Dr Reddy’s Laboratories: Ethics in Pharma

By Sandesh Burada

Q1. 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?

A1. Dr. Reddy's Laboratories was established in 1984 in Hyderabad by Dr Anij Reddy.

A scientist in Indian Drugs and Pharmaceuticals Ltd (IDPL) establish DRL to create and deliver
innovative pharmaceutical healthcare solutions.

DRL through investments, acquisitions (mainly American Remedies Ltd.) and IPOs, the
company expanded its product line to include Mucolite, Antoxid, BioE, Becozine and Optisulin,
all of which constituted 60% of ARL's sales.

With its own expansion and acquisition of ARL, DRL developed itself with research and drug
development as its core competencies, with its sights fixed at the global pharmaceutical market.

Today, the company develops, produces and markets a wide range of pharmaceutical products
in India, United States and elsewhere overseas.

Their products include finished dosage forms, generic finished dosage, active pharmaceutical
ingredients and biotechnology products.

Their research programme focuses on the discovery of medicines to cure cancer,

cardiovascular diseases and diabetes.

Dr Reddy's is India's first pharmaceutical company to out-license an NCE (New Chemical Entity)
molecule for clinical trials with more than 75 patents filed.

The company true to its founder's vision, is focused on creating and delivering heathier lives at
an affordable cost.

With 300 researchers actively involved in various drug discovery and clinical developing
programmes, in all its endeavours, DRL is driven by values of quality, innovation, truth and
integrity, respect for the individual, social responsibility and collaboration.

On 26 April 2001, DRL unveiled its new corporate identity and philosophy, reinforcing its
commitment to being hope to life through meaningful research.

This includes the 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.

To acquire companies overseas to make its global presence felt, DRL looked for acquisitions in
Spain, Italy and France.

The company's acquisition of Betapharm in 2006 has given it competitive strength in Germany.

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 In Europe, DRL has tied up with UK-based ClinTec International for the joint development of an
anti-cancer compound, DR 1042.

Acquisition of Group Pharmaceutical's range of seven dental care products in December 2001
enticed the company to keenly look at the export market for this which would result in more than
doubling its product offerings in the category.

As a result, DRL has been able to upscale rapidly through mergers and acquisitions in various
countries which simultaneously boosts their competitive nature into new markets by exercising
first mover’s advantage.

Q2. Dr Reddy’s Lab is well-known and acknowledged countrywide for its commitment to
CSR. Explain how DRL established its reputation in this field?

DRL’s activities subscribe to Gandhiji's advocacy of trusteeship principle and requiring a new
ethical code to be followed by the owners of business.

Dr Anji Reddy's 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 towards the society?

Against great odds, we have built up the capacity to make our nation proud. Over the next fifty
years, let us shift our attention to the eradication of poverty from the nation. Let us innovate and
do something for the poor".

DRL's clearly defined CSR policy has provided intricate details and clear direction to plan CSR
action for the company. As a result, he has been able to set realistic and practical long-term
visions and ethical values for the company. These include:

Visions 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.

DRL is committed to the principles of sustainability; DRL promises its stakeholders

economic growth, it promises society to create a positive impact and is committed to the
creation of clean environment through its restoration activities.

To their employees, DRL has initiated their own foundation for which the focus would be on
human development.

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 Dr Reddy's Foundation for Human and Social Development (DRFHSD) focuses on the
sustainable ways.
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 (CISM)

(LABS)

Livelihood Advancement Business Schools was commissioned with an objective of making

youth from poor financial background employable.

Targeting the creation in one million employable youth by 2010, the team started with 10 centres
in 7 states and 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.

 Thousands of youth have benefited from the job-oriented training they received from
LABS.

Naandi

Naandi is 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.

Achievements:

 The foundation is running primary schools in tribal Paderu, providing quality education to
children attending government schools in Hyderabad, and managing crèches for children
in rural poor, and daily wagers in Vizianagaram.

 The foundation has also launched income generation projects for the tribal poor in
Araku.

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 (CSIM)

Health initiatives

DRFHSD conducts a lot of health camps. Among them are:

 Family planning programme in Kondmulagam village where 70 families benefitted

 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 Kabdivalasa Gedda under the 'Cheeyutha'
social initiative scheme.

