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Dr Reddy's Lab to move away from generics

'It is going to put pressure on return on capital employed and erode margins if we don't graduate ourselves from plain vanilla drugs,' says a senior official

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In a strategic shift, maker Dr Reddy's Laboratories today said it plans to move away from traditional generics to value-added drug making and expects 70% revenues from partnerships and non-oral solid medicines.

According to Abhijit Mukherjee, President Global Generics, the company would look for more acquisitions of research-oriented pharma companies.

"Going ahead, I think it will be a testing time for lot of generic industries in the USA market. Because plain vanilla oral dosage not likely to return value.

"It is going to put pressure on return on capital employed and erode margins if we don't graduate ourselves from plain vanilla drugs to mare to limited competition and high value products," Mukherjee said in a press conference after announcing Q1 results.

"In that context what we are trying to do in the short to mid-term is trying to do string of capability based acquisitions such as ," he said.

"We are working with partnerships and eventually the outcome what we are looking for is by FY'17 we move towards that and our total revenue roughly about 40% would be from various forms of partnerships and 30% of the revenues would be from non-oral soilds," he said.

At the moment, the revenue contribution from external partnerships is in teens and the same from non-oral solids is in single digits, Mukherjee said when asked about the present contribution of those two divisions.

DRL's net profit rose by over seven% to Rs 361 crore for the quarter ended June 30, primarily driven by North American revenues. The company's net profit after tax stood at Rs 336 crore during the same quarter last fiscal.

Net income from sales and services stood at Rs 2,845 crore during the quarter under discussion against Rs 2,541 crore an increase of 12%.

Revenues from the Emerging markets including Russia, CIS countries, was at Rs 600 crore registering 9% growth year-on-year. Generic sales income from Europe declined by 28% to Rs 160 crore primarily pulled down by decline in German revenues.

On Russian market, he said the company expect better growth in the second quarter.

Replying to a query, on European market, he said as the markets are moving towards tender-based sales, the company is working out a strategy which will be implemented in the months to come to mitigate the negative effect.

Revenues from generic sales from India remained flat at Rs 350 crore due to the implantation of new Drug Pricing Policy 2012 which led to destocking in the trade coupled with the strike by Maharashtra traders, DRL said in a statement.

Replying to query, Mukherjee said the new drug pricing policy would put pressure on pharma companies' revenues.

According to him, the 348 essential drugs that were brought under control would account of Rs 1,600 crore sales.

The individual drug price notifications are being released in a phased manner by the National Pharmaceutical Pricing Authority.

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