CASE STUDY: DR REDDY’S LABORATORIES: COMMITMENT TO ALLROUND CORPORATE EXCELLENCE
(This case study is based on reports in the print and electronic media, and is
meant for academic purpose only. The author has no intention to sully the
image either of the corporate or the executives discussed.)
COMPANY PROFILE∗
Dr Reddy’s Laboratories (DRL) was established in 1984 in Hyderabad by
Dr Anji Reddy, a graduate in pharmacology and a doctorate holder in
chemical engineering. Dr Reddy who had worked as a scientist in Indian
Drugs and Pharmaceuticals Ltd. (IDPL) established DRL to create and deliver innovative pharmaceutical healthcare solutions. DRL became a public limited company in 1985. In the following year, DRL had floated an IPO
of equity linked debentures totalling INR 24.6 million. In the 1990s, the
company strengthened its position in the domestic formulations market
by launching several new products and by acquiring a couple of companies. For instance, in 1999 DRL acquired a controlling stake (45 per cent)
in American Remedies Ltd. (ARL). With this acquisition, DRL expanded its
product line to include Mucolite, Antoxid, BioE, Becozine and Optisulin,
all of which constituted 60 per cent of ARL’s sales. The newly acquired
company, ARL had two manufacturing facilities, one each at Pondicherry
and Chennai. With its own expansion and acquisition of ARL, DRL developed itself with research and drug development as its core competencies,
and its sights fixed at the global pharmaceutical market.
Today, the company develops, produces and markets a wide range of
pharmaceutical products not only in India, but also in the United States
and elsewhere overseas, that include finished dosage forms, generic finished dosage, active pharmaceutical ingredients and biotechnology products. DRL’s research programme focuses on the discovery of medicines to
cure cancer, cardiovascular diseases and diabetes. The company’s research centre makes use of cutting-edge technology and has discovered
breakthrough pharmaceutical solutions in select therapeutic areas. In a
short span of operations, the company has filed for more than 75 patents.
Dr Reddy’s is the first Indian pharmaceutical company to out-license an
NCE (New Chemical Entity) molecule for clinical trials. Moreover, with a
view to strengthen the company’s research capabilities, DRL has set up a
research subsidiary, Reddy US Therapeutics Inc. in Atlanta, USA.
Dr Reddy’s Lab is emerging as a global pharmaceutical company with
proven research capabilities. The company, true to its founder’s vision, is
focused on creating and delivering innovative and quality products to
help people lead healthier lives at an affordable cost. Their technologies
and expertise in the development and manufacture of quality products
have been critical to their success in offering life-saving medicines to customers worldwide.
Since its inception in 1984, DRL has chosen to walk the path of discovery and innovation in health sciences. The company’s competencies cover
the entire pharmaceutical value chain active pharmaceutical ingredients
(API) and intermediates, finished dosages (generic and branded) and new
chemical entity (NCE) research. The company aims to become a discovery-led global pharmaceutical company. Presently, there are 300 researchers actively involved in various drug discovery and clinical developing programmes at the company’s discovery research strategic business unit (SBU). In all its endeavours, DRL is driven by values of quality,
innovation, truth and integrity, respect for the individual, social responsibility and collaboration.
DR REDDY’S NEW CORPORATE IDENTITY
Within a short span of 15 years, DRL had advanced considerably towards
its goal of becoming a global pharmaceutical company. Satish Reddy,
Managing Director and COO, of the company observed: ‘In 1999, we got
the critical mass and the feeling within the company that we had arrived.
We were close to the INR 1,000 crore (10,000 million) mark in turnover,
which called for a new way of looking at things and taking the message to
the stakeholders.’1 The management felt that with the company’s push for
a world-wide presence, there was a need for a new corporate identity in
tune with its global profile. A new corporate identity was also found necessary after the merger of DRL with American Remedies Ltd. and Chemi-
nor Drugs Ltd. into a homogenous corporate entity in 2000, and the company’s listing on New York Stock Exchange (NYSE) in 2001.