Educational Initiatives

Educational Initiatives of DRFHSD include:

 Adoption of a government school in Puttaguda village, Medal district to provide books,

stationery, and the sponsorship of a teacher's salary;

 Funding distribution of notebooks to 250 primary school children in five mandala of

Srikakulam district; and

 Scholarships for 15 meritorious poor students from the tenth standard and intermediate
level, covering give mandala of the Vizianagaram and Srikakulam districts.

Other social Initiatives

DRFHSD organized the following social activities:

 Adopted Sambhipur village where an eye camp was organized benefitting 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.

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 Impact

DRL's activities have helped many poor villagers to see a ray of hope in their lives.

LABS has its presence in about 85 districts in the country with around 68,000 people
undergoing training from LABS centers. The conversation rate of these people into being
employed is 85%.

The Tata Council provides knowledge support to LABS through employee volunteership and
participation in market research activities and group discussions for curriculum development

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 beliefs that timely
disclosures, transparent accounting politicians and a strong and independent board would go a
long way in preserving shareholders' trust while maximizing long-term shareholder value.

To reflect their continued commitment to the highest standards of truth, integrity and
transparency, the board of directors of the company adopted a Code of Business Conduct and
Ethics, designed to comply with the provisions of the Sarbanes-Oxley Act is 2002 and its
implementing regulations.

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.

As a result, DRL has been able to establish their reputation while inspiring more companies to
take up their practices to the society.

Q3. 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?

Ethical issues are ethical standards within an organization which promotes their integrity and
trust, accommodating diversity, empathic decision-making and compliance and governance to
core values.

Dr Reddy’s Lab though true to their word of following ethical leadership practices for the society
and for their employees, they ended up being webbed into several lawsuits for patent
infringement and/or inappropriate additions of animals into making their pharmaceutical
products. Some of the cases are listed below:

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 Case 1

Even as the controversy over the safety of non-steroid anti-inflammatory drugs (NSAID)
Nimesulode 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-fose combinations of Nimesulide - Dr Reddy's market leading
products - Nicholas Piramal India had withdrawn its Nimesulide tarts for adults in the market.

Case 2

Dr Reddy's Labs Ltd suffered a setback in its legal battle with Pfizer over patent Infringements
on its hypertension drug.

The Appeals Court said that allowing Dr Reddy's drug would be exploiting an unintended
loophole in the law as the patent extension covering Pfizer's Norvasc is applicable to Dr Reddy's
AmVaz.

Though the company 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.

Case 3

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 tumors in rats treated with DRF 2725 forced Novo Nordisk to
suspend clinical trials.

Whenever a research company finds such developments in rats, they suspend the clinical trials
on human beings and initiate risk benefits analysis.

Cause 1: DRL’s CEO made a statement that “there are many pharmaceuticals in the market
that have shown tumors in trials involving rats and these findings aren’t alarming”.

However, being at the forefront of pharmaceuticals, it is expected that competitors or enemies

would exploit the situation in order to tarnish the brand name or image.

The other companies which have shown tumors in rats, present in the market (if not at the
forefront) may get away with the situation but DRL should have taken more caution being an
established player.

Hence, DRL needs to be ethical in their supply chain and R & D by using materials which
are suitable for consumption whilst eradicating any side effects.

Cause 2: DRL should be aware of the market that they enter into or the cultural laws and norms
in America prior to making their drug. Due to poor forecasting and misunderstanding of the
American rules and norms, the company decided to use materials whilst violating patent laws.

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 Hence, DRL needs to be ethical in their law and accounting practices to avoid any legal
pitfalls such as patent infringement with Pfizer.

Cause 3: DRL rightfully withdrew their controversial product from the market however the
organization would be aware about the usage of harmful substances in their product. Therefore,
DRL had taken a risk with piloting a product utilizing controversial substances, trying to sweep it
under the radar as this segment is worth Rs. 2,000 Million.

Hence, DRL needs to be ethical in their health and safety in the workplace when
developing such products and to their customers consuming their drugs.

Mitigation: To mitigate the various causes of ethical pitfalls, DRL needs to:

1. Forecast and identify the conditions and laws to be adhered to

2. Be specific in what the materials the company uses within their pharmaceutical products
3. Undertake immense and strict R&D prior to conducting research on humans for side effects
4. Use ethical practices to become a trendsetter and avoid critics or competitors’ criticism.

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