and get us a sizable market share.
What would be the size of opportunity because of Revlimid because there are more companies which could get approval to launch alongside the innovator in March 2022. Do you think there is a case of more competition intensified and that will have an impact on price also?
Natco has a settlement ahead of us. They will be the first to launch and then we have a deal. So far, it is a three-player market and we do not know who else will come and at what point they will come in. There are still some uncertainties but be that as it may. it will be an attractive product for Dr Reddy’s. It is a very attractive space to be in.
Suddenly your pipeline in US is looking extremely exciting. You have got a settlement for a big drug. You have got three more drugs coming. Is it just a coincidence or a cycle or do you think this is a clear indication of how your US generic pipeline and business have improved?
This kind of pipeline cannot happen overnight. We started work on Revlimid in 2009. It takes time for these opportunities to mature. The pipeline of today is a work of many many years. It cannot be pulled out of the hat or 1-2 two years effort. It shows a decade of hard work, focussing on difficult to make products, technologies and they are all coming together and are certainly pleased with the way things are turning around.
Revlimid was filed six-seven years ago, the work started much earlier than that went through litigation. We have got settlement in Canada and now settlement here. So the journey in these products is quite long and whoever is better, wins the game.
Markets are extremely excited about the tailwind for the entire pharma sector. Is it only because of Covid or something else which markets were missing on and are realising now?
Generally markets tend to overreact. There was an overreaction when companies went through FDA troubles and some of them came out of it. There was an overreaction to the pricing pressure. Certain companies were severely affected but not all were affected. I cannot comment on how they market but I can tell you what has happened to generate positivity in the industry.
Companies, especially in India, which had to go through some challenges of dealing with FDA have worked hard over the last few years and made the transformations necessary to make quality a primary driver for the companies. All that have bore fruit and hence approvals are coming. Also, India is a country which is uniquely positioned for combining skills in chemistry, skills in formulation development and the entrepreneurial approach towards taking up legal issues and testing the waters. All of these are maturing the skills for the industry.
India is well positioned to be a dominant force in the global generics industry and that is showing. Just like the IT sector got its time at a certain point in the past, everything's coming together for the industry now and it is in a good phase taking advantage of the various skills we have, the talent in India and the investments that we have made in infrastructure, quality, and of course the research efforts pipeline.
What could be the impact of US presidential elections? Could it have long term implications if there is a change of guard at the White House?
Either way, even if Mr Trump wins or Mr Joe Biden wins, changes are imminent in the healthcare space in the US. Many lessons were learnt in the recent past about how drugs were brought to the market, approved, how the whole system did not work very well for the US government, so that we can see changes coming in irrespective of who is going to occupy the White House. How will it impact the generic industry is not clear.
Certainly biosimilar is an area where the US is lagging behind and hopefully that will change. Already we saw in the UK that people are questioning the needs for these expensive trials for a biosimilar which is essentially a copy of the innovative product and analytically proven to be very similar. So spending 50 million-100 million on biosimilar trials is a waste for society, that is what people are saying and that is something I think could come up.
The other areas which could also help the generic industry is a solution for the high cost of healthcare in the US. Whatever changes come in the US post election will be in favour of generics. There is the headwind of wanting to have local supply chains, wanting to have local manufacture in many countries. We have to see how that pans out but it also could be an opportunity for Indian industries to globalise their manufacturing footprints.
What is happening in your India business? It is stable and it is growing. Do you see locally the per capita on healthcare increasing so that there is better pricing power and better drugs would be consumed now?
One good thing about Covid has been that the industry has been recognised for its strategic importance. The government thinks of the pharmaceutical industry in a very different way. Earlier it was all about controlling cost, bringing down pricing and pricing control order. Today India has helped supply Covid drugs to many countries.
The Indian healthcare system has been very appreciative of the speed with which we brought in drugs for Covid. The perception of the industry has changed measurably and that is very positive for the industry. The government has recognised that the industry needs some support in order for it to become much more innovative. Today we are largely a generic industry and there is a moment to support the industry in its innovation effort -- whether it is via simplification of regulatory processes or via engagement with the regulator or the ease with which clinical trials are getting approved. All that bodes well for the industry.
Coming specifically to Dr Reddy’s, we are still not very happy with our position in the India market. We will continue to focus on the India market, build it up both through organic and inorganic means as well as innovation. The other emerging markets like Russia is doing reasonably well and we will continue our focus there, introduce more products there, enter new segments such as tender markets, oncology and all those things which matter to the market there. We will continue our push in Russia.
Apart from these, China is another focus area for us. The large population, the premium for innovation are important aspects and we have a good joint venture presence there and we will improve the business there by putting in more products, more therapeutic areas and more partnerships. Apart from that, we continue to grow in other select markets like Brazil, South Africa, the CIS markets all of those and we will continue our push in emerging markets. The US market is important but there is potential for much greater growth in the other markets. However, the US will still remain the largest piece of our business.
"We are always looking at opportunities to acquire especially in strategic markets like India and other emerging markets. But we are not compelled to spend our cash on M&A."