On 26 April 2001, DRL ‘unveiled its new corporate identity and philosophy, reinforcing its commitment to bring hope to life through meaningful
research’. Of the new corporate identity that included a reiteration of the
company’s philosophy, new logo, colours, a code of conduct for employees, a new anthem and a new base line—Life, Research, Hope, Dr K. Anji
Reddy, Chairman, commented: ‘The new identity highlights the company’s
ethos—a caring organisation that leverages its expertise in research for a
healthier life.’2
FUTURE PLANS
DRL is moving fast to acquire companies overseas to make its global presence felt. The company looks for acquisitions in Spain, Italy and France.
The company’s acquisition of Betapharm in 2006 has given it competitive
strength in Germany.3 Apart from acquisitions in Europe, DRL has also
tied up with the UK-based ClinTec International for the joint development
of an anti-cancer compound, DR 1042. The compound could be a potential
drug for the treatment of various types of cancer and it is expected to hit
the market by 2010. Phase-I trials for this anti-cancer drug has been completed in India and the results of phase II trials just carried out are being
evaluated. G. V. Prasad, CEO of DRL is very optimistic about the drug. According to him, ‘Our studies have showed that the compound has an advantage over other injectibles available for cancer treatment as it could
be administered orally’.4
DRL, which acquired Group Pharmaceutical’s range of dental care
products in December 2001 successfully negotiated with vendors to expand its oral care portfolio.
DRL had by that time seven products in this therapeutic area. Most of
these were acquired from another company, which catered to the national market alone, along with a few products expected to be launched in
2003.
A source added that the company is looking keenly at the export market
and for this, will more than double its product offerings in the category.
Another area of future growth of DRL lies in pharma outsourcing. The
company expects that its Custom Pharmaceutical Services (CPS) division
will record revenues of US$ 100 million in 2006–07 compared to $30 million in 2005–06. Globally, pharmaceutical outsourcing business is estimated around US$ 35 billion. India’s share in this outsourcing business presently is about US$ 400 million, but is set to grow to US$ 1 billion soon.
DRL, which currently develops active pharmaceutical ingredients, intermediates and formulations for big and emerging pharma companies
worldwide, is likely to grab a large chunk of business that comes to
India.5
DRL’S COMMITMENT TO CORPORATE SOCIAL RESPONSIBILITY
The chairman of DRL, Dr Anji Reddy is an avid champion of CSR. His commitment for CSR is reflected in his observation: “Corporate houses have
done very well for themselves. The government can’t act in seclusion.
Why should we shy away from our responsibility toward the society?
Against great odds, we have built up a capacity to make the nation proud.
Over the next 50 years, let us shift our attention to the eradication of
poverty from the nation. Let us innovate and do something for the poor”.6
DRL has been active in promoting CSR among its members. DRL always
promotes and encourages its members to look beyond the corporate walls
and has a CSR policy which is to improve quality of life of all stakeholders. DRL’s clearly defined CSR policy has provided intricate details and
clear direction to plan CSR action for the company.
VISION AND VALUES
Well-defined purpose for existence.
Helping people to lead healthier lives through innovation in medical
field.
Synchronized long-term vision among DRL’s family members for a
common goal.
Identified boundaries, belief and guiding principles that facilitate the
company’s journey towards the above visions.
Highest ethical standards of truth, integrity and transparency are the
values of DRL for successful business practices.
As a company, DRL is committed to the principles of sustainability; DRL
promises its stakeholders economic growth, it promises society to create a
positive impact through its business activities as well as voluntary efforts;
and finally, is committed to the creation of clean environment through its
restorative activities. This is represented by the flow chart, which is taken
from the company’s Annual Report, 2005.
DR REDDY’S FOUNDATION FOR HUMAN AND SOCIAL DEVELOPMENT
Commissioned in the year 1996, Dr Reddy’s Foundation for Human and
Social Development (DRFHSD) focuses on the sustainable development of
individuals, communities and society at large through projects that link
learning and livelihoods in a healthy and sustainable way. Dr Reddy’s
Foundation now catalyses sustainable public-private part-nerships specifically for children and youth at risk, through innovative programmes and
application of pioneering ideas and practices across the three Ls (life,
learning and livelihood) for a better society.
