Business Today Net Special

Dr Reddy's Patent Drive

Why is one of India's premier pharma companies spending huge amounts on building a legal skill-base?

By E. Kumar Sharma

Anji Reddy

With a turnover of Rs 984 crore (as on March 31, 2001) and a total market capitalisation of Rs 1.7 billion, the Hyderabad-based Dr Reddy's Laboratories is arguably one of the best pharma companies in the country. It today has nine molecules in pipeline. But despite its many successes, especially in R&D, the company has recently found itself buffeted by a spate of controversies. Starting with its spat with Nicholas Piramal over its cancer drug and its courtroom stand-off with a US-based firm over alleged infringement of Prozac patent, Dr Reddy’s Lab has found itself spending increasingly large chunks OF its resources on legal and pre-operative regulatory matters. So much so that the company officials routinely brag about their “core competence in regulatory affairs”.

Consider this: legal and pre-operative costs’ constitute close to 40 per cent of the total spending of Dr Reddy’s Laboratories in its generics business. Explains the pharma major’s vice chairman and CEO, G.V. Prasad: “We have invested around Rs 100 crore over the past five years into the generics business. Of this, about Rs 40 crore is spent on production facilities and close to Rs 25 crore on product development costs and the balance between Rs 35 crore and Rs 40 crore on legal and pre-operative costs.”

What’s raised many an eyebrow in the market is not just the company’s bloated legal costs, but the fact that it seems determined to build a skill-base that seems, at first sight, so totally at odds with its mainstay---pharma. Asked about it, Dr Reddy’s officials, underscore the reason for its pre-occupation with what seems at best a peripheral concern. Says Cameron Reid, president and head of the pharma company’s generics division: “We have today built core competence in regulatory affairs, which is critical to survival as it is what makes or breaks you in the US market. We also built core competency in patents and understand and write most of our patents. We have gone from a no-patent activity in terms of inside capabilities to a team of PhDs dedicated to patent valuations and looking at opportunities at present.” The end-game: Gearing up for a possible brush with rivals and law as it were.

But then, if some of the happenings in the recent past are any indication, Dr Reddy's has little time to lose in the field with other pharma players joining the chase. Starting on local turf, in late September this year, the Drug Controller General of India (DCGI) had ordered withdrawal of some batches of its anti-cancer biotech product Grastim (generic name filgrastim). This followed reports of Nicholas Piramal India dragging the company to the MRTP commission for alleged “false and misleading claims” about the efficacy of the drug in its package inserts. Dr Reddy's defence was that the DCGI order was not to withdraw the drug, but only the batches with disputed package inserts and it was therefore about the information contained in the package insert and not with any intellectual property violations.

Again, in early November, North Carolina-based AaiPharma Inc sued Dr Reddy's Lab alleging that the company infringed its patents on generic Prozac. The main patent on fluoxetine---the active ingredient in Prozac---held by Eli Lilly, expired on August 2, 2001. Following the expiry, Dr Reddy’s and US-based Barr Laboratories had launched fluxetine in different dosages under a 180-day marketing exclusivity. This made Dr Reddy’s the first Indian company to get this marketing exclusivity in the US. (Dr Reddy’s had launched fluxetine 40-mg capsules.)

But the problem exists only in the markets abroad, insists Dr Reddy’s Managing Director and COO, Satish Reddy: “The two things are separate and unrelated. The issue in India is a regulatory one, which has been sorted out (with a modified product package insert submitted to the DGCI and later approved by it) and the drug, the first biotech product of Dr Reddy’s, is back in the market. In the US, it is a legal affair that is bound to happen as Dr Reddy’s is a frequent applicant under paragraph IV Abbreviated New Drug Applications (ANDAs) with the US Food and Drug Administration (FDA).”

Dr Reddy’s has to date filed 63 patents with the US Patent Treaty Organisation (PTO), of which 22 have been granted. It has also filed 48 patents with Patent Cooperation Treaty (PCT). Elaborating on the process, Reddy adds: “As is normal for all paragraph IV filings, Dr Reddy’s is often challenged by other innovator/patent holder companies.” “After all,” he says, “generic companies with first-to-file status for paragraph IV filings can expect to receive a 180-day marketing exclusivity to market the generic product in the US upon successful completion of regulatory and legal procedure.” In view of this, and to be ready to deal with such issues, he continues, the company has already invested funds and has built a core team of about half a dozen people dedicated to identifying patent challenge opportunities and with expertise in product valuation. That should perhaps explain the pharma major’s gung-ho attitude to its numerous legal brushes with other pharma companies.

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