Dr. Reddy's Laboratories Limited (DRL), the third largest domestic pharma company after Ranabaxy and Cipla, raised its R& D investments by almost 41 per cent from Rs 199 crore in 2003-'04 to Rs 280 crore in 2004-'05, accounting for 14 per cent of the total revenue of the company.

DRL has consistently felt that the only viable way of securing higher growth and profits and thereby reaching global scale of operations is through successful R& D. Despite the short-term market reversals, the company actually raised its R& D investments by almost 41 per cent, Dr K Anji Reddy, chairman of DRL pointed out in the Annual Report for the year 2004-'05.

"From a purely short-term perspective, the fall in revenue combined with higher R & D investments contributed to a sharp, unprecedented drop in the company's profits. We have put corrective processes in place to further reduce operational costs and gain markets, which ought to reverse what occurred in 2004-'05," said the chairman.

Pharma companies are required to be more focused on R& D and creation of IPRs to maintain a long-term presence in the global pharmaceutical markets and to grow profitably, he added.

Four years ago, the company was looking at targets to deal with diabetes, anti-infectives, pain management, cancer, cardiovascular and metabolic disorders. Whereas, today, it focuses on metabolic disorders, obesity, cardiovascular and cancer, which are the leading diseases of the developed world and are rapidly migrating to developing countries.

Dr Reddy added, the old model of global pharmaceutical majors in which all elements of R& D from molecular selection to clinical trials under a single organizational roof is proving to be too expensive and risky. In its place, networks of innovative alliances are seen between boutique R & D companies and pharmaceutical players, between different pharma companies, between pharma companies and clinical research organizations.

The ICICI Venture Funds Management Company has become a partner in commercialization of DRL's ANDAs in the US generics business. In the US $ 56 million deal, ICICI Venture will fund the development, registration and legal costs related to the commercialisation of most of the US ANDAs filed in 2004-05 and to be filed in 2005-06. On commercialisation of these generics, DRL will pay royalty on net sales for five years. DRL is working on structuring similar beneficial models for its innovation-led businesses.

While DRL may get some R& D payments that can de-risk the business and mitigate costs in the future, the real payoffs from new molecules are expected to occur only after three to four years, he stated.