Dr. Kallam Anji Reddy – the Man Who Changed the Face of Pharmaceutical Industry in India, and Transformed His Company Dr. Redd

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Dr. Kallam Anji Reddy – the man who changed the face of Pharmaceutical Industry in India, and transformed his company Dr. Reddy Laboratories (DRL) from a mere US$ 50000 (Rs. 30 Lakh) startup to over US$ 2.1 billion (RS. 12,500 Crore) global conglomerate.

Gist: This is a story of a small boy and his larger than life Aspirations, how he turned them into reality despite being born into a poor farmer’s family in a remote village of Andhra Pradesh.

India, in 1960s had severe problems with respect to healthcare. None of the life saving drugs and vaccines were being produced in India, as they required proficiency to do so. International pharma companies were not eager to help India with their knowhow as India had not ratified product patent law – International Pharma companies wanted their entire products patent protected through laws in India. Passing the product patent law meant; no other company could ever make similar products even if the ingredients and the process to make the products were different. That means whatever the original patent holder charges, patients had to pay with no other alternative. This would push the cost of drugs sky-high and India with substantial number of very poor people could not afford to buy those drugs. Importing the drugs and vaccines from developed countries like USA and Europe meant foreign exchange (forex) outgo – which was dead scarce those days. So, India without any other option had to pass patent laws that recognized only the process used to make drugs. That means, there could be any number of competing products in the market so long as makers use different process to produce them. This triggered competition resulting in falling of drug costs, which in turn triggered efficiencies in producing, marketing and distribution of the drugs. An entirely new industry was born where in the players would reverse engineer the patented original product and produce copycat drugs. Such drugs are called generics in Pharma lingo. That was how Indian Pharma Industry – world’s third largest in volume and 13thth largest in dollar value – as of 2013, was born in early 1970s. From simple headache pills to some of the most complex drugs to treat neurological disorders, cancer, HIV/ AIDS etc. are now made in India. They are sold at a throwaway price when compared to what original inventor charges them in the west.

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Though India is known to the world for its strides in Information Technology (IT) industry, but what is relatively unknown is the fact that its real strength lies in its pharmaceutical industry. The kind of innovation and technological advancement that has happened in Indian Pharma Industry, Indian IT industry is yet to see it. Consider this. India has second highest number of FDA (Food and Drug Administration) of America approved pharmaceutical companies in the world, which supply pharma and pharma ingredients to America. Most of the big Pharma MNCs around the world source their drugs and pharma ingredients from India. This talks about the quality and the process perfection Indians have achieved in the Pharma industry to produce highest quality products at lowest possible rates. Not only the advanced countries are benefiting by importing high quality- low priced pharma Ingredients from India, even the poor nations too are benefiting. The reverse engineering capabilities of Indian pharma companies has brought tremendous accolades from poor and developing countries. To know more about how Indian pharma industry is helping poor countries, read on – India’s CIPLA pharma is selling HIV/ AIDS drug in Africa at one-tenth the cost of branded drug, which is at US$150 per year. Africa’s over eighty percent of the entire AIDS drug requirement is met from India. Like wise, NATCO pharma produces and sells Cancer drug at US$ 152 (Rs. 9600), while its original innovator has priced its Cancer drug ‘Gilvec’ at US$ 2400 (Rs. 1,20,000) in India*. Similarly Bayer corporation of Germany has launched its rare Renal Cancer product at US$ 5600 (Rs. 2.8 Lakh). On the contrary, one of the Indian pharma companies has launched its generic version at a price of US$ 160 (Rs.8000)*. Pfizer sells its innovator ‘sutent’ – drug to treat Kidney and GE cancer at US$ 3920 for a 45- day course, while an Indian company has launched its generic version at US$ 392 (Rs. 19,600)*. Roche Pharma Company has launched its Hepatitis C – drug to treat Pegasys at US$ 8720 (Rs. 4.36 Lakhs) for a 6 months course. An Indian company has produced its generic version and sells at US$ 943 (Rs. 47,160)*. There are several such stories narrating how Indian pharma companies are helping the world keep its ‘health-care’ cost low. In fact India is increasingly seen as pharmacy of the world’s poor, as it has perfected the art of producing low cost high quality generics versions of some of the most complicated and expensive drugs.

