Dr Reddy's: Losing the edge

The upside from generic Imitrex will be lower with Ranbaxy also selling the 100mg dosage in the US market.

With Ranbaxy now sharing the market for 100mg dosage of generic Imitrex ( an anti-migraine drug) with it in the US, Dr Reddy’s revenues from this segment are expected to fall. In the December 2008 quarter, the company earned Rs 364 crore from sales of Imitrex. With prices at least for the 100mg segment expected to come off sharply, not only would the size of the market fall, Dr.Reddy’s could also lose some share. Analysts estimate the annual market for the 100mg dosage at $630 million and Ranbaxy will possibly sell the product for six months. So sales of Imitrex may no longer boost Dr Reddy’s top line as it did in December 2008 quarter when revenues rose 49 per cent.

With a bit of luck, Dr Reddy’s Laboratories may grow its sales by 25 per cent in 2008-09 — in the nine months to December, they were up 35 per cent. The weaker rupee is helping but the core business is strained. For one, the German market is not fetching it the kind of business it had hoped for — revenues from that geography actually fell by about 2 per cent in the December 2008 quarter.

Germany’s contribution to the firm’s revenues slipped to 11 per cent in the December quarter from around 17 per cent in the first half of 2008-09. Apart from falling prices, there have been some delays in selecting suppliers of drugs by AOK, an insurer that caters to around 40 per cent of the German population. Should other insurers also initiate the tender process, prices of drugs in that market could fall further.

Things are bad at home too with revenues from formulations falling one per cent in the December quarter as the company struggled to sort out supply chain issues. It also fared badly in the active pharmaceutical ingredients (API) segment, with sales coming off by 24 per cent. Besides, orders from biotech companies, that have been affected by the financial crunch, have been dwindling. However business in the Russian and CIS markets was fairly brisk. As such, revenues for 2009-10 may rise just marginally while net profits may stay flat. In the nine months to December 2008, net profits have risen 58 per cent to Rs 461 crore which includes a foreign exchange loss of Rs 51.3 crore.