Source: Dr Reddy’s Sustainability Report 2005. Reproduced with permission from Dr Reddy’s Laboratories.
Dr Reddy’s Foundation identified various social problems and also has
given solution to them through their commitment and involvement
which is shown by the model of a cycle reproduced below from the Annual Report of DRL.
Out of the multifarious CSR activities of DRL, the following are worth
mentioning here:
Livelihood Advancement Business Schools (LABS)
Naandi—The Beginning Project
Centre for Social Initiative and Management (CSIM)
Source: Dr Reddy’s Sustainability Report 2005. Reproduced with permission from Dr Reddy’s Laboratories.
Table 9.3 Proof of Success in the Year 2004–05
Livelihood Advancement Business Schools (LABS)
In 2000, Livelihood Advancement Business Schools (LABS) was commissioned with an objective of making youth from poor financial background employable. LABS has set a target of creating one million employable youth by 2010. Started with 10 centres in 7 states, LABS now has 74
centres in 11 states.
Achievements
Created 20,000 livelihoods in a year against a target of 10,000.
Without restricting its services to Andhra Pradesh, LABS has also entered the States of Uttar Pradesh, Chattisgarh, apart from Sri Lanka
and Vietnam.
Recognized by the Indian government and various corporations for
customized man power training.
Training includes e-training, micro-enterprise development, agro sales
and marketing, machine tool operations and industrial garment
manufacturing.
The beneficiaries of this project have reported considerable financial
growth in their lives.
Thousands of youth have benefited from the j ob-oriented training
they received from LABS. Tables 9.3 and 9.4 give the number of beneficiaries in various streams of training offered by LABS.
Naandi—The Beginning Project
Naandi is an autonomous non-profit Trust which means ‘The Beginning’
having Dr Anji Reddy as the Chairman. The trust was co-founded by
Satyam Computers, the erstwhile Global Trust Bank, and the Nagarjuna
Group of industries. The foundation works in areas as diverse as education of underprivileged children, provision of water to drought-hit farmers and support to marginalized tribals.
Table 9.4 Livelihood Created in the year 2003–2004
2003–04 2004–05 2005–06
5,000
25,000
100,000
Source: Dr Reddy’s Sustainability Report 2005. Reproduced with permission from Dr Reddy’s Laboratories.
Achievements
The foundation is running primary schools in tribal Paderu, providing
quality education to children attending government schools in Hyderabad, and managing creches for children of the rural poor, and daily wagers in Vizianagaram. The foundation has also launched income generation projects for the tribal poor in Araku.
Centre for Social Initiative and Management (CSIM)
Health Initiatives
DRFHSD conducts a lot of health camps. Among them a few are
Family planning programme in Kondmulagam village where 70 families benefited.
Super speciality health camp for villagers in and around
Peddadevulapalli
Blood donation camp wherein 104 units of blood was collected from
employees
Safety and personal hygiene programmes for employees and the
neighbouring community
Eye camp for casual workers and their family members covering 176
persons
Education health awareness camp in Miryalguda on health and
pollution
Drinking water camp at the weekly fair in Kandivalasa Gedda under
the ‘Cheeyutha’ social initiative scheme
Educational Initiatives
Educational initiatives of DRFHSD included:
adoption of a government school in Puttaguda village, Medak district
to provide books, stationery, and the sponsorship of a teacher’s salary;
funding distribution of notebooks to 250 primary school children in
five mandals of Srikakulam district; and
Scholarships for 15 meritorious poor students from the tenth standard
and intermediate level, covering five mandals of the Vizianagaram
and Srikakulam districts.
Other Social Initiatives
DRFHSD organized the following social activities:
adopted Sambhipur village where an eye camp was organized benefiting 250 persons belonging to the village;
held health and sanitation camp to discuss the perils of open
defecation;
conducted a formal course for the youth on leadership and technical
skills in association with the ‘Art of Living’ group; and
motivated the formation of ‘self help’ groups by the youth to embark
on village developmental issues.
