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Dr Reddy's Setback

Novartis has quit further development of one of Dr Reddy's big hope formulations. But all's not lost.

By Ankur Sabharwal

DRL's Dr Anji Reddy

Last week, Dr Reddy's Laboratories (DRL) suffered a big setback on the drug discovery front. The Swiss pharma giant Novartis aborted further development of an anti-diabetes compound that had initially been created by DRL (and had been licenced to Novartis for market development, which involves a long process of testing). Most scientists have shrugged off the news; after all, it's a rare new drug that actually makes it to the market, given the stringent safety procedures. In fact, drug development is like running a record label: you develop twenty acts in the hope that at least one would turn out to be a blockbuster.

It's high risk, high-return. Anyhow, the drug in this case, code-named DRF-4158, was a 'dual-acting insulin sensitiser compound'. It had been licensed to Novartis for further development in May 2001 for $55 million -- $5 million as upfront payment, and the remaining as milestone payments at subsequent developmental stages. The experimental compound was being developed for the potential treatment of insulin-resistant diabetes, and was at its pre-clinical trial stage.

The precise scientific reasons for Novartis' decision to terminate development of the compound are not known. But the news might not be such a financial blow to DRL as the Bombay stockmarket thought at first (going by its panic reaction). For one, DRL was not betting its future on that molecule - it has a diversified R&D operation. For another, it does not indicate an end to the partnership between the two companies. Under the terms of the original agreement, Novartis has the rights to take on an additional DRL compound in the same therapeutic category for further development. For the moment, though, that will have to wait, as DRL does not have a likely replacement molecule in its disclosed discovery pipeline.

The development has prompted DRL to re-evaluate its R&D portfolio. It has dropped three compounds (in diabetes, cancer and inflammation) from its pipeline. All three were in the pre-clinical stage. It is now left with three compounds in its portfolio -- two in cancer and bacterial infection, and one HDL elevator.

In July last year, the Danish pharma major Novo Nordisk had suspended clinical trials of another DRL drug Ragaglitazar in phase two of clinical trials. This kind of thing happens. And the DRL founder, Dr K. Anji Reddy, is treating the latest setback as just another event, to be put behind him. "The drug discovery market is a painful journey," says Reddy, "on our part, we will now study the data and determine the appropriate development path for the molecules."

All said, even the most hard-nosed analysts aren't ready to give up on DRL's prospects as an original drug developer. Says Sameer Narayan, a pharma analyst at Enam Securities: "There was a knee-jerk reaction, but the markets will recover fast. Internationally, it (abandoning trials) is a common occurrence. The Indian market has now started looking at milestones very differently."

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