June 21 (Bloomberg) -- Dr. Reddy's Laboratories Ltd., India's biggest drugmaker, is developing eight generic medicines using biotechnology and plans to release one for sale a year, challenging companies such as Roche Holding AG and Amgen Inc.

Reddy's may double the number of people in its biotech division to about 340 in the next two years and plans to spend about $20 million bolstering production capacity there, Chief Executive Officer G.V. Prasad said yesterday. Biotech drugs use living cells, while conventional ones are made from chemicals.

Reddy's and local rivals including Ranbaxy Laboratories Ltd. and Wockhardt Ltd. built billion-dollar businesses copying blockbuster medicines and selling them at a fraction of the price in the U.S. and Europe. They are developing the capability to produce more complex drugs, known as biologics, for which sales are growing at 14 times the pace of traditional chemical compounds and are among the most expensive prescriptions.

``If the launches are successful, Dr. Reddy's will see huge growth in revenue and profitability,'' said K.K. Mital, who manages the equivalent of $49 million in shares at Escorts Asset Management in New Delhi. ``These are fairly complex drugs and the rewards for greater complexity are always higher,'' said Mital, who owns about 17,000 shares of Dr. Reddy's and intends to hold on to his investments.

Shares of Dr. Reddy's rose 1.4 rupees, or 0.2 percent, to 643 rupees on the Bombay Stock Exchange at 2:20 p.m. local time. They have declined 21 percent this year, compared with a 5 percent gain in the exchange's 30-member Sensitive Index.

$40 Billion Market

About $40 billion of biologic medicines are dispensed annually in the U.S., accounting for about 15 percent of Americans' drug purchases, according to IMS Health Inc., a research company in Fairfield, Connecticut. These products include Amgen's Enbrel for arthritis and Aranesp for anemia, the Herceptin breast-cancer drug sold by Roche, as well as insulin and human growth hormone. Herceptin's patent expires around 2015.

The expiry of their patents opens the door for other companies to sell copies as much as 70 percent cheaper. Mumbai- based Wockhardt is seeking U.S. sales of insulin and a genetically engineered version of erythropoietin, or EPO, a protein made in healthy kidneys that stimulates red blood cell production.

``A large portion of the drugs coming off patent in the future will be biotech drugs,'' Prasad said in an interview from the company's headquarters in Hyderabad. ``Biologics are going to play an important role in therapy in future and even now.''

Cheaper Rituxan

Reddy's already sells Reditux, a version of Basel, Switzerland-based Roche's rituximab cancer medicine, in India, where it charges about 50 percent less than the brand name product. The injectable treatment, which Roche sells as Rituxan, isn't protected by a patent in India and was developed using a cloned antibody made for Reddy's by a U.S. company.

Its release in April came about six years after Grafeel, Reddy's version of Neupogen, a drug to boost white blood-cell production made by Thousand Oaks, California-based Amgen, the world's biggest biotechnology company.

Prasad declined to name the biotech products in development, saying only they include so-called monoclonal antibodies used to treat cancer as well as arthritis medicines that work by inhibiting an immune system protein called tumor necrosis factor.

Reddy's, which had sales of $1.42 billion in the year ended March 31, generates less than 5 percent of revenue from biotech drugs. The medications may contribute as much as 30 percent to revenue within a decade as the company starts selling Reditux outside India and patents on other biologics expire, allowing Reddy's to copy them.

``When the U.S. and Europe open up, we will be there,'' Prasad said.

Expensive Treatments

It costs close to $50,000 in Great Britain to treat a patient using Herceptin. The higher price of biologics reflects the more complicated process of making them as well as the limited competition they enjoy, Prasad said.

``The biotech industry is a very closed industry,'' he said. ``They are very strong about not allowing generics into the biologics space and as a result there is very limited competition and pricing tends to be very high.''

U.S. law allows the Food & Drug Administration to approve generic versions of conventional drugs after their patents expire. Congress is considering a law that would create a process to allow the FDA to approve generic versions of biotech medicines.

``It is not a question of if the government will do it, I think it's a question of when,'' Prasad said. ``There is enough pressure on the U.S. government to do this and to put a regulatory framework together for approval.''

Genentech Recruit

The company's biologics development center is headed by Cartikeya Reddy, who was recruited in 2003 from San Francisco- based Genentech Inc. and isn't related to founder Anji Reddy. About 25 of the division's 170 workers were hired from overseas, mostly from the U.S., said Satish Reddy, Reddy's managing director and chief operating officer.

Reddy's currently produces Reditux in a 200-liter (53 gallon) fermentation tank at the center outside Hyderabad, in central India.

It will complete construction of three more 200-liter tanks by October and is working on a $30 million second facility that will include three 5,000-liter fermentation tanks for making Reditux and other monoclonal antibodies, said Bijaygopal Chakrabarti, the center's director of quality assurance.

To contact the reporters on this story: Jason Gale in New Delhi at j.gale@bloomberg.net; Ashok Bhattacharjee in New Delhi at ashokb@bloomberg.net.

Last Updated: June 21, 2007 04:58 EDT