How will the API supply chain changes when they happen, eventually benefit Dr Reddy’s? How will the anti-China sentiment help? How will the atmanirbhar focus change life for you in one year, three years and five years?
We do not have that kind of dependence on China. We do have a few products. We will continue to buy from these sources because they are good and not because they are Chinese or Indian. But our dependence on China is only on the basic materials. Over time, we have started becoming more vertically integrated and bringing in house or bringing advanced intermediates into India. This is more for flexibility of supply chain as well as cost reasons as you are aware, costs in China also have been going up post Olympics and gradually we have moved some of the important products into India. But some products we will continue to buy from them and I am sure they are quite reliable and as long as they are reliable we will buy from them so that is not a major driving force for us. But having said that, many customers want to diversify as there is excessive dependence on China and that could be a good opportunity for Indian API players and we have to see how long this sentiment lasts like you said because shifting an API from one player to another is not a trivial process.
You have not shied away making acquisitions in the past. Will there be a conscious move now to use the cash flow which will come from all the approvals and the growth businesses to acquire more?
We are always looking at opportunities to acquire especially in strategic markets like India and other emerging markets. But we are not compelled to spend our cash on M&A. We do have aggressive investment plans in R&D as well as in infrastructure, but it is not at the same level as it used to be. We have a lot of capacities built there already but there will be some expansions in our biologics and injectables businesses. We are not a very capital intensive industry and cash will be useful to drive in organic growth as and when the opportunities arise.
Let us understand the approval to sell the Russian vaccine in India. What does that mean for Dr Reddy’s?
In this partnership with RDIF, we are responsible for doing the Indian trials, to work with government agencies in India, register the product and distribute the product. We will have partnerships, the RDIF will have partnerships to contract, manufacture the product in India so our role is really clinical development, regulatory registration and distribution.
In the next three years to five years, how much of your existing business will change? What will be the future shape of Dr Reddy’s? What are the areas you would be focussing on now?
In the next three to five years, the mix would not dramatically change but you will see significant growth in our India business, our active ingredients and services business. Our innovation pipeline today will come only post that 3-5-year timeframe.
In the three-year timeframe, there is a possibility we will launch one or two products if the clinical trials are successful. We do have a significant effort in oncology through our 100% owned subsidiary which we independently manage called Aurigene Discovery Technologies. They focus on oncology and other inflammatory diseases. They do have a very interesting pipeline in Indian oncology space as well as in other inflammation driven disease areas such psoriasis and other autoimmune diseases but they are all in early stages, early clinical development.
Some of them have been partnered but we do have rights for certain geographies and may be Dr Reddy’s will approach Aurigene for the marketing of those assets. But that part of the business which Dr Reddy our founder used to call the unfinished agenda will probably take more than three years for you to see visible signs of it and maybe more than five years for it to be a significant portion of our business.
Would you be moving into medical/diagnostics? I am not talking of MRI machines or x-ray machines but about devices/diagnostics?
As of now we do not have any effort in diagnostics. We do not have any plans at this time. We do have ideas to bring innovation to the therapeutic agents maybe digital services, devices, wearables, things like that but they are just at the idea stage today, nothing concrete.
Your total R&D spend is one of the highest in India. How will that change in the next three, four years? What would be that as percentage of your sales?
Cannot predict what the future will be with that level of granularity, but our percentage of R&D will remain between 10% and 12% depending on how much we spend on clinical development. The big spends will be in clinical and we have not done a lot of that in the past. As we get more profits and as a percentage of the size, scale of the company goes up, we will invest that money in some clinical development of our internal pipeline.
If Covid had not happened, what would have not happened to the pharma industry?
The pharma industry is transforming. There are three areas we are transforming; one, operations are becoming much more digital like every other industry. There is a lot of automation, digital happening and Covid just accelerated that. That was one big change.
The change of reaching out to doctors physically is now being changed, We still have physical calls augmented through digital means that was also an inevitable change, the whole world is changing to digital. Everything from grocery to taxi ride to food, everything is coming through digital services. So, pharma is going to be disrupted digitally. Again, that digital disruption got accelerated because of Covid. These are the three things I see.
The crunching of timeline from thinking about it to launching the product has been significantly accelerated by Covis because of the pressure that the patients needed for the product. This was something unprecedented and amazing that the Indian industry delivered on all these products getting licenses from innovators, synthesising the product, formulating it, putting it into the supply chain at a speed which I have never seen in the past. This is also something new that we saw whether it will become normal I do not know, whether the regulator will remain as cooperative as they were during Covid times we do not know without of course compromising patient safety.
But these are issues which Covid taught us and that we can do a lot more and a lot faster if we have the right support and right attitude in the companies. The speed with which things got done, the speed of digital transformation, the speed with which innovation is being driven are the amazing lessons from COVID.
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1 Comment on this Story
VIVEK SHIVDASANI34 days ago
I feel that the pioneers of the Indian Pharmaceutical industry should be nationally recognised. They contribution to India both economically as well as job creation has been immense.