Dr Reddy's reworks German template

With the tender-based  system hard to crack for pharma companies, Dr Reddy’s has started counting its options in Germany, where it bought Betapharm in 2006.

“We have taken a strategic decision to tone down and are going slow on the tender businesses because it’s not bottomline-accretive,” said a senior official of the company.
A source concurred. “It’s not just for Dr Reddy’s. The entire market in Germany has moved towards the tender-based system. DRL has been participating in tenders, particularly AOK tenders. However, the margin continues to remain wafer-thin.”

During the quarter ended December, the company logged around €19 million, or `135 crore, from German operations.

This dragged down its European revenues to `193 crore  from `243 crore a year ago.

But that’s only part of the story. The Hyderabad-based company has been facing delays in getting product approval in the US market. For a player that has  been traditionally guiding towards 10-12 product launches in a year, Q3 this year was somewhat muted.

Indeed, company officials have chosen not to let out any guidance on launches since the approval cycle turned unpredictable in the US.

“The US business is highly dependent on product approvals. Going ahead, the product mix is going to move towards more complex, less competition products. Hence, the predictability of approvals is equally sort of uncertain. So, if you get approvals on time and you get right products, it is going to be very good. If it gets deferred, it is difficult to put a number on a year-on-year basis,” the official explained.

For the quarter ended December 2012, the company clocked `2,865 crore as revenues, some 3% growth over `2,769 crore in the same period of the previous year. Its profit for the quarter was down 26% at about `378 crore from `513 crore in the year-ago period. What also impacted the bottom line was a 12% rise in selling, general and administrative (SG&A) expenses to about `857 crore and a substantial jump in R&D costs from `151 crore to about `202 crore.

@ramanakv