The way forward

An Executive Interview with Dr Reddys

“The industry will have to address its significant over-capacity resulting from the past strategy to make products in-house”
-Marcel Velterop of Dr Reddy's

NGP. The pharmaceutical industry is facing challenging times, with increasing cost pressures, eroding share prices, record low new product approvals and pressure from generics. What can companies due to overcome these challenges?
Marcel Velterop. Companies should start by challenging every assumption about our industry and past practices and re-define what future solutions global society needs from the pharmaceutical industry. This then changes the processes for innovation, supply and distribution. This sounds simple but has a profound impact on current practices as is already evident in the shift several companies are making in addressing their sales force. Prescribers are no longer the main focus. Increasingly it is the payer who is the driving force in medicines prescription and funding. Ensuring value for money should now become commonplace. There is significant opportunity for our industry in helping to avoid costly hospitalisation by providing effective medicines and cure diseases.

NGP. In particular, how can companies address the two main issues of the increasing cost of medicine supply, and the need for new solutions and innovations for unmet medical needs?
MV. Cost of pharmaceutical manufacturing will have to come down. Ensuring that the best technology is used to make your products has to be given a high priority. In addition, the industry will have to address its significant over-capacity resulting from the past strategy to make products in-house. This will no doubt meet resistance as this is a painful process but certainly not new to most other industries. The cash that is freed up will allow increased R&D spending into innovation for real unmet needs. Collaboration with contract manufacturing partners becomes part of the supply strategy.

The supply chain is another costly factor for the pharma industry and increased use of new alternatives (such as internet pharmacies, use of existing retail channels and OTCs) is required, including reduction of working capital.

Innovation can greatly benefit from increased operational efficiency. Many companies are taking action and savings in CMC and clinical development can reach 30 percent or more. By integrating NCE with dosage development and avoid unnecessary supply to meet clinical needs, huge savings can be made in both time and money. Innovation is increasingly sourced from the biotech sector where small virtual companies are working against tough financial targets.

The suggested measures should result in the possibility to reach the market a few months earlier which generally results in significant revenue increase during the patent-life of the product, freeing up further R&D funds.

NGP. Why do many of the industry’s current dogmas and assumptions need to be replaced?
MV. Simply put, the current model does not address the need of a rapidly changing and growing patient pool globally in an affordable way. Extrapolations into the future only further emphasise this problem. Many diseases still do not have treatments or cures. Innovation is not just finding a new class of drugs, it is also innovating your operational practices which, again, other industries have been driven to do years ago. The current financial turmoil will greatly speed up this process as nobody can afford the luxury to continue with processes that are unnecessarily wasteful.

NGP. On the positive side, how can companies take advantage of the opportunity to manufacture at low cost in international locations, such as India? What particular advantages do countries such as India offer in pharmaceutical R&D?
MV. An obvious solution is to produce in a country such as India and increasingly this is now being implemented. Investment levels are at least 50% lower compared to the West, as are personnel costs. A more relevant benefit which is often overlooked is that of speed. Completion of capacity projects is generally faster and CMC development can be done up to 30% faster in many cases. Increasing the share of clinical trials in India will greatly reduce development costs and has a further benefit of a large, drug naïve population. India benefits from a large and very skilled labour force and excellent IT and communication services. Mid to longer term we can expect to see more innovation come out of India adding to the global effort to discover new therapies.

NGP. Which large new markets are emerging, where wealth and the consumption of drugs are increasing? What do companies need to know to sell to these markets?
MV. The so called BRIC countries are clearly favourite and by now commonplace. Africa is a continent with great need for medicines but still lacking the means and hence needs global consideration. Selling into these markets firstly needs to acknowledge the purchase power rate differences and pricing should reflect this. Simply selling at Western prices is not the way to access the large untapped demand. Putting in place systems to avoid grey-imports will help remove obstacles to this view. Companies should ideally supply these markets from low cost regions to allow for affordable pricing. Building partnerships with local companies who know the rules and regulations will facilitate quicker access.

NGP. How are you positioned to support the reformulation efforts of innovators and improve patient compliance?
MV. The track-record and experience gained in its Global Generics business, supported by a dedicated dosage development campus puts Dr Reddy’s in an excellent position to support such innovations. In fact several projects are ongoing which make use of in-house developed formulation technology. Dr Reddy’s CPS has incorporated this skill into its novel collaborative business model on offer to support innovators. Many of its generic APIs are being used in combination drug development projects. For example, patient compliance is improved through the ongoing trials in our so-called Polypill which combines up to four API’s in a single dose greatly increasing patient compliance.

NGP. What do you see as the future direction of the pharmaceutical industry on a global basis?
MV. The industry needs to change its ‘internal rivalry’ mindset to focus on the key strategic changes in our value chain; affordability and innovation. This requires a collaborative approach with both industry, decision makers in healthcare and NGOs such as the Gates Foundation. Forward Integration and offering new value to patients in addressing their health issues are clear opportunities. Cost management will become standard practice and existing operational management concepts from other industries will be part of the solution. The blockbuster model is increasingly under threat and the realization that a larger range of smaller products with less negative effects (first phase of personalized medicine) can actually make more financial sense. Huge blockbusters, while the envy of many initially, present similar liability at the end of their patent life as replacing them is becoming increasingly difficult. This will also have profound changes on the manufacturing of drug substance and product; a larger variety of technologies will be required which will be difficult to efficiently operate under individual innovator ownership. The ability to work with partners as a strategic part of your supply chain will be critical and requires active and conscious efforts. Innovators and generic producers will cooperate and join hands to address the challenges. Finally innovation will start to come from emerging markets such as India and China which means that after their patent expiry, patients globally will benefit from affordable generics originated from outside the traditional markets, making the industry truly global. The population growth combined with increasing life expectancy provides robust assumptions for a very healthy future.

Marcel Velterop, MSc joined Dr Reddy’s in January 2004 to develop its European Custom Pharmaceutical Services (CPS) business. Prior to that he held various marketing and sales positions within DSM, among them North-American Sales Manager and Product Manager (semi-synthetic) penicillins. In this capacity he had frequent interactions in both India and China over a period of five years. He currently heads Dr Reddy's CPS Europe which includes Chirotech Technologies Ltd in the UK.