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However there have been heated arguments between the proponents of patented and the generic drugs, but generally people are of the opinion that between profits and humanity, companies should uphold humanity. That is exactly the point of Indian generic manufacturers and they claim that inspite of doing cutting edge research to produce generics, they are still making profits even while selling at such low prices.

What is the contribution of Dr. Anji Reddy to the Indian’s pharma Industry? - A lot. He along with Yusuf Hamid of CIPLA and Parvinder Singh of Ranbaxy - the trio known for their courage, conviction and vision, are the pioneers of the Indian pharmaceutical industry who put India on the global pharmaceutical map. They took Indian Generics products to the west – the cradle of innovative drug industry, and started selling there on equal terms. Also, the trio can be said to have brought in the Indian pharma industry the mentality to look beyond reverse engineering the patented drugs. They themselves started researching into innovative drugs and have made good strides in that area and will soon achieve major breakthroughs. Let us take Dr. Anji Reddy to know more about his achievements.

Education: Dr. Kallam Anji Reddy was born in a village near Vijayawada in Andhra Pradesh state of India. He was very aspirational boy who always dreamed big in life. In his village, his father was a farmer growing Turmeric, and Anji never wanted to be like him. Rather he would want to be someone rich and famous. He studied hard while nurturing his dream of making big in life and got his Bachelor of Science (B.Sc) in Pharmaceuticals and fine chemicals from Bombay University. He did his Ph.D in Chemical Engineering from National Chemical Laboratory, Pune in 1969. Having acquired right qualification and with the attitude of a winner, he started his career in Indian Drugs and Pharmaceutical Limited (IDPL) – a government of India undertaking company to research on new drugs. He worked in IDPL till 1975 and set out to start his own company ‘Uniloids’ in 1975. The reason behind starting Uniloids, he claims was that at that time India was importing huge quantity of drugs and vaccines from abroad. If he could perfect his homegrown technology and produce some of the products right in India, he could make a killing and that too at one-tenth the cost.

Establishment of Uniloids: The drug that he produced first was Metronidazole, which was

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better than the Italian product that India was importing at that time. His success in making his product better than the innovator itself and that too at very low cost made national headlines. He became instantly famous and made tonnes of money. This gave him tremendous confidence, which propelled him to move forward into newer areas. Later he also succeeded in making ‘Sulphamethaxazole’ of higher standards, making it superior to even imported one.

Establishment of Dr. Reddy Laboratories (DRL) and beyond: In 1985 he started DRL, created a scarce drug, 'Methyldopa’ – a drug used as antihypertensive, and raked in enough profits. The story goes like this: Although international manufacturer Merck had its own Methyldopa, its Indian subsidiary had no access to it. Reddy approached Merck – US based Pharma MNC, with his samples of the drug but was rejected almost immediately citing the quality issues. Though Merck had tie up with Tata group in India back in mid eighties to import and sell Merck’s Methyldopa in India, government of India did not allow doing so because of the cost was prohibitively high. So the Indian government asked Merck to import the same from Hungary at a low cost. The quality of Hungarian Methyldopa would not pass through the specification of Merck. The situation remained that way for sometime till Dr. Reddy took it as a challenge on himself and produced Methyldopa using his own process and technology that not only matched Merck’s specifications but exceeded it. Thus Merck started sourcing the product from him to sell it all over the world. With a series of excellent products made available at affordable cost, Dr Reddy's Labs found its foothold as a strong pharmaceutical company. And 20 years later, the company became India's number one pharmaceutical player.

FDA Approvals: In 1987, Dr. Reddy saw to it that FDA of America certified his manufacturing plants in India and it was a big achievement for him. This is because; FDA approves only those manufacturers whose manufacturing infrastructure and the process used to make drugs adhere to stringent International quality standards. By bagging FDA approval, Dr. Reddy’s products got direct endorsement of quality and reliability. The news about Dr. Reddy’s accomplishment in generics and the subsequent FDA approval made headlines in international finance dailies. As a result, he got enough visibility among his peers across the globe. Dr. Reddy eventually started exporting his products to some of the

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quality conscious big daddy Pharma companies around the world. By the end of 2012, he got FDA approvals for all his plants in India.

