DRIVIN G ROWTH - Dr. Reddy's

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management discussion
and analysis
best equipped to exploit these developments
— such as creating gene based drugs starting
from gene sequencing to analysis and
interpretation to drug development.
Over the last five years, there has been an
attitudinal change among a section of
Indians, who are now spending more on
healthcare. According to the Insurance
Regulatory and Development Authority
(IRDA), the Indian healthcare industry has
the potential to show the same exponential
growth that software has shown in the past
decade. Further, only 10 per cent of the
market potential has been tapped till date —
and market studies indicate the possibility of
achieving 35 per cent growth in the coming
years.
A big opportunity for the industry arises
out of the privatisation of the insurance
segment. There is a vast insurable population
in India — given that only 2 million people,
or 0.2 per cent of the total population, are
covered under Mediclaim. According to a
recent study, there are 315 million
potentially insurable lives in the country. This
should translate into supporting larger
healthcare and pharmaceutical spends.
THREATS
CURRENTLY, ONLY PROCESS patents
are recognised in India. However, by virtue of
India being a member of the World Trade
Organisation (WTO), India has recently passed
legislation to recognise product patents from
2005. This does not affect a discovery-based
company like Dr. Reddy’s. However, it will
affect companies that survive only on reverse
engineering. Recognising this fact, some
Indian companies are now stepping up their
research activities to make themselves more
self-sufficient in product development. How
many of them actually develop the R&D
capabilities to contest in the new regime
remains to be seen.
The Drug Price Control Order (DPCO)
continues to play an active role in the
industry. Sometimes, the pricing authority
arbitrarily sets prices of drugs that fall within
its ambit without giving due consideration
even to the costs of production. This leaves
manufacturers with low margins and, hence,
less funds to invest in world class
manufacturing facilities and R&D activities.
The silver lining is that the span of drug price
control has been substantially reduced in
2001-02. However, since the Drug Price
Controller is a pure administrative authority
subject to the pressures of government, this
could just as easily be reversed.
All said and done, most Indian
pharmaceutical companies lack the facilities
and resources to develop a molecule, conduct
trials and then launch the product. Indian
companies will thus have to depend on their
international peers to undertake the more
expensive clinical trials and product
launches. Hence, the gains from R&D could
DR. REDDY’S LABORATORIES LTD. | MANAGEMENT DISCUSSION AND ANALYSIS | ANNUAL REPORT 2001-2002