Indian Pharma Must Shift From Generics to Innovation, Says Dr Reddy’s Chairman Satish Reddy

• Indian pharma must move from generics-led growth to original innovation and drug discovery.

• Liberalisation helped companies like Dr Reddy’s build global strength in APIs, formulations and biosimilars.

• India lost API leadership to China due to state-backed scale and policy support.

• Satish Reddy calls for stronger regulation, funding, research infrastructure and academia-industry collaboration.

• A dedicated procurement fund could support innovative medicines.

India’s pharmaceutical industry, after building global strength in active pharmaceutical ingredients, formulations, generics and biosimilars, must now make innovation its next major growth engine, according to Satish Reddy, Chairman of Dr Reddy’s Laboratories.

In an interview, Reddy said the sector had successfully used the opportunities opened by economic liberalisation to become globally competitive. However, he cautioned that the next phase would require a stronger policy framework to support original drug discovery, advanced research and a more resilient domestic ecosystem.

Reddy, who returned to India from the United States in December 1990, recalled entering an operating role at Dr Reddy’s soon after a key research and development team left the company in 1993. His father, founder Dr Anji Reddy, asked him to help stabilise operations at a time when the company was beginning to reposition itself for a more open and competitive economy.

Dr Reddy’s Laboratories, founded in 1984 as an API manufacturer, had already begun looking beyond India before the 1991 reforms. The company went public in India in 1986 and secured an early US Food and Drug Administration approval for a plant in 1987. It was exporting off-patent APIs such as ibuprofen and methyldopa to the US even before liberalisation.

Reddy said the reforms did not create the company’s international ambitions but significantly expanded the opportunity. Lower import duties, easier access to foreign exchange, freedom from industrial licensing and access to global capital markets helped the company acquire advanced equipment, engage consultants, build partnerships and attract specialised talent.

In the 1990s, Dr Reddy’s raised about $48 million through a global depositary receipt issue listed on the Luxembourg Stock Exchange. The capital helped fund both its research ambitions and its expansion into global formulations. According to Reddy, international investors also pushed the company toward stronger governance, quarterly disclosures and improved accounting standards.

The company had started its discovery programme around 1992, despite the high risks and long timelines involved. Reddy said original drug discovery was a natural extension of the company’s chemistry and process-development capabilities, especially as India prepared for changes in its patent regime following the Trade-Related Aspects of Intellectual Property Rights framework.

The move into formulations was built on capabilities first developed in APIs. Dr Reddy’s experience in meeting USFDA standards, managing inspections and improving process efficiency helped it enter regulated generics markets. Work on its Bachupally facility for the US market began around 1996, with the first commercial sale taking place in 2001.

The company later expanded product by product across the US, Europe, Latin America, Russia and other regions. Reddy said different markets required different models. Europe was fragmented, with each country having separate regulatory systems, while Russia operated as a branded-generics market where early registration and government procurement played a major role.

Reddy also addressed India’s loss of leadership in APIs to China. He said India had once been a dominant producer, with Dr Reddy’s among the leading companies. But China’s state-backed expansion, large-scale manufacturing plants and policy support pushed Indian producers out of several product categories.

He cited ciprofloxacin as an example, saying Dr Reddy’s was once among the largest producers but eventually stopped manufacturing it and began sourcing from China.

India, he said, did not offer comparable subsidies or effective policy measures, including anti-dumping tools. Although companies had begun diversifying supply sources even before the pandemic, India remains dependent on China for several key starting materials.

On research, Reddy said India entered original drug discovery early, with Dr Reddy’s licensing a molecule to Novo Nordisk in 1996-97. Other Indian companies such as Glenmark, Wockhardt, Lupin, Torrent and Zydus also moved into discovery research. However, he said the wider policy ecosystem failed to develop strongly enough to sustain that momentum.

For India to make the next leap, Reddy called for an innovation framework built around regulation, funding, infrastructure and academia-industry collaboration. He said clinical trial approvals had historically been slow because regulators lacked sufficient in-house scientific expertise and depended heavily on external committees.

He urged the creation of a stronger scientific cadre within the Central Drugs Standard Control Organisation to speed up decisions and improve technical evaluation. He also said funding must recognise the high-risk nature of discovery research, whether for startups or large listed companies.

Reddy described the government’s Promotion of Research and Innovation in Pharma-MedTech scheme as a useful start, but said its ₹5,000 crore, or about $526 million, allocation was small compared with the scale of investment required. He also highlighted the importance of BioPharma Shakti, given the growing role of biologics in the global drug pipeline.

India’s venture-capital ecosystem for drug discovery remains underdeveloped, he said, adding that China reduced private-sector risk by investing alongside venture funds and creating reimbursement systems that supported a domestic market for successful drugs.

Reddy also called for specialised research infrastructure that brings together academia, startups, research facilities and large pharmaceutical companies. Existing research parks, he said, remain fragmented and need stronger mentorship, institutional links and discovery-focused capabilities.

He further argued for the restoration of the earlier 200% weighted tax deduction for research and development spending, with safeguards to prevent misuse. According to him, companies invested more when the incentive was available, and the long-term gains outweighed the immediate tax revenue forgone.

India’s low-price market also makes it difficult to recover the cost of original innovation, Reddy said. A new drug launched only in India may generate limited revenue, insufficient to cover development costs and failed research bets. Multinational companies, too, hesitate to launch some products because low Indian prices can affect pricing in other countries through reference pricing mechanisms.

To address this, Reddy said industry has asked the government to create a dedicated procurement fund for innovative medicines, including those developed by Indian firms and multinationals. Such a mechanism, he said, would improve patient access while giving innovators a more predictable route to recover part of their costs.

Reddy said India needs both startups and large pharmaceutical companies to participate in the next innovation wave. Large companies do not need the government to absorb all risks, but partial risk-sharing could encourage greater investment.

He noted that pharmaceutical companies account for about 30% of private-sector research spending in India, even though the country’s total R&D spending is only around 0.7% of GDP. Stock markets, he said, give little valuation benefit for discovery research, while venture funds often prefer later-stage investments.

After more than three decades of liberalisation, Reddy said Indian pharma has not exhausted the opportunity created by reforms. Instead, the industry must build on its strengths and move beyond generics-led competitiveness.

“The next major pivot for Indian pharma has to be from global competitiveness in generics to innovation,” Reddy said, adding that government policy must enable and incentivise that transition.