In 1989 Dr. Reddy launched an in-house developed generic version of the drug ‘Ciprofloxacin’ – An anti bacterial drug to treat respiratory, urinary tract, gastrointestinal, and abdominal infections. This product made waves in the Indian pharmaceutical Industry, as there was no similar product available and demand was huge at that time. The situation remained that way for four years, and Dr. Reddy reaped good fortune at that time too.

Listing on Indian stock exchanges: The early nineties also saw DRL getting listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) of India. When the Ciprofloxacin driven sales boom was happening for four years, Dr. Reddy rewarded handsomely to his shareholders. Consider this. He gave one bonus share for every two shares the very first year. The second year he increased it to one bonus share for every share and the third year, he gave two bonus shares for every share. That is how he became the darling of the stock market in 1993 and his move was much appreciated.

International Expansion: By early nineties, Dr. Reddy had already learnt the ropes of making generic drugs and selling in India. Now he set his sight abroad to expand his business there. In 1992, he tied up with ‘Biomed’ of Russia to start manufacturing plant there. He followed it up with similar tie-up with a Middle Eastern company to start two formulations plants there. Also in 1994 he made a big-bang announcement by starting a formulation plant in USA. Dr. Reddy exported bulk drugs from India to all these plants, and convert them into final generics products, and later sold them to these Pharma companies there. That is how he became serious international pharma player by being successful at this endeavor.

New Drug Discovery initiatives: Though Dr. Reddy pioneered the art of making generic version of patented drugs; he never was just content with it. He wanted to raise the stature of his company - DRL to that of a big Pharma MNC, and for that to happen there was no shortcut way than getting into new Drug Discovery (NDD). Thus Dr. Reddy’s tryst with NDD began in early nineties, and this move of his was a groundbreaking initiative that was hailed

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by everyone in the industry. His entry into the world of NDD gave him unique identity which separated DRL from “me too” sort of pharma companies in India. To begin with, Dr. Reddy invested heavily in building R&D labs – apparently DRL is the only Indian company to have significant R&D being undertaken overseas. Dr. Reddy's Research Foundation was established in 1992, dedicated to research in area of NDD. Focus of these labs has been to do innovative R&D by hiring new scientists, especially the Indian students studying abroad on doctoral and post-doctoral courses. In 2000, the Foundation set up an American lab in Atlanta dedicated to discovery and design of novel therapeutics. The lab is called Reddy US Therapeutics Inc (RUSTI) and its main aim is the discovery of next- generation drugs using genomics and proteomics. Reddy's research thrust was focused on large niche areas in western markets – anti-cancer, anti-diabetes, cardiovascular and anti- infection drugs. As a result of this effort, by 1997 DRL became first Indian company to out license an anti diabetes molecule to Novo Nordisk – a Danish Pharma MNC, to do commercial trials for its newly discovered molecule. Dr. Reddy’s this move raised the prestige of DRL from just a copycat pharma company to a research driven one among the investor community. However things did not go as expected - during the phase III of the commercial trails some issues cropped up pertaining to side effects, and the trials were stopped. Had the trials been successful, the credit would have gone to DRL to produce such a block buster molecule and Dr. Reddy could have earned royalty in millions of US$. But this is how the R&D in Pharma Industry works and is considered as a part of the game. Research into NDD is very risky affair and is well known to all the players. The pharma companies usually get mentally and financially ready for any eventualities before they even plunge into it. However at DRL, scientists are still vigorously working on various chemicals to somehow produce a wonder molecule that can produce a drug one day to treat human ailments.

