Dr Reddy’s fourth quarter earnings drop by 4 %

Fourth quarter earnings dip by 4 per cent, but Dr Reddy’s expects revenues to improve by 10% in 2009-’10.

India’s generic maker Dr Reddy’s Laboratories  posted a 3.76 per cent drop in net profit at Rs 156.1 crore for the fourth quarter ended March 31, 2009, as compared to Rs 162.2 crore in the corresponding period a year ago.

Dr Reddy’s gross earnings rose by 12.36 per cent to Rs 1,166.5 crore for the quarter under review as against Rs 1,038.1 crore.

As per the audited consolidated results, the group has posted a net loss attributable to the shareholders of the parent of Rs 917.2 crