Dr Reddy's posts Rs 522-crore net loss

Writes down intangible assets in German unit; pares year’s forecast.

Dr Reddy’s Laboratories, the country’s second biggest drug maker, revealed an unexpected consolidated net loss of Rs 522 crore in the October-December quarter, due to a writedown of intangible assets and goodwill in its German arm, Betapharm.

The Hyderabad-based company had posted a net profit of Rs 245 crore in the corresponding quarter last year.

Given the significant fall in drug prices in Germany, the value of Betapharm’s goodwill and intangibles were revalued. This led to a non-cash writedown of intangible assets by Rs 345.6 crore and of goodwill by Rs 514.7 crore, explained Dr Reddy’s chief executive officer, G V Prasad.

Germany is shifting to a tender-based supply model for generics, which has led to price deterioration.

“We expected the Betapharm business to be flat but it has seen a degrowth (decline) due to the tender market,” Prasad said, adding it might take a further hit as a few more tender results are announced.

In 2008-09, too, the company suffered an impairment loss on intangibles and goodwill to the tune of Rs 1,402.3 crore for Betapharm, a company Dr Reddy’s acquired for $572 million (Rs 2,700 crore) in 2006.

Income during the quarter was also down 6 per cent, to Rs 1,730 crore from Rs 1,840 crore last year. On a standalone basis, however, it posted a net profit of Rs 168 crore, which is 60 per cent higher than the Rs 104 crore in the comparable quarter last year.

US revenues hit
Revenues from North America, the company’s largest market, were more than halved to Rs 300 crore during the quarter, compared to Rs 670 crore last year.

Last year, the numbers were boosted by the migraine drug sumatriptan, a generic version of GlaxoSmithKline’s Imitrex. The exclusivity period for the generic ended in August, leading to a slew of competitors in the market.

The company’s US revenues were also impacted by its voluntary decision to recall four products, as they had been observed to contain some oversized tablets.

Revenues from Europe increased to Rs 260 crore from Rs 250 crore last year, while revenues from Russia were up to Rs 280 crore from Rs 160 crore in the corresponding quarter last year. Revenues from India increased to Rs 260 crore from Rs 200 crore last year, on the back of a 34 per cent growth in key brands like Omez, Nise, Stamlo Beta, Reditux and Stamlo.

Lower growth forecast
The company has now pared its growth forecast for the year to “low single digit” against the high-teen growth it had predicted earlier. “There has been a slowdown in the growth now, but we hope to bounce back in the next two quarters,’’ he said.

Chief Operating Officer Satish Reddy said a few products would be launched as part of its alliance with GSK in the first quarter of the next financial year. It would take about two years to quantify the revenues and volumes from the GSK alliance, he said, adding it had entered into agreements with companies like Natco, Transgene and Cipla.

“Like GSK will market our products, we will market the products from these companies,’’ he said.

The company’s stock ended the day at Rs 1,201.50 at the Bombay Stock Exchange, up 1.76 per cent from Tuesday’s close.