Drivin G Rowth
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DRIVIN G ROWTH Dr. Reddy’s Laboratories Ltd. | Annual Report | 2001–2002 BOARD OF DIRECTORS 04 06 CHAIRMAN’S LETTER DISCOVERY RESEARCH 10 12 ACTIVE PHARMACEUTICAL INGREDIENTS GENERICS 14 16 BRANDED FORMULATIONS EMERGING BUSINESSES 18 20 CUSTOM CHEMICAL SERVICES SAFETY, HEALTH & ENVIRONMENT 22 24 HUMAN RESOURCES DR. REDDY’S FOUNDATION 26 30 INTANGIBLES ACCOUNTING DIRECTORS’ REPORT 34 46 MANAGEMENT DISCUSSION & ANALYSIS CORPORATE GOVERNANCE 70 88 ADDITIONAL SHAREHOLDERS INFORMATION FINANCIALS 103 165 SUBSIDIARIES FINANCIALS NOTICE OF AGM 343 348 GLOSSARY highlights Driven by fluoxetine and 319 million) in 2001–02. International sales of Sales international branded Fluoxetine sales of Rs. 3,286 branded formulations grew formulations, sales million (US$ 67 million) by 55% to Rs. 2,015 increased by 58% from contributed to 21% of the million (US$ 41 million), Rs. 9,841 million in 2000–01 total turnover. Without driven by the growth in to Rs. 15,578 million (US$ fluoxetine, sales grew by 25%. sales to Russia. Overall Earnings before interest, million) in 2001–02. Profit after tax (PAT) Profits, ROCE, taxes, depreciation and EBITDA margin increased more than trebled — from RONW amortisation (EBITDA) from 26% in 2000–01 to Rs. 1,445 million in doubled from Rs. 2,606 34% in 2001–02. 2000–01 to Rs. 4,597 & EPS million in 2000–01 to million (US$ 94 million) in Rs. 5,314 million (US$ 109 2001–02. PAT An anti-diabetic front and milestone Eleven abbreviated new Research molecule — DRF 4158 — payments. drug applications & Development was licensed to Novartis. (ANDAs) were filed during This will fetch the company the year in the US, taking US$ 55 million through up- total filings to 23. On April 11, 2001, In the fourth quarter of niche generic player with International became the first Indian 2001-02, acquired BMS marketing rights to over Listing pharmaceutical company Laboratories and its 100 products. to list on the New York subsidiary, Meridian & Acquisition Stock Exchange. Healthcare UK Limited, for £9 million. Meridian is a sales of branded With fluoxetine 40 mg, Sales of active Rs. 4,997 million (US$ 102 formulations grew by became the first Indian pharmaceutical million) in 2001-02. 23% — from Rs. 4,938 pharmaceutical company ingredients increased by million in 2000-01 to to launch a generic with 16% — from Rs. 4,312 Rs. 6,057 million (US$ 124 180–days marketing million in 2000-01 to million) in 2001–02. exclusivity in the US. margin stood at 30% of Return on capital Return on net Earnings per share (EPS) total turnover. employed (ROCE) worth (RONW) grew from Rs. 22.83 in increased from 19% in increased from 26% in 2000–01 to Rs. 60.41 in 2000–01 to 31% in 2000–01 to 32% 2001–02. 2001–02. in 2001–02. Eight of the 13 ANDAs 8 new drug master Promoted a new wholly medicinal chemistry, pending with USFDA are files (DMFs) filed owned drug-discovery structural biology and para IV filings. during the year in the service subsidiary — structure-based drug US, taking total filings Aurigene Discovery design. to 26. Technologies, which will focus on automated chairman’s letter 6 DEAR SHAREHOLDERS 001-02 HAS BEEN an take care of themselves. I will, therefore, 2 excellent year for your Company. use this opportunity to share with you my Here are a few financial facts. Sales vision of Dr. Reddy’s Laboratories, and how increased by 58 per cent to Rs. 15,578 your Company is poised to realise this million, or US$ 319 million. Earnings before dream. interest, taxes, depreciation and The vision of our 18-year old enterprise is amortisation (EBITDA) doubled to Rs. 5,314 as simple as it is difficult: “To be a million, or US$ 109 million. Profit after tax discovery-led global pharmaceutical (PAT) more than trebled to Rs. 4,597 company.” million, or US$ 94 million. And, earnings We began in 1984 and, like some other per share (EPS) grew from Rs. 22.83 in players of that era in India, concentrated on 2000-01 to Rs. 60.41 in 2001-02. strengthening reverse engineering I am as happy as you will be with these capabilities to produce high quality bulk results. But it is not my intention to dwell drugs and formulations at low costs, and on the financial aspects of your Company. sell them in the domestic market. The These are discussed in importance of these skills cannot be detail in the chapter on exaggerated, for they created the Management Discussion technological foundations for your and Analysis. Company’s successful foray into the As a scientist, I international generics market. subscribe to the dictum of However, even in the early days, we George W. Merck, realised that the ultimate accolade for a founder of the pharmaceutical company comes from the eponymous global strength of its drug discovery