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Anji Reddy

"Mega mergers will cut down health are costs"
                              - The Economic Times 

  Interview with Dr. K.Anji Reddy 

In the next millennium, our main problem would be that we will have any more years added to our lives, and we may not know what to do with all that extra time, says Dr K. Anji Reddy, chairman, Dr. Reddy’s Laboratories; Developments in tissue engineering hold out promise of a genetic fountain of youth, with biotech companies and university labs developing ways to replace or regenerate failed body parts. In the not too distant future, one may see glands being engineered to secrete healing drugs, and proteins being used to regrow blood vessels. But, will all these developments bypass vast sections of the population and result in healthcare being pushed into the domain of the privileged? Not necessarily, says Dr Anji Reddy, speaking to B.K. Sudhakar Reddy, on a wide range of issues relating to healthcare, mega mergers, and emerging trends.

Excerpts from an interview:

One has seen some mega mergers on a global scale in recent times such as Ciba-Sandoz, Rhone Phoulenc Rorer Fisons and Sanofi-Bock. How
does this kind of consolidation help the industry? Do you see more such action in the Indian context?

A The reasons for mega mergers happening on a global scale was an outcome of the realisation, especially in US and Europe, of the. need for
containing healthcare costs which were getting out of control especially during the recession in 1980’s. Also, for pharmaceutical industries, a large
number of extensively used pharmaceutical products were coming off patent starting early 90’s.

To control costs, the use of cheaper generic products were being encouraged by most governments. Unless a new product was significantly better than the generic product, prescription of such new products was not
encouraged. Thus, only cost effective and breakthrough products had chances of success in the market. Pharmaceutical companies in such a
scenario, found it difficult to compete due to the high costs of R&D. This led to the initiation of mergers and acquisitions in the global pharmaceuticals industry by major companies.

Consolidation through mergers helps the industry as it helps create companies with higher market shares and for companies facing Products patent expiry on major products, a chance to survive.

In the Indian context also, consolidation is inevitable. A highly fragmented market throws up unhealthy competition which makes it difficult for most companies to survive. With India being a signatory to GATT, access to new products is limited. Increased costs of marketing and severe competition have forced many smaller units to close down. The last couple of years has
seen mergers and acquisitions among leading companies (Ranbaxy -Crosslands, Wockhardt-Merind, Sun-TDPL, etc.)

One has also noticed product acquisitions in recent times; will the pace increase? If yes, why? How will product acquisitions translate into bottom
line growth?

The pace of product acquisitions will increase in India. Some companies would find it more beneficial to follow this route compared to M&A as it has the advantage of not taking on the liabilities of another company, mainly physical assets and manpower.

Product acquisitions, when made with the right corporate fit, would translate into bottom line growth straightaway. For eg., Dr Reddy’s Laboratories has a strong presence in the gastro-intestinal segment with products such as
Omez, a proton pump inhibitor and Ranitidine, a H-2 antagonist. With a strong national field force and distribution network, acquisition of brands
such as Riflux, an antacid, would strengthen the product portfolio of DRL. As it belongs to the same therapeutic category and the customers (doctors) for these products are the same, it will translate into improved sales growth for DRL because of the wider doctor coverage compared to the previous
company and also better quality of promotional inputs provided by DRL.

Access to medicine seems to fall in the domain of the privileged. What efforts are being made by pharma companies to simplify and reduce healthcare costs?

It is true that in India, affordability of products is a major factor as most of the people is not covered by insurance or subsidised by the state, unlike other countries. Pharmaceutical companies have contributed substantially to reducing healthcare costs in India primarily through the pricing of their products. The prices of widely prescribed medicines in India are a fraction of
the cost compared to most countries. The reason for this is the presence of a strong bulk drug industry which makes it possible to formulate products at affordable prices to the consumers.

What is the international experience with respect to pharmaceuticals becoming the most cost-efficient component to keep patients out of
hospitals, surgeries, doctors office, institutions etc where 93 per cent of the costs are incurred?

