Dr Reddy’s CEO: We’re In ‘Great Dialogue’ With The Innovation Industry In China
Executive Summary
Dr Reddy’s is collaborating with innovator firms in China, Israel and the US largely in areas of unmet need, propelling its “Horizon-2” strategy that encompasses segments like biologics and cell and gene therapy, digital services and immuno-oncology NCEs, among others.
Dr. Reddy's Laboratories Ltd. appears to be treading a distinctive path in China, building its long-standing local operations there as well as partnering with Chinese companies to in-license and develop/commercialize key innovation assets for India and other markets.
Key Takeaways
- Robust Q4FY23 For Dr Reddy’s
- External collaborations see uptick
- CEO's views on deal valuations, asset availability in US
Not many Indian companies are known to in-license R&D assets from China, with Dr Reddy’s recently sealing a collaboration with Shanghai Junshi Biosciences Co., Ltd. to develop and commercialize the Chinese firm’s anti-PD-1 monoclonal antibody toripalimab in 21 countries. (Also see "Asia Deal Watch: Aditum Bio Launches Vitalli To Develop Daewoong Immunology Candidate" - Scrip, 12 May, 2023.) (Also see "Asia Deal Watch: Junshi, Rxilient Form Joint Venture Around Toripalimab" - Scrip, 30 Mar, 2023.)
Dr Reddy's had earlier tied up with Shenzhen Pregene Biopharma for its antibody-based anti-BCMA CAR-T cell therapy and also has an alliance with Sunflower Pharma in China for paediatric orphan diseases as it builds momentum in the market, where it has long stated an intent to stay committed and “go big” (see side box). (Also see "J.P. Morgan Notebook Day 4: US Generics Steady, UroGen, REGENXBIO, Dr. Reddy's In China, And Investor Sentiment Shifts" - Scrip, 10 Jan, 2019.)
Outlining the rationale for the toripalimab deal, Dr Reddy’s CEO Erez Israeli said that strategically the company is looking to address unmet need, especially in India and is trying to bring products where it believes it can provide value.
China Operations Build Up
Dr Reddy’s also remains upbeat on its operations in China, where it has a long-standing presence.
The company recently received approvals for sevelamer, sitagliptin and carboprost in China and expects to keep the filings momentum strong there.
Dr Reddy's CEO, branded markets (India and emerging markets), M V Ramana, told Scrip that the company was focusing on certain important KPIs [key performance indicator], including tracking how the firm could increase the number of filings amid the drive of the Chinese government towards the Group Purchasing Organization (GPO) program - trying to get to the first round of the GPO is important, he emphasized.
In 2019, Dr Reddy’s became the first Indian generic firm to bag a win for the supply of olanzapine under China’s new centralized drug procurement program. (Also see "Dr Reddy’s Pressing On In Russia, China Approvals Add Spark" - Scrip, 23 May, 2022.)
The second KPI is how many product approvals the firm is clocking. While the company used to log around four products a few years back, today it competes head on with the best Chinese firms in terms of the number of filings, with about 14-15 a year.
The third element, Ramana referred to was ensuring the “supply chain and go-to-market both from India as well as in China”; the firm’s facility in China especially for oncology, among other products, is ready. Peer Cipla Limited too has referred to facility readiness in China over the recent past. (Also see "Cipla's Advair Generic US Debut May Be Pushed Out But 'Value Intact'" - Scrip, 17 May, 2023.)
Morgan Stanley referred to the three product approvals for Dr Reddy's in China, also noting that about 20 products had been filed. “Revenue visibility should begin from FY24, accelerating in FY25-26, as per management,” it added in an update on 11 May.
Dr Reddy’s also has an alliance with Sunflower Pharma. in China for paediatric orphan diseases. The partners had earlier indicated that they hope to provide drugs for paediatric rare diseases from among officially-listed medicines required urgently in China.
“We are in a great dialogue with the innovation industry in China; we believe that this product shows very nice results and we can bring it to India at very affordable prices versus the alternatives,” Israeli said in the firm’s earnings call for the fourth quarter of fiscal 2023.
Toripalimab (available as Tuoyi) has six approved indications in China currently; it was the first domestic anti-PD-1 monoclonal antibody approved for marketing in the country. Toripalimab is also in various stages of regulatory review in the US and Europe. (Also see "TikTok Moment For BeiGene, Junshi As FDA Looks At China PD-1s" - Pink Sheet, 12 Apr, 2023.)
The deal with Junshi Biosciences also gives Dr Reddy’s the exclusive right of first negotiation for commercialization, should the Chinese firm opt to grant any third party the rights to commercialize two other products in one or more countries within the total 21 countries of the territories assigned to it.