Listing on New York Stock Exchange (NySE): Dr. Reddy sensed that in order to make DRL an international company he has to play international. Though developing newer technologies in-house is difficult and time consuming, acquiring companies that have them is easy and fast. For that he needed money, and he made the right move by making DRL list on the New York Stock Exchange on the April 11, 2001. The issue was dubbed as the year's best performing American depositary receipt, or ADR. It fetched DRL $133 million at a time when stock markets across the world were at their lowest end. He used these funds to acquire two pharmaceutical firms - BMS Laboratories and its subsidiary Meridian UK in the

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United Kingdom (UK) to have a foothold in Europe. These companies had good technologies but were making huge financial losses; so outright sellout made sense to them. Dr. Reddy aligned the newly acquired companies with that of DRL’s business requirement. Later Dr. Reddy started ‘Bio Technology’ venture in India to capitalize on the craze for biotech products and services in 2000. Also with the ADR funds he started a venture, Auriegene Discovery Technologies (ADT), a contract research company in 2002. Auriegene's objective was to gain experience in drug discovery through contract research for other pharmaceutical companies. Also, he started the Institute of Life Sciences (ILS). This institute is focused on the interface between life sciences and chemistry. Here, chemists and biologists work together to seek solutions to human health issues. The model is to create its own intellectual property and commercialize it in collaboration with the industry.

DRL, ADT and ILS have some of the best R&D labs in India on par with the ones found in the western world, doing cutting edge research work. Dr. Reddy proudly says his companies employ hundreds of world-class scientists to carry out futuristic experiments and they are happy too.

This was how Dr. Reddy built his empire brick by brick from almost nothing to over US$ 1.5 billion dollars multinational conglomerate. His fire to succeed, passion at what he was doing, ability to think ahead of others and the strong purpose behind his work has brought DRL where it is today. By the end of 2012, the company had operations in thirty countries making it as diverse as any big global Pharma major. In three decade of its inception, DRL became one of the most sought after companies for job seekers, investors and others. So, looking at all these achievements, one can clearly know what kind of big dream or ambition Dr. Reddy must have nurtured in his childhood days, and now we know why he never got into the turmeric farming business as his father did in the first place.

Was there a clear purpose behind Dr. Reddy’s accomplishments? – Yes, very much. The purpose could be seen not only in the later part of his life but also during his education days. He did his masters and doctorate degree course in chemical engineering with the purpose to make it big in chemical industry, and he did exactly that.

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In the early seventies when most of the educated Indians wanted to be in safe government jobs, Dr. Reddy quit his government job at IDPL to start his own venture. This move of his talks about the fire he had in his belly to make it big in life on his own, as the slow pace of life at IDPL might have made him impatient, and must have driven to look for opportunities elsewhere. He was fantastic in assessment of opportunities in the market and he could do it earlier than others and was also good in cashing in on. Back then when MNC pharma companies were importing essential drugs and were selling at a premium in India. Dr. Reddy could produce those drugs that met the specification of original patent holding companies at much lower costs. Sometimes, they (the companies) used to source from him as it used to be very economical for them. Though almost all the Indian pharma companies were making money from reverse engineered drugs, he was not content just doing that. He had a grand vision for his company DRL – to help people lead healthier lives, and this required his company to be much more than just a mere copy cat drug maker. When every other Pharma company in India was content making and selling generic drugs to Indians, Dr. Reddy thought of selling drugs in high margin, highly regulated and quality conscious western markets – America, Europe and Japan. This was because, for DRL to grow he needed money and Indian market wasn’t giving him enough returns, so he set his sight on those foreign markets. However selling there was not easy and required sprucing up his manufacturing infrastructure and the processes to the international level. This was very expensive affair not everyone could afford. Also any failure in getting FDA approval might lead to negative publicity, which would affect his company DRL’s carefully built-up image. Consequences of failing would cost Dr. Reddy dear. But for him, nothing would stop once he decided to do something. When his well thought- out goal was set, he would meet it no matter what it took, and that was Dr. Reddy to the world – A modest, hardworking and intelligent man with big ambitions. For Dr. Reddy, FDA approval was like ‘manna from heaven’, as DRL’s international journey began with that. His purpose to get FDA approval and later to supply ingredients and drugs to foreign companies was to boost DRL’s image internationally and earn good profits. Having done that, Dr. Reddy was now ambitious to go beyond bulk drug supply to innovate and invent new drugs. Though he was short of technology, he was sure that he could acquire

