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| Ranbaxy to cut European operations |
| Joe C Mathew / Bangalore Apr 27, 2009, 00:39 IST |
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Pricing pressures too severe, have to retreat, says MD.
 Ranbaxy Laboratories, India’s biggest drugmaker, plans to scale down its operations in Europe in a bid to cut costs and return to profitability.
The company’s decision to take a “bottomline” approach instead of a “topline” growth model in the world’s third largest medicine market has come after extreme pricing pressures eroded the profitability of selling several medicines in countries like the UK and Germany. Ranbaxy reported a net loss of Rs 761 crore during the quarter ended March 31, 2009, against a net profit of Rs 153 crore during the comparable quarter in 2008.
“In Europe, we will be happy with the bottomline approach,” Malvinder Mohan Singh, CEO and MD of Ranbaxy, told analysts during a conference call on Friday. Singh said the pricing pressures in the UK and Germany are so severe that Ranbaxy has started “pulling back” from those markets. “France is the only market where things are not so bad. We will wait till the end of 2009 to decide on our strategies in that country,” Singh added.
Continuing economic recession and growing burden on the public healthcare system have compelled several governments in the European region to call for lowest pricing tenders for medicine supplies. The tender business has resulted in cut-throat competition among off-patent drugmakers world over, thereby eroding the profitability of marketing several commonly used medicines in those regions. Indian companies such as Wockhardt and Dr Reddy’s, which have strong presence in Europe, are also feeling the heat.
Ranbaxy’s revenues from the European region declined 14 per cent on a year-on-year basis during the three months ended March 31, 2009. The region recorded sales of $57 million as compared to $83 million during the January-March period in 2008. The company said uncertain conditions prevailed in several markets and factors such as currency devaluation and channel destocking are curtailing growth. “In certain markets, the product portfolio was rationalised with a focus on profitability, resulting in some loss of sales,” Ranbaxy said.
In Romania, where Ranbaxy has a leadership position through its acquired subsidiary — Therapia — sales were Rs 94.5 crore ($19 million), lower by 8.4 per cent on a quarter to quarter basis. Similarly, in France, Britain and Germany, Ranbaxy recorded sales of Rs 122.4 crore ($25 million), down by 8 per cent over the corresponding previous period.
“We had been bleeding in these regions. We had to stop that to reduce our losses. We have cut back in the UK. Our strength is just half of what it used to be,” Ranbaxy officials said.
Ranbaxy, which declared its first quarter results on March 24, has indicated that the company may end up having lower sales during 2009, with its revenues touching approximately Rs 7,000 crore against Rs 7,250.7 crore in 2008. The company had also predicted a net loss of Rs 800 crore.
The company’s near-flat growth projection is primarily due to its revenue loss in Europe and the US. While pricing is the issue in Europe, Ranbaxy is facing a ban on marketing 30 medicines in the US after the US Food and Drug Administration levelled charges on quality compliance and procedural lapses against two of its Indian manufacturing facilities.
Ranbaxy’s US profitability also eroded, as it had to opt for the costlier option of manufacturing drugs meant for the US market from its US facility, instead of sourcing it cheap from India.
The only silver lining for Ranbaxy is that its short term hedges, which accounted for a majority of the foreign exchange losses during the last three quarters will mature by the June 2009 quarter. After which, the company will not have any significant mark to market loss disclosures, as the hedges are all long term, as long as eight years, Ranbaxy officials said.
Ranbaxy’s foreign exchange loss on loans stood at Rs 124.2 crore during the March 2009 quarter. The non-cash loss on fair valuation of derivatives for the period was Rs 918.8 crore. Net of tax, this loss was accounted at Rs 606.5 crore.
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