Dr. Reddy's Announces the Formation of Perlecan Pharma; Perlecan Pharma Raises USD 52.5 Million as Initial Equity Capital; Perlecan Pharma: India's First Integrated Drug Development Company

HYDERABAD, India--()--Sept. 28, 2005--Dr. Reddy's Laboratories (NYSE:RDY):

-- Perlecan Pharma gets equity capital commitment of U.S.$52.5 million for funding the clinical development of Perlecan Pharma assets; Perlecan Pharma to receive the first tranche of U.S.$26 million; Dr. Reddy's to ultimately hold majority stake in Perlecan Pharma subject to various conditions

-- India's leading Private Equity Investors ICICI Venture and Citigroup Venture Capital International Mauritius Limited lead investment in Perlecan Pharma equity

-- Dr. Reddy's to transfer all rights and title, including the development and commercialization rights of 4 NCE assets to Perlecan Pharma in the area of Metabolic Disorders and Cardiovascular

-- Perlecan provides Dr. Reddy's Drug Discovery program, a model, to rapidly advance its existing as well as future NCE assets through Phase II trials and seek out-licensing, co-development or joint commercialization opportunities thereby enhancing the value of the pipeline. Further, it also enables Dr. Reddy's to aggressively accelerate its new discoveries to clinical development in the areas of Metabolic Disorders and Cardiovascular

Dr. Reddy's Laboratories (NYSE:RDY) today announced the formation of India's first integrated drug development Company 'Perlecan Pharma Private Limited' with equity capital commitment of USD 52.5 million from India's leading venture capital investors, Citigroup Venture Capital International Growth Partnership Mauritius Limited ('Citigroup Venture') and ICICI Venture Funds Management Company ('ICICI Venture') and Dr. Reddy's.

Perlecan Pharma will be engaged in the clinical development and out-licensing of NCE assets. Perlecan Pharma's early priorities will be to advance the clinical development of NCE assets received from Dr. Reddy's through Phase II and thereafter seek out-licensing, co-development or joint commercialization opportunities. Perlecan will build on its initial pipeline through a combination of in-licensing and alliancing opportunities. Perlecan will be managed by an independent Board and an Executive management team.

Commenting on the formation of Perlecan, Dr. Anji Reddy, Chairman, Dr. Reddy's Laboratories, said, "These are exciting times for Indian Pharmaceutical Companies and we are pleased to announce the formation of India's first integrated drug development company. The formation of Perlecan acts as a precursor to many more exciting partnerships in the area of drug discovery and development for the Indian pharmaceutical industry. We have made significant progress in the last decade in building a strong drug discovery platform and look forward to further building on this foundation to realize Perlecan Pharma's potential. This partnership marks an important milestone for the Company and will put Dr. Reddy's at the forefront of drug discovery and development over the next decade. We are pleased to welcome the involvement of Citigroup Venture and ICICI Venture, who bring important skills and experience to the new company. We value their support and confidence in future potential of Perlecan."

Citigroup Venture and ICICI Venture will contribute USD 22.5 million each and Dr. Reddy's will contribute USD 7.5 million towards Perlecan Pharma's initial equity capital. Perlecan will immediately issue warrants to Dr. Reddy's, which will be exercised inter alia based on the development milestones.

Perlecan Pharma provides Dr. Reddy's Drug Discovery program, a model, to rapidly advance its existing as well as future NCE assets through Phase II trials and seek out-licensing, co-development or joint commercialization opportunities thereby enhancing the value of the pipeline. Further, it also enables Dr. Reddy's to aggressively accelerate its new discoveries to clinical development in the areas of Metabolic Disorders and Cardiovascular.

In connection with this transaction, Dr. Reddy's and Perlecan Pharma will enter into agreements covering the transfer of all titles and rights including the development and commercialization rights of 4 NCE assets to Perlecan Pharma and provision of support services, supply of clinical development quantities and commercial quantities to Perlecan on an arms-length basis. The details of the 4 NCE assets are provided in the table below.

Compound        Therapeutic      Development         Remarks
                  Area             Status
----------------------------------------------------------------------
                                              --  Non-fibrate
                                                  predominantly PPAR
                 Metabolic         Phase I        alpha agonist for
DRF 10945        disorders        completed       the treatment of
                                                  dyslipidemia

                                              --  Clinical trials in
                                                  Canada
----------------------------------------------------------------------
                                              --  Perlecan inducer for
                                                  the treatment of
RUS 3108         Cardiovascular   Phase I in      atherosclerosis
                                   progress
                                              --  Clinical trials in
                                                  Europe
----------------------------------------------------------------------
                                              --  Pan PPAR ((alpha),
                                                  (delta),(gamma))
                                                  agonist for the
DRF 11605          Metabolic      Preclinical     treatment of obesity
                   disorders                      and dyslipidemia