IMPACT OF DRFHSD’S CSR EFFORTS
DRL through their CSR activities have come a long way in improving the
life of the poor community. Their activities have helped many poor village people to see a ray of hope in their lives. DRL’s activities clearly subscribe to Gandhiji’s advocacy of trusteeship principle requiring a new ethical code to be followed by the owners of business.
The CSR efforts of DRL have been so inspiring and their impact so profound that others have started emulating them. Many corporations are
eager to extend their support to the programmes initiated by Dr Reddy’s
Foundation which has been promoting its welfare programmes since
2003 in the states of Tamil Nadu, Maharashtra and Kerala, apart from
Andhra Pradesh. Earlier, Satyam Computers, Nagarjuna group of Companies and the now defunct Global Trust Bank have joined hands with
DRFHSD to provide succour to the underprivileged.
To meet the challenge of training the youth to acquire soft skills such as
communication, sales and customer service, Dr Reddy’s Foundation has
tied up with Adecco, the staffing solutions firm. The foundation will find
the trainable youth and impart training across the country. Adecco will
help find placement for the suitable candidates.7
Likewise, The Tata Council for Community Initiative (Hyderabad regional group) and DRF have announced an initiative called Neev—The
Foundation, for enhancing employ-ability skills among the underprivileged youth. The Tata Council will suggest addition of market-oriented
training programmes to be disseminated among the youth through Livelihood (Centres) Advancement Business School (LABS) centres of DRF.
These programmes consist of three months of class-room training followed by three months of on-the-job training. This includes academic, ba-
sic IT and spoken English skills. The sectors that are covered range from
IT-enabled services and sales and marketing to micro entrepreneurship
and finance and business.
LABS has its presence in about 85 districts in the country. Around
68,000 people have undergone training from LABS centres of which 85
percent have been employed. The Tata Council provides knowledge support to LABS through employee volunteership and participation in market research activities and group discussions for curriculum development.8
DR REDDY’S COMMITMENT TO BUSINESS ETHICS AND CORPORATE
GOVERNANCE
Dr Reddy’s long-standing commitment to high standards of corporate governance and ethical business practices is a fundamental value shared by
its board of directors, management and employees. The company’s philosophy of corporate governance stems from its belief that timely disclosures, transparent accounting policies, and a strong and independent
board would go a long way in preserving shareholders’ trust while maximizing long-term shareholder value. Good corporate governance flows
out of the commitment of the management and the board of directors.
When commitment is backed by the fundamental beliefs of maximizing
value for stakeholders, transparent actions in business, values of a corporate, and mutual trust amongst all constituents of the business, the organization transforms itself into an ethical business unit.
The forward-looking approach of Dr Reddy’s has always helped it in
achieving the desired results. This approach has transformed the company’s culture to one that is relentlessly focussed on the speedy translation
of scientific discoveries into innovative products. Dr Reddy’s commitment
towards ethical business and corporate governance started well before
the law mandated such practices. The company has identified and established its core purpose, mission and core values for achieving corporate
excellence. DRL believes in crafting an environment where the parameters of conduct and behaviour of the company and its management is
constantly aligned with the business environment.
The highlights of Dr Reddy’s corporate governance systems are an independent board of directors following international practices, committed
management team, internal control systems and dissemination of information to various stakeholders. To reflect their continued commitment to
the highest standards of truth, integrity and transparency, the board of
directors of the company has adopted a Code of Business Conduct and
Ethics. This code applies to everyone at Dr Reddy’s, across the world. The
code at Dr Reddy’s has been designed to comply with the provisions of the
Sarbanes–Oxley Act of 2002 and its implementing regulations. It is a general statement of goals and expectations for individual and business conduct. The Code and an Ombudsman Procedure have been chalked out to
provide information, education and resources to help employees make
good, informed business decisions and to act on them with integrity. DRL
has also encouraged whistle blowing as a means of promoting ethical
practices by allowing employees to communicate unethical practices in
the organization to the top management and yet safeguard themselves
from being victimized.
Sharing of information has a two-fold benefit to Dr Reddy’s systems.