After vaccines, pharmaceuticals are the most cost-effective means of preventing and treating disease. In the past, under the system whereby the user pays the fees and gets reimbursement from the insurer, there was no incentive on the part of health care deliverers, such as physicians and hospitals, to keep health care costs down . Under the capitated system of healthcare, however, this is changing. Under this system, Managed Care Organisations (MCO’s) typically charge a flat fee, up front, for each insured
person and with minimal additional payment they then undertake to provide any treatment required free of cost. Thus, MCO's have a vested interest in keeping down the use of expensive diagnostic and treatment procedures requiring hospitalisation.

There is a great deal of interest among MCO’s in studying and adopting strategies to prevent morbidity in the insured population. Pharmaeconomic studies have been employed to examine the cost-effectiveness of pharmaceutical usage versus other forms of treatment. These studies have shown that the optimum use of pharmaceuticals can reduce long-term healthcare costs resulting from complications of untreated disease and hospitalisation.

An excellent example of this is the use of a comprehensive disease state management approach to the treatment of diabetes. This approach stresses intensive pharmacological therapy to achieve excellent control of blood
glucose to near normal levels. Such an approach can effectively cut down the incidence of complications of diabetes such as blindness and renal failure improving the patients quality of life and also reducing the cost of healthcare

Does a biotech revolution – similar to that of semiconductor and chip market of the last 15 years looks inevitable?

The biotech revolution is not just inevitable, it is already happening. Only this month, Genentech has launched a monoclonal antibody for the treatment of breast cancer. In patients who respond to it, it not only shrinks the tumor, but
it does this without affecting normal tissue. In the past anti-cancer drugs for breast cancer have invariably been extremely toxic so this new treatment is unprecedented.

There are many many more drugs in the pipeline of biotech companies that show unprecedented promise for a variety of ailments ranging from cancer to heart disease. I think that the impact of biotech on human existence will eclipse the impact the semiconductor revolution has had. Indeed. I foresee that in the future a number of biotech innovations (such as the "DNA on a chip" diagnostics) will borrow the metaphors and technology of the semiconductor revolution. Such a meeting of the two streams of technology will power innovations that we cannot even dream of today.

What trends do you foresee in the bio-pharmaceutical industry?

The genomics revolution is bound to have a major impact on the bio-pharmaceutical industry. By genomics, I refer to not only to the effort to
sequence the human genome, but also the downstream efforts to assign functions to the 100,000 or so human genes and determine the role of these genes in health states and disease.

Based on this effort, we will soon have the tools to tinker with the human body at the molecular level.

We will not only be able to identify the precise molecular defect responsible for the disease state, but we will also have the molecular bullet to set that defect right with great precision. The first part will require the development of the science of molecular diagnostics. Since many of the molecular tools will be fairly complex molecules, we will also need sophisticated drug delivery systems that can target these molecules to the diseased tissue at the desired time. Some of these drug delivery systems will be engineering marvels of their time. Thus biotech companies that do not have the capability in house will have to source the technology that will be needed for their products to become usable.

Do you see the bio-pharmaceutical industry, eventually holding out answers to diseases such as Parkinsons, Alzhemeirs, Aids, Infectious
diseases and ulcers?

The question is not one of "will this happen", it is one of "when will this happen ?" I see some major advances in the treatment of these diseases by
the year 2015. It is likely that I may have even overestimated the time required. In the next millennium our main problem will be that we will have many more years added to our lives, and we may not know what to do with all that extra time!

Has the Indian pharmaceutical industry been able to come to grips with the WTO regime?

That India would join WTO was quite inevitable as early as 1993. The pharmaceutical industry a that time had 12 years of valuables time to transform itself from one of ‘reengineering’ industry to that of an ‘innovative’ industry. Unfortunately, the industry never bothered to take note of this. But
even now it is not too late and we still have seven years to catch up with the deadline of 2005. My considered opinion is that with the present earnings, a number of players can enter the drug discovery scene and be there with a good ‘research pipeline’ by the year 2005.

It is true that no Indian company is capable of taking an idea all the way up to the market, which involves an expenditure of millions of dollars. But, as we have proved, it is within the realm of Indian industry to undertake pre-clinical research and license it out for upfront payment and royalties. Unless a handful of Indian pharmaceutical companies come forward to undertake this, even in the next 100 years, we will not see a ‘Merck’ 'or a ‘Pfizer' 'coming from out of India.