programme pharmaceutical major, and the size of its new chemical entity that the fundamental (NCE) pipeline. Consequently, we were one business of a drug of the very few pharmaceutical companies Dr. K Anji Reddy CHAIRMAN company is not to make in India that started investing in new drug profits, but to produce medicines that cure discovery capabilities and research. And we diseases. And when a company successfully did so even when we had far less money in innovates and produces such drugs, profits the coffer. DR. REDDY’S LABORATORIES LTD. | CHAIRMAN’S LETTER | ANNUAL REPORT 2001-2002 HE ULTIMATE ACCOLADE FOR A PHARMACEUTICAL COMPANY COMES FROM THE STRENGTH OF ITS DRUG DISCOVERY PROGRAMME AND THE SIZE OF ITS NEW CHEMICAL ENTITY (NCE) PIPELINE. T 7 MANY FELT THIS was a daunting task. programme. DRF-2725, one of our anti- Even today, I am often inundated by Type 2 diabetic NCEs licensed to Novo various “facts and figures”: for every new Nordisk, has commenced Phase III clinical drug that is launched, some 10,000 trials. DRF-2593, also addressing Type 2 molecules fail; that the average cost of diabetes and licensed to Novo Nordisk, is in bringing an NCE to market is over US$ 800 late-Phase II trial. Yet another anti-Type 2 million; and the time taken is anything diabetic NCE, DRF-4158, has been licensed between 10 and 12 years. to Novartis. An anti-cancer NCE, DRF-1042, Our response to such data has been that has completed Phase I clinical trial. in the area of discovery research we cannot I have been told that a defining be a prisoner of averages. The test of characteristic of a discovery-driven mid- successful R&D driven pharmaceutical sized US pharmaceutical company is that it company should be its ability to consistently has something like eight late-stage NCEs in beat these so-called averages. Your its pipeline. Although Dr. Reddy’s is far Company exemplifies this tenet. smaller in size, we should be able to meet Your Company filed its first patent this norm in the next five years. And, as we applications in USA in 1995, covering novel go forward, we will follow a calibrated anti-diabetic & anti-cancer molecules. strategy of licensing-out our molecules Despite having sales and market which facilitates our going up the value capitalisation that are significantly less by chain. global standards, we have succeeded in R&D requires state-of-the-art laboratories. creating a substantive NCE pipeline. Today, By the middle of 2002-03, your Company we have no less than 10 NCEs in various will have five such facilities in India and the stages of development, of which two are at US. Three are already in business: Dr. Phases II and III of clinical trial. Thus, our Reddy’s Research Foundation (DRF) and achievements in drug discovery reinforce the new Technology Development Centre our belief that there is little correlation (TDC) at Hyderabad; and Dr. Reddy’s US between innovation and size. Therapeutics Inc. (RUSTI), located in Atlanta, USA. By September 2002, our LET ME GIVE A FEW examples of subsidiary, Aurigene Discovery your Company’s R&D and discovery Technologies, will have set-up a highly DR. REDDY’S LABORATORIES LTD. | CHAIRMAN’S LETTER | ANNUAL REPORT 2001-2002 chairman’s letter 8 specialised research laboratory in Boston, We plan to leverage the strengths of each USA — the new global hub of discovery research facility to generate more discovery research. And Aurigene’s Bangalore research and NCEs. RUSTI will use its laboratories will go fully on-stream by molecular biology technology platforms for December 2002. target identification, validation and high- throughput screening. Aurigene will use its LED BY DR. UDAY Saxena, recently skills in structure-based drug design to appointed as the Chief Scientific Officer of bridge the gap between structural biology the group, RUSTI is a bio-pharmaceutical and medicinal chemistry. DRF will use its company dedicated to discovery and design strengths in organic chemistry and of novel therapeutics. The focus therapies pharmacology for lead optimisation, lead are diabetes, inflammation, lipid profiling and pre-clinical trials. And, by metabolism, oncology and cardio-vascular focuses on chemistry process development, diseases. RUSTI has developed a technology TDC will help in reducing the chemical cost platform and a discovery approach based of producing NCEs. upon the CMS® pathway. A lead molecule in restenosis is currently in the late pre- DISCOVERY RESEARCH, however, clinical stage. needs sustained funding. This brings me to At the time of writing, data seems to the strategic role of generics in achieving suggest that RUSTI may have discovered a the corporate vision of Dr. Reddy’s. With a new gene that could be used as a novel large number of block-buster drugs going target for the treatment of diabetes.