                                              --  Toxicology studies
                                                  in progress
----------------------------------------------------------------------
                                              --  AMPK modulator for
                   Metabolic                      the treatment of
DRF 16536          disorders      Preclinical     dyslipidemia

                                              --  Late stage
                                                  preclinical
                                                  discovery
----------------------------------------------------------------------

Commenting on the partnership, Renuka Ramnath, CEO and managing Director, ICICI Venture, said, "We are pleased to build on our long-standing partnership with Dr. Reddy's to create India's first integrated drug development company. We believe that Dr. Reddy's proprietary discovery platforms in Metabolic Disorders and Cardiovascular will lead to development of innovative discoveries. These therapeutic areas continue to be of major clinical relevance and address important patient needs. We now have the charge of advancing promising NCEs through clinical trials, the success of which is important for the long-term success of Dr. Reddy's and to the promise of addressing unmet metabolic and cardiovascular therapy needs across the world. Through Perlecan, we will extend these new discoveries into clinical development and unlock the value of the pipeline through focused diversification of NCEs and intelligent market alliances including out-licensing to large innovator pharmaceutical companies. We are excited about being able to back this innovative drug development model, which we believe will create a win-win situation for all participants."

Perlecan Pharma will have the first right of refusal on future pipeline of Dr. Reddy's at fair market value. Dr. Reddy's will be offered commercial rights to Russia, India, China and other countries in the Commonwealth of Independent states at fair market value for all NCE assets of Perlecan Pharma.

Commenting on the partnership, Ajay Relan, Managing Director, Citigroup Venture Capital International, said, "The decision to partner with Dr. Reddy's demonstrates our confidence in the progress of Dr. Reddy's to date in discovering and developing innovative drugs in Metabolic Disorders and Cardiovascular segments. Perlecan Pharma, represents a unique and extremely promising strategy to rapidly advance the clinical development of Dr. Reddy's discoveries and we are quite excited to be a part of Perlecan Pharma."

The exact financial terms and conditions of the agreement with financial investors have not been disclosed.

About Dr. Reddy's

Established in 1984, Dr. Reddy's Laboratories (NYSE: RDY) is an emerging global pharmaceutical company with proven research capabilities. The Company is vertically integrated with a presence across the pharmaceutical value chain. It produces finished dosage forms, active pharmaceutical ingredients and biotechnology products and markets them globally, with focus on India, US, Europe and Russia. The Company conducts research in the areas of diabetes, cardiovascular, anti-infectives, inflammation and cancer.

About ICICI Venture

ICICI Venture, incorporated in 1988, as a wholly owned subsidiary of ICICI Bank, is the most experienced and largest private equity and venture fund management company in India with funds. Since its inception, ICICI Venture has managed assets in excess of Rs. 44 billion (US$ 1 billion). Over the last 15 years, ICICI Venture has been successful in identifying trends well ahead of the curve; be it retail, media and entertainment, information technology, real estate or pharmaceuticals and biotechnology. During this period ICICI Venture launched and managed 8 funds, with each fund having a distinct investment theme. ICICI Venture today has some of the best known and managed companies in India in its portfolio.

About Citigroup Venture Capital International

Citigroup Venture Capital International Mauritius Limited (CVCIML) is an investment company incorporated under the laws of Mauritius and is a wholly owned subsidiary of Citigroup Venture Capital International Growth Partnership Mauritius Limited, also a company incorporated in Mauritius. CVCIML is registered under the Companies Act 2001 of Mauritius and has been granted a license by Financial Services Commission, Mauritius. CVCIML is also registered, subsequent to approval by the Reserve Bank of India, as a foreign venture capital investor under the Securities and Exchange Board of India (Foreign Venture Capital Investor) Regulations, 2000. CVCIML is a company within the structure of the Citigroup Venture Capital International Growth fund (the Fund). The Fund is a $1,606 million private equity fund whose investors include several private investors and Citigroup (which is a significant, but a minority investor). The Fund's target areas of investment are Asia and Emerging Europe. Citigroup Venture Capital International Partnership G.P. Limited (a subsidiary of Citigroup) is the General Partner of the Fund.

Disclaimer

This press release includes forward-looking statements, as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such factors include, but are not limited to, changes in local and global economic conditions, our ability to successfully implement our strategy, the market acceptance of and demand for our products, our growth and expansion, technological change and our exposure to market risks. By their nature, these expectations and projections are only estimates and could be materially different from actual results in the future.

Contacts

Dr. Reddy's Laboratories
Investors and Financial Analysts:
Nikhil Shah, +91-40-55511532
nikhilshah@drreddys.com
or
Media:
M Mythili, +91-40-55511620
mythilim@drreddys.com

Contacts

Dr. Reddy's Laboratories
Investors and Financial Analysts:
Nikhil Shah, +91-40-55511532
nikhilshah@drreddys.com
or
Media:
M Mythili, +91-40-55511620
mythilim@drreddys.com