CAR-T Therapy
There’s also been progress on the CAR-T collaboration for PRG1801, Pregene's single-domain antibody-based anti-BCMA CAR-T cell therapy injection for multiple myeloma.
Dr Reddy's CEO, branded markets (India and emerging markets), M V Ramana, told Scrip that the alliance had progressed well in terms of technology transfer and scale up for the product.
“We recently had a conversation in the SEC [Subject Expert Committee], we're waiting for the minutes to come out so that we could go ahead with the clinical [studies] for the anti-BCMA CAR-T cell therapy; at the same time, we're also working on the CD19 aspect,” Ramana explained in an interaction with the media. The SEC typically advises the Indian drugs regulator on trial-related permissions and approvals.
Dr Reddy's has exclusive rights to commercialize PRG1801 in India and will be responsible for further development including clinical trials. Pregene, in turn, will be the exclusive supplier of the core material - lentiviral vectors for manufacturing PRG1801.
Dr Reddy’s had at its investor day event last year declared its aspiration to be a “prominent” player in the cell and gene therapy space – an area where there’s been significant global activity but limited action in India. (Also see "It’s Coming Home: ImmunoACT Advances Plans For Cut-Price CAR-T In India" - Scrip, 30 Jun, 2022.) (Also see "Immuneel COO On Benchmarking The Firm’s CAR-T Against Mature, Global Data Sets" - Scrip, 20 Mar, 2023.)
The Hyderabad-based firm also recently struck a deal with Wellington Zhaotai Therapies (WZT), giving it an exclusive license to the New Zealand cancer immunotherapy biotech’s CAR T-cell technology in India.
WZT, a joint venture of the Malaghan Institute of Medical Research and Hunan Zhaotai Medical Group, had earlier claimed that its novel CAR T-cell construct has a patented co-stimulatory domain which produces stronger anti-cancer activity in the laboratory than existing second generation CAR T-cells, which could provide a more effective treatment for patients.
On the Q4 FY23 earnings call, CEO Israeli referred to the deal with WZT “to bring the third-generation CAR-T assets for clinical trials in India.”
At the time of the deal with WZT in April, Dr Murali Ramachandra, CEO of Aurigene Oncology, a wholly owned arm of Dr Reddy’s noted that preclinically the third-generation CAR-T had shown superior activation and proliferation capacity compared with second-generation CAR-T products. “Moreover, we believe this could be the first CD19 CAR-T in India, which will be given as a single infusion, due to its good safety profile,” Ramachandra then stated.
Wider Collaboration In Innovation Segment
But China isn’t the only country where Dr Reddy’s is allying to bring innovation to India. (Also see "Deals, Divestitures In Store As Dr Reddy’s Stays Course To Top 5 India League" - Scrip, 7 Feb, 2023.)
CEO Israeli said the primary India growth will come from focusing on its brands – Dr Reddy's has identified focus-therapeutic areas, as well as brands and is doubling down on that by increasing its footprint going to more cities. (Also see "Dr Reddy’s Wants To Break Into Top Five In India" - Scrip, 18 Jan, 2021.)
The other lever is collaborating with the innovation industry in the US, Israel, China and certain other geographies as well as with companies and institutes in India to bring innovation to India. “We are bringing this both with our own internal as well as with the external R&D,” Israeli, a former Teva. executive, explained.
Earlier this year, Dr Reddy’s sealed an exclusive marketing and distribution alliance with Theranica for its FDA-approved prescription, digitally connected, drug-free wearable device for the acute treatment of episodic and chronic migraine.
It also struck a deal with CardiaCare a clinical stage digital therapeutic company in Israel developing what it claimed was the first non-invasive, personalized neuromodulation wearable for atrial fibrillation treatment. Dr Reddy's is to lead the necessary clinical studies to secure regulatory clearance in India and will also be responsible for commercialization and distribution in India. If things go to plan, then India could emerge as the first market to offer a home-care, digital therapeutic solution for atrial fibrillation patients.
“We're doing it [deals] both in Horizon 1, as well as Horizon 2. People see us as a very attractive partner, being compliant with all the international norms, given our reputation in the marketplace, and we are leveraging it to bring more and more innovation into India,” CEO declared on the call in response to a question around capital allocation to develop the business further.
More Deals In The Offing?
Dr Reddy's continues to be open to acquisition opportunities across its key geographies, although big-ticket transactions appear less likely, at least for now.
