(L-R) Dr Reddy's K. Satish Reddy, MD & COO, S. Chakraborty, Sr VP (Corporate HR), G.V. Prasad, Executive VC & CEO: Value builders

On December 18 last year, Gunapati Venkateshwara Prasad and a few of his colleagues stayed up until 3 am at their Hyderabad headquarters, drinking champagne. The celebration was in part over a US court ruling in favour of their company, Dr Reddy's Laboratories, in its fight against pharma giant Pfizer. The ruling cleared a major hurdle in the way of the Rs 1,807-crore company launching a branded speciality product (a variant of Pfizer's highly-successful Norvasc, an anti-hypertensive). But the other half of the reason why Prasad, the company's 41-year-old CEO, was sipping bubbly at that ungodly hour was not so apparent. The unassuming Prasad's quiet smile capped a sense of triumphant vindication of the company's new strategy of incremental innovation. Its amlodipine, for instance, circumvented Pfizer's patent rights by making a change in the drug composition: it replaced the salt besylate with maleate.

Sounds unimpressive? Maybe yes in any other industry, but not in pharma. Here innovation-from-scratch-to-marketable-drug is a multi-million-dollar gamble that few Indian players can afford. Hence Dr Reddy's working on a strategy that's both practical and profitable. While bread-and-butter bulk drugs fetch 34 per cent of the revenues, it is also focusing on branded generics (copies of off-patent drugs), specialities (or innovative drugs) and basic research by discovering new chemical entities (NCEs), which are licensed out to international pharma companies for development. In the last six years, three NCEs have been licensed out, fetching not just $15.25 million (Rs 73.2 crore) in payments, but credibility and competence.

If Dr Reddy's today is the second-most valuable pharma company in India (behind Ranbaxy Labs), it's because of the way in which it has carefully picked and exploited growth opportunities since it was set up 18 years ago by laboratory-chemist-turned-entrepreneur Kallam Anji Reddy. With timely manouevres, the company has moved from globalising its bulk drugs business in the 80s to doing the same to formulations in the early 90s, followed by focusing on generics and basic research past decade. Says Satish Reddy, MD & coo, and son of Anji Reddy: "We realised early on that our future lay in doing our own R&D." The company has invested over Rs 100 crore in R&D and has more than 300 scientists working directly on discovery research.

Those were also the decades when Dr Reddy's was essentially family-managed, with the promoters doing everything from meeting customers to monitoring sales and profitability. These days, Prasad doesn't bother himself with issues of production schedules, customer care, or even sales. All that, he says, is now taken care of by systems and processes put in place over the last decade or so. Instead, his preoccupation is with issues such as organisational integration across its eight SBUs and across geographies, and leadership development. Says Prasad: "Profitability and growth are still important, but it is only one leg of the organisation. The other is the task of creating a self-sustaining high-performance institution, which encourages good governance and leadership."

This is no lip-service. Over the last three years, the company has overhauled its hr systems and even churned over its board, following the merger of Cheminor and American Remedies with Dr Reddy's. The board now boasts of independent directors such as Harvard Business School strategy don Krishna Palepu, ex-McKinseyite Anupam Puri, and former East India Hotels honcho Ravi Boothalingam. It has six board-level committees for audit, shareholders' grievances, remuneration, management, investment and compensation.

That apart, in May 2001, it set up its management council, comprising its CEO, COO, CFO, SBU heads, hr head, and the head of business development. Its tasks include: drawing up the overall vision and targets, monitoring corporate and SBU performance, deciding and structuring major alliances, and initiating company wide strategic initiatives.

Streamlining of the structure has led to a clear vision at Dr Reddy's-one of the reasons why the company scores over its peers in the BT-A.T. Kearney study. The current list of to-do includes building a late-stage pipeline of six-to-eight molecules, forward integration into clinical development, setting up marketing infrastructure in the US and some other countries to push its own NCEs. The plan is to have a sales force of over 250 people in the US and a couple of key markets in Europe. And this could be done either by hiring executives or acquiring marketing outfits.

In addition, the emphasis now is on in-licensing and acquiring products to supplement the R&D pipeline, and to consolidate position in a couple of speciality therapeutic areas in the US. Says Anji Reddy: "In five-to-seven years, we would have transformed ourselves from a predominantly bulk active, generics and branded generics business to a company powered by drug discovery and innovation." Put simply, Dr Reddy's plan is to build a pipeline of speciality products so that by 2010 it gets to be a global mid-sized speciality-based pharma player, with revenues of more than a billion dollars. Says Harvard Business School's Palepu: "The company has a very carefully thought out strategy. It is not without risks, but I think it is designed to exploit its current capabilities, create new capabilities, and to balance growth, profitability and innovation."

Even Prasad concedes that Dr Reddy's today is far from the ideal corporation of his dreams. "We feel managing is an every day journey, where we learn and do things every day," he says. No doubt Dr Reddy's has emerged as the leader as far as research goes, but there are other pharma stars such as Ranbaxy and Sun that it must reckon with. To remain the best managed company in the industry, it must continue to make the right moves at the right time.