The Hindu Business Line : Dr Reddy’s tie-up with Sygnis could improve earnings

Dr Reddy’s has announced two important developments that could have a significant bearing on its earnings. First, is the 10-year exclusive supply collaboration with German company Sygnis Pharma for the active ingredient — a biological molecule named AX200.

Though the deal size has not been disclosed, this holds promise. In the second half of 2008, Sygnis plans to start the next phase of the efficacy trial in acute stroke with AX200 supplied by Dr Reddy’s. Although the financial impact of Dr Reddy’s supply contract with Sygnis will not be huge, it could turn more rewarding when the drug is commercialised.

Embedded surprise

Quantities supplied for clinical trials are usually much lower than those supplied when a drug is manufactured on a commercial scale.

The biological molecule is also supposed to have effectiveness in treating neurogenerative disorders. If proven, this might mean that larger volumes of AX200 would have to be manufactured by Dr Reddy’s for different formulations, which is an embedded surprise.

Also, the agreement with Sygnis not only secures the supply of AX200 but also stretches it beyond the clinical development and provides a solid basis for marketing of the compound. This should be seen in conjunction with Dr Reddy’s plan to launch its own biologics in European Union as early as 2011, if allowed.

The ability to produce the active ingredient could indicate the confidence in Dr Reddy’s technical expertise and other companies may emulate that as regulations surrounding biologics become clearer in both EU and US. Biopharmaceutical services is a fast growing business segment globally with a limited number of service providers and Dr Reddy’s decision to exclusively produce a biological molecule for a partner, will also augur well for its Custom Pharmaceutical Services’ business model.

Major milestone

In an unrelated development, Dr Reddy’s Laboratories and UK based Argenta Discovery also announced a major milestone in their development programme targeting a novel approach to treating certain chronic respiratory diseases. This comes just 18 months after signing the deal.

With the selection of the first candidate to proceed into pre-clinical development already done, progress to the next stages i.e. Phase I in mid-2008 and Phase II in 2009 could be a possibility. Under the terms of the licensing agreement announced in February 2006, Argenta and Dr Reddy’s are collaborating to identify clinical candidates against a proven anti-inflammatory drug target.

They plan to develop these candidates to Phase II proof-of-concept.

After proof-of-concept is over, the molecule could offer potential for out licensing to another company, which would earn a sizeable upfront payment as well as milestone-linked payments thereafter.