On the company’s assessment of the US market in terms of asset availability and valuations and whether it sees more deal opportunities like the Mayne acquisition, CEO Israeli told Scrip that price erosion over the last couple of years had created an impact, with some companies either deciding to 'defocus' on generics in the future or facing financial challenges – some have even filed for bankruptcy either Chapter 7 or Chapter 11 of the United States Bankruptcy Code.
This has meant “relatively higher number of people that are trying to offer assets”, translating into more opportunities than in the past.
“For a company like us as with a healthy balance sheet and a surplus of cash, it creates an opportunity. Mayne is a great example and that we got at relatively comfortable multiples – it’s lower than it used to be in the past. We believe that right now the multiples are very comfortable in the US,” Israeli said.
The CEO, however, clarified that doesn’t imply the company will 'go after every deal' and neither is it planning "sizeable deals."
“We are planning to continue to see if we can enrich our portfolio with products that are also meaningful to the customer for the long term. That's what we looked at in the case of Mayne and that's the type of assets that we are now engaging in discussion also for the future,” he told Scrip.
On wider M&A opportunities, at the investor call Israeli similarly underscored that the company isn’t really seeking “transformational acquisitions”, but “we will hopefully see more deals than we saw in the past.”
“Let's call it biz development, which includes licensing and will include product acquisitions, collaboration with companies, and also M&A”. (Also see "Dr Reddy’s Is Pushing For Progress On Multiple Fronts" - Generics Bulletin, 30 Jan, 2023.)
As of 31 March 2023, Dr Reddy’s had a net cash surplus of INR50.5bn.
Dr Reddy’s Horizon-1 strategy entails "growing the core," while Horizon-2 will see the company shape its play in cell and gene therapy, digital services, immunooncology NCEs and as a contract development and manufacturing organization (CDMO) for biologics, among other key future areas. (Also see "What’s Next At Dr Reddy’s: Biologics CDMO, Cell And Gene Therapy Push" - Scrip, 27 Jun, 2022.)
Dr Reddy’s revenues from the India business rose by 32% year-on-year to INR12.8bn ($155m) in Q4 FY23, primarily driven by “favorable price variance”, new product launches, and non-core brand divestments. Overall revenues for the quarter stood at INR62.97bn (+16% YoY), while profit after tax soared to INR9.59bn.
US Business – Growth Outlook
The North America business reported revenues of INR25.3bn (+27% YoY) during Q4 primarily backed by new product launches and favorable forex rates movement, partly offset by price erosion.
During the quarter, Dr Reddy’s launched six new products – difluprednate, lurasidone tablets, lubiprostone capsules, sunitinib capsules, nelarabine injection and timolol gel - taking the full year launch count to 25. The company filed 12 new Abbreviated New Drug Applications (ANDAs) with the US Food and Drug Administration during the fiscal year ended 31 March 2023.
On the biosimilars front, Dr Reddy’s partner Fresenius Kabi launched Stimufend (pegfilgrastim-fpgk) on the US market earlier this year, while rituximab has been filed in the US, EU and the UK. (Also see "‘First Of Many’ For Kabi As It Rolls Out Its First Biosimilar – Pegfilgrastim" - Generics Bulletin, 17 Feb, 2023.)
Global Phase III studies have also been initiated for tocilizumab.
Morgan Stanley noted that DRL aims to grow its US business from its already high FY23 base via new launches, the continuing generic(g) Revlimid (lenalidomide) business and Mayne portfolio expansion to counteract base business price erosion.
Dr Reddy’s had in February this year snapped up the US generic prescription product portfolio of Mayne Pharma Group – CEO Israeli noted that the deal brings with it a portfolio that has certain “lower level of competition”, especially in women’s health. (Also see "Dr Reddy’s Swallows Up Mayne’s US Generics Portfolio For $90m+" - Generics Bulletin, 27 Feb, 2023.) (See box on CEO’s views on wider deal scenario in the US.)
“DRL targets 25-30 new launches in the US in FY24; gRevlimid likely to drive strong cash flows to Jan 2026,” analysts from Morgan Stanley added. (Also see "Revlimid Generic Revs Up Dr Reddy’s To Record Gains, There’s More To Come" - Scrip, 2 Nov, 2022.)
Credit Suisse, however, offered a divergent view, noting that the US base business (ex gRevlimid) is quite concentrated.
“gRevlimid alone constitutes 50% of Dr Reddy's FY25E EPS. If we exclude the drug, we note that five key drugs – gSuboxone, gVascepa, gCopaxone (expected to be launched in FY25), gKuvan, gCiprodex – constitute more than 25% of base FY25E EPS. The competition is already intensifying in most of these drugs, which poses risk of accelerated erosion of profits,” it said in a report dated 11 May.