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them by buying a few financially ailing Pharma companies in Europe, which had cutting- edge technologies. But that required funds and he raised it by listing DRL shares on New York Stock Exchange. The money so raised, Dr. Reddy used to acquire companies and open manufacturing sites in Europe, USA and Middle East. He set up state-of-the-art research laboratories in India and USA to do R&D work on NDD. This was how Dr. Reddy slowly and steadily brought the change in the profile of his company – DRL from a copycat generics drug maker to that of an innovator. Though Dr. Reddy’s first swipe at NDD was partially successful, but the ball has been set rolling, as his young team at DRL is ever enthusiastic to discover new drug molecules and is confident that they would crack it sooner than later. When the accomplishments of Dr. Reddy are considered, one would get a feeling that he was haste in deciding things. This is because it appears that he took many risks and survived because of mere luck. However the fact is that, every move of his was preceded with thorough evaluation of the same with clear objectives. He only went ahead once the proper ground had been built. By this he showed to people how one can keeping progressing in spite of all hurdles and it works as long as one has planned one’s move properly.

Dr. Reddy’s service to the society: Though Dr. Reddy is considered as one of the pillars of India’s modern Pharmaceutical industry, his philanthropical work to help the underprivileged people has been less reported in the media. It looked like as if he wanted it that way. Some of his works are listed below.

Naandi foundation: He spent a bulk of his earnings to fund initiatives to alleviate hunger, create livelihoods, provide education and access to safe drinking water and pull back children from hazardous industries through his not-for-profit organization-Naandi Foundation. He has set a target of transforming a million lives by the end of 2020.

Dr. Reddy’s foundation: Dr. Reddy founded Dr. Reddy's Foundation in 1996 to create livelihoods to poor people. Its initiative, called Livelihood Advancement Business School or LABS, has, so far, trained over 130,000 youngsters with skills suited for entry-level jobs in sectors such as hospitality, Information Technology enabled Service (ITES) and customer relations.

Sparsh: Dr. Reddy also launched a social initiative called "Sparsh," an assistance program for

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cancer patients who cannot afford a treatment. Patients identified by the doctors through Sparsh are provided Reditux, the anticancer biologic drug from Dr Reddy's Labs free of cost. He rendered a lot of help to cancer patients so that their suffering would come down.

Contribution to LV Prasad eye Institute: Dr. Reddy has committed a huge amount of fund for over 10 years that will make the L V Prasad Eye Institute self-sustaining. LV Prasad Eye Institute does a lot of free and subsidized eye treatments. The institute is the only one in India and one of the few in the world that uses stem cells for corneal reconstruction. It has treated over 500 such cases over the last five years, the highest anywhere in the world.

In a free wheeling interview he quoted as follows “I am happy that, throughout the growth process, our company has never forgotten the basic reason for its existence. That is to provide affordable and innovative medicines to patients across the world. And that it has the-strategy to leverage research and development, product offerings and customer services to be a leading global pharmaceutical company”, (source: BioSpectrum Asia – www.biospectrum.com, 19 March 2012)

Awards: Dr. Reddy’s contribution to the Pharmaceutical industry has been recognized and awarded profusely by the society. Till 2012 he was a member of the Indian Prime minister ‘s council on Trade and Industry, which talks high about the recognition and faith that the Indian leadership team had on him. A few of the awards have been listed below.

 Lifetime achievement in health award in 2012 at Asian Voice Political & Public Life Awards ceremony at London for his lifetime commitment to medical research for improving the lives of people.

 Padma Sri and Padma Bhushan awards from Government of India in 2001 and 2011 respectively.

 Sir PC Ray Award in 1984

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 Chemtech foundation ‘Hall of fame award’ in 2005.

 Lifetime achievement award at IBLA – India Business Leadership Award ceremony event held in 2012.

Dr. Reddy lived a king sized life and always engaged himself with some activity or the other till he breathed his last on 15-March-2013 at the age of 72. Though he is no more, he has drawn up a roadmap for people to bring success in life. He exhorted everyone to dream big and aspire bigger in life, that’s when one can do big things in life.

* Source for the drug pricing information is from Times of India - Source for the data is from Wikipedia, Asia BioSpectrum, Dr. Reddy’s Laboratories website and other sites.

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