Pharma major, Dr Reddy’s Laboratories (DRL) is understood to be scaling back its non-US global operations. The company is trimming operations in many CIS countries, in the Middle East and Africa.
In fact, DRL will shut down its operations in China, officials said. The move is being attributed to the global meltdown and recessionary trends in these markets.
When contacted a DRL spokesperson said, “As part of our strategy, we continue to review our presence in various geographies based on the opportunities and attractiveness of those markets. Accordingly, we align our resources to meet our strategic priorities. Any decision, of consolidation or otherwise, and the timing of it is made at the appropriate time.”
The North American market comprises 41% of DRL’s turnover, while the European Union contributes 23%. The domestic market accounts for 13%, while Russia and CIS countries comprise 11% each, and the rest of the world, which includes the Middle East and Africa, make up for the remaining 12%. The company’s consolidated turnover for FY07-08 was Rs 5,000.6 crore.
Scaling back and shutting down operations in these markets will cost them a significant 23% of their turnover. The falling value of currencies in these regions could be another reason why these markets are losing favour with Indian pharma companies, say industry observers.
“The local currency in CIS region has depreciated significantly. Also rating agencies have downgraded the entire region. Problems with regards to receivable can crop up due to this downgrade so most companies are restricting their exposure in this area,” Alok Dalal, research analyst with Religare Research, said.
Another analyst said that since Dr Reddy’s US business is not doing well, they need to rationalise costs in markets which are less profitable than the US. “So when US does bad, places like these become unviable from a business perspective,” the analyst said.
The company is also facing pressure in Germany where it has to adjust itself to the price eroding tender-model and start showing profitable growth. The lack of significant product launches, intense pricing pressure in the generics market and declining revenues from Mexico CPS and betapharm businesses are just some of the issues that DRL is facing.
DRL had recorded a 49% spurt in last quarter revenues due to the exclusivity it enjoyed from authorised 100mg generic version of GlaxoSmithKline’s drug Imitrex (an anti-migraine drug).
The drug contributed to more than half of the company’s topline increase. However, DRL will now have to share the market with Ranbaxy which now shares the Imtrex market in the US. Consequently, DRL’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 more competition and prices expected to fall sharply DRL could also lose some share. Analysts estimate the annual market for the 100mg dosage at $630 million.