NewsDr Reddy's Entrance Into Cannabis Industry Likely To Bring...

Dr Reddy’s Entrance Into Cannabis Industry Likely To Bring More Indian Big-Pharma Investment

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INDIA’S fourth largest pharmaceutical company Dr Reddy’s Labs (DRL), became the latest big-pharma company to break ground in the European cannabis industry last month. 

DRL’s move is widely expected to prompt its peers in India, whose margins are under increasing pressure in the US market, to follow in its footsteps and explore new opportunities in the medical cannabis space. 

With cost pressures on ‘generic’ pharmaceutical products in the US expected to extend into 2022, combined with its less stringent medical cannabis regulatory framework, major Indian players are expected to shun the more mature North American market and turn to Europe instead. 

Head of Medical Cannabis at DRL, Ozan Temizkan, tells BusinessCann that he now sees Germany as a ‘good prospect’ for the company, providing an ‘opportunity to meet unmet patient needs.’

The European Opportunity

India currently boasts the world’s third largest pharmaceutical industry by volume, according to figures from its government, and is the largest exporter of generic drugs on the planet accounting for a fifth of the global supply. 

This thriving industry relies heavily on India’s exports to the US, by far the largest pharmaceutical market in the world. 

In 2021, India exported around 572 billion Indian Rupees ($7.51bn) worth of drugs and pharmaceuticals to the US, more than 10 times the amount it exported to the UK, its second largest international customer. 

However, in February US President Joe Biden renewed calls for the US Senate to back his flagship ‘Build Back Better’ legislation, which aims to significantly reduce the cost of prescription drugs. 

Alongside this growing cost pressure is the Biden administration’s Building Resilient Supply Chains, Revitalising American Manufacturing, and Fostering Broad-Based Growth report, in which details the country’s growing reliance on imports from India. 

In a period where tensions between the east and west threaten to boil over into all-out war, the fact that India ‘imports nearly 70% of its APIs from China’ means the US is set to continue its shift away from its drug imports. 

For company’s like DRL, this means that the need to source new revenue streams in new markets is increasingly important, making the burgeoning European cannabis sector  low hanging fruit. 

First Cannabis Venture

DRL’s acquisition of German medical cannabis provider Nimbus Health marks its first foray into the industry, and gives some idea of how further big-pharma companies could break into the cannabis sector. 

“This is the first market entry from Dr. Reddy’s into the Medical Cannabis market. We do not have any other medical cannabis products in any of our other geographies so far,” Mr Temizkan said. 

The deal, announced in early February, will see DRL acquire Nimbus for an undisclosed upfront payment, plus ‘performance and milestone-based earn-outs over the next four years’. 

As an industry newcomer, being able to hit the ground running by leveraging Nimbus’ well established ‘platform, excellent network of trade partners and know-how access’ to the market is vital for DRL, and is likely to provide a framework for its peers to follow suit. 

Equally important for big-pharma companies, who have historically remained cautious of the perceived risks posed by entering the cannabis space, is the reassurance of a stringent regulatory framework like Germany’s. 

“Germany particularly has advanced regulatory systems from making the product to entering the pharmacy, prescription, and patient access. Without such an advanced regulatory set-up, bringing the product into a market isn’t possible. 

“Some other European markets are looking to create such frameworks. Along with the usual business considerations, such developed regulatory frameworks are key for pharma companies to enter the medical cannabis space.”

Mr Temizkan added that Germany’s Statutory Health Care Insurance (SHI), which reimburses medical cannabis patients for products including flowers, extracts and finished pharmaceuticals, was an attractive system for DRL. 

Its entrance into the market doesn’t just provide opportunities for DRL though, it also brings more institutional capital, world-leading medical research capabilities, and a level of legitimacy to the sector. 

According to Mr Temizhan, he believes part of DRL’s role ‘is to prove and show the importance and medical value of medical cannabis to stakeholders’, which as a company worth nearly $10bn are abundant. 

“Also, to invest in clinical trials and support companies that are working to develop clinical programs.”

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