They use the information and data for strengthening business operations
as well as to help stakeholders make better decisions in their dealings
with the company. The company has established systems and procedures
to disseminate, in a planned way, relevant information to its stakeholders, including shareholders, analysts, suppliers, customers, employees
and the society at large. During the last few years the company has executed a comprehensive disclosure plan through various means for the
different stakeholders. Though the primary source of information for
stakeholders regarding the Company operations is the corporate Web site,
the company has also initiated and developed other Web sites like vikreta2drl.com, customer2drl.com, mydrreddys.com, insider, drlintouch.com,
and an HR portal for dissemination of information.
Dr Reddy’s is the first Indian pharmaceutical company to be listed on
the NYSE in April, 2001. Companies listed on the NYSE must comply with
certain standards regarding corporate governance as codified in Section
303A of the NYSE’s Listed Company Manual. Among those listed, companies that are foreign private issuers (as such term is defined in Rule 3b-4
under the Exchange Act) are permitted to follow home country practice in
lieu of the provisions of this Section 303A, except that such companies are
required to comply with the requirements of Sections 303A.06, 303A.11
and 303A.12(b) and (c), which are as follows:
Establishing an independent audit committee that has specified
responsibilities.
Providing prompt certification by its chief executive officer of any material non-compliance with any corporate governance rules; provide
periodic written affirmations to the NYSE with respect to its corporate
governance practices; and provide a brief description of significant
differences between its corporate governance practices and those followed by US companies.
As an Indian company listed in NYSE, Dr Reddy’s Lab has complied with
the above stipulations.
DR REDDY’S BRUSH WITH SOME QUESTIONABLE PRACTICES
Case 19
Even as the controversy over the safety of non-steroid anti-inflammatory
drug (NSAID) Nimesulide raged on, Dr Reddy’s Labs and Nicholas Piramal
India—two of the leading manufacturers of this drug in India—have decided to withdraw their brands of Nimesulide from the market. While
DRL withdrew all fixed-dose combinations of Nimesulide—Nise Spas and
Nise Spas DS, Novigan N, NIAP and Nise MR—Nicholas Piramal India will
withdraw its Nimesulide tablets for adults from the market. Dr Reddy’s
Nise brand was the market leader in the Nimesulide-based NSAID segment, which is estimated to have had a total size of nearly INR 2,000 million. Dr Reddy’s informed the Drugs Controller General of India (DCGI)
about its decision to discontinue the marketing of its four Nimesulide
brands.
Case 210
Dr Reddy’s Laboratories Ltd. suffered a setback in its legal battle with
Pfizer over patent infringements on its hypertension drug. In a significant
ruling, the US Court of Appeals for the Federal Circuit reversed a lower
court ruling and determined that the patent extension covering Pfizer’s
Norvasc (amlodipine besylate) is applicable to Dr Reddy’s AmVaz (amlodipine maleate). The Appeals Court also said that allowing Dr Reddy’s
drug would be exploiting an unintended loophole in the law. Norvasc is
the world’s top-selling hypertension drug from Pfizer, with the global
drug major holding patent rights till 2007. Dr Reddy’s had filed with the
United States Federal Drug Authority (US FDA) to obtain approvals for its
variant of Norvasc, for marketing Am Vaz using the 505(b)(2) route of the
US law.
Though Dr Reddy’s had not spelt out the total loss it had suffered owing
to the legal battle, it was clear that the company had a tough time since it
had not seen a big product launch for close to two years. According to the
spokesperson of Dr Reddy’s, the legal expenses over the issue ‘could be in
the range of $10 million, while the market opportunity lost has not been
determined’.
Responding to the development, Dr Reddy’s CEO G. V. Prasad, said, ‘We
are clearly disappointed by the court decision and had expected that the
views expressed by the Chief Judge in the dissent would have been the
position of the majority’. However, in spite of this ruling, the company remains committed to investing the resources to create a sustainable USbased business of specialty products and new chemical entities as well as
generic medicines.
Case 3
Suspended Diabetes Drug Trials11
As many as 2,500 diabetic patients in over 30 countries were subjected to
clinical trials of the controversial anti-diabetic drug, DRF 2725 that had
been licensed to the Danish drug major, Novo Nordisk by Dr Reddy’s Laboratories Ltd.
