Mumbai, Nov 2: The Hyderabad-based Dr Reddy's Laboratories is manufacturing an anti-ulcer formulation from the basic stage for its competitor, Ranbaxy Laboratories. This is part of the company's strategy to "create more value" for its bulk drugs. Ranbaxy Laboratories will market the drug under its brand name, Levant. Levant, essentially comprising lansoprazole, is made at Dr Reddy's facility at Medak district in Hyderabad, and is marketed by Ranbaxy. Dr Reddy's lansoprazole brand, Lanzap, is also understood to be competing in the same segment.

While Dr Reddy's has a similar arrangement with Astra-IDL for an anti-diarrhoeal, Stop-It, a combination of tinidazole and ciprofloxacin, industry sources say yet another Ranbaxy group product is expected to be covered under the arrangement. This mutually beneficial arrangement helps bulk drug manufacturers create value for their products, while Ranbaxy can concentrate on the marketing, they add. Ranbaxy also benefits to the extent that excise duty has to be paid on the transfer price of the drug.

Dr Reddy's too stands to gain as it translates into "more value-added selling of bulk drugs, besides ensuring best utilisation of existing capacities."

The exact quantum of lansoprazole offtake by Ranbaxy or the anti-diarrhoeal by Astra IDL could not be ascertained. But, it should be significant to add value to Dr Reddy's bulk drug sales, analysts said. Such arrangements are mainly seen among small players and the country's large drug companies or multinationals. In such cases, wherein the brand itself is assigned to the manufacturer, often helps drug companies get their products out of price control, as in the case of Pfizer's multivitamin brand, Becosules.

British multinational Glaxo has a similar manufacturing arrangement with Jayant Vitamins for its vitamin-C brand, Celin, now discontinued, analyst said.

But, it remains to be seen wether this has any impact on drug prices if the product is outside the price control, analysts said. At present, both Ranbaxy's Levant and competitor, Cipla's Lanzol, are priced at about Rs 24 for 10 capsules.

INSIGHT :

Such arrangements will gain momentum The pharmaceutical industry, in its process of consolidation, has come up with innovative ideas of cutting down costs, while at the same time, launching new products. The arrangement between Ranbaxy and Dr Reddy's is a win-win situation for both companies. Ranbaxy gets a drug made on job-order basis, while Dr Reddy's through higher production can distribute its overheads better. Rather than setting up capacities or operating at lower capacity utilisations, such arrangements are beneficial for both partners.

Earlier, these were done between a small scale manufacturer of bulk drugs as well as formulations and the larger marketing companies. However, considering the current status of the small scale manufacturers as well as their inability to develop new drugs, an arrangement of the type between Ranbaxy and Dr Reddy's will catch momentum in years to come.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.