The detection of urine bladder tumours in rats treated with DRF 2725
forced Novo Nordisk to suspend clinical trials. Asked as to why the clinical trials were continued till July 2006 when the tumours in rats were de-
tected in February 2006 itself, DRL’s CEO, Prasad said that there are many
pharmaceuticals in the market that have shown tumours in trials involving rats and these findings are not alarming. He also informed that the
American and European health authorities, including the Danish Laege
mid-dlestyrelsen, did not ban the clinical studies though being informed
of tumour findings in the rats by Novo Nordisk.
It was only after finding tumours in mice also that Novo Nordisk decided not to continue trials in humans. According to Prasad, generally investigators who conduct the trials alone are allowed to contract trial participants directly.
The detection of tumours in rats during trials in February 2006 was informed to all the stakeholders concerned, including patients, through investigators and the patients were asked to re-assess their continued participation in clinical trials. Stating that the process of informing the patients and the ethics committees was currently under way and was being
followed closely by Novo Nordisk, Prasad said ‘it takes a year to know
whether any of these patients suffered any harm due to DRF 2725’. According to him the risk, if present is very small as ‘majority of patients
were exposed to DRF 2725 for less than six months and only very few
were exposed for a period of seven months’.
According to Prasad, DRF 2725 falls under the category of non-genotoxic carcinogens which require many years of exposure time to pose a risk
to humans. Novo Nordisk would suggest the patients to have a urine test
sample taken one year after they stop taking the drug to determine
whether they suffered any harm. The Deputy Drug Controller General of
India, Dr M Venkateswarlu, when contacted, told newsman that the regulatory framework for conducting clinical trials simultaneously on both
animals and human beings varied from country to country and there
were no universal guidelines on the issue. There is no single global regulatory body to approve clinical trials across the world and the drug discovery companies will have to obtain approvals from the regulators of individual countries. Further, according to him, the development of adverse
effects on rats during the clinical trials need not necessarily indicate human relevance. Whenever a drug research company finds such develop-
ments in rats, they suspend the clinical trials on human beings and initiate risk benefit analysis. They proceed for clinical trials on intermediate
species such as cats, monkeys and chimpanzees based on the results. This
process enables them to decide whether the findings in rats detected at
the initial stages would be of any human relevance later, Dr Venkateswarlu said.
CONCLUSION
The detailed study of Dr Reddy’s Lab clearly reveals the fact that the company has been growing exponentially and that it has been true to the vision of its founder, Dr Anji Reddy, ‘to create and deliver innovative pharmaceutical healthcare solutions at an affordable cost’ and to have a global presence in healthcare industry. At the same time, DRL has also shown
an unwavering commitment to ethical business, corporate social responsibility and corporate governance. However, the three cases mentioned
above bring out certain grey areas that lie scattered between what is ethical business and what is not in such a life-saving and sometimes lifethreatening industry like pharmaceutical industry. Only time will tell
whether what Dr Reddy’s Lab did under these circumstances were ethical
or not. Moreover, in such matters as the justification of clinical trials of
some drugs on humans when found to be harmful in mice and rats, the
final word may lie interred deeply in the womb of time, for want of credible evidence one way or the other.
DISCUSSION QUESTIONS
1. Trace the establishment and growth of Dr Reddy’s Laboratories. What
type of business strategy has DRL adopted to achieve the fast-track
growth it has registered over the years?
2. Dr Reddy’s Lab is well-known and acknowledged countrywide for its
commitment to CSR. Explain how DRL established its reputation in this
field?
3. Answer the question in the context of Dr Reddy’s Lab. Even organizations committed to ethical business and better corporate governance
practices could be drawn into situations that may expose them to ethical pitfalls. What are the causes and how would you mitigate them?
FURTHER READINGS
http://pmindia.nic/speech/content.asp?=12
The sustainability reports of Dr Reddy’s Lab for the years2003–2004 and
2004–2005.
www.businessworldindia.com/nov0804/coverstory_mrc_no6.asp
www.contentlinks.asiancerc.com/ib/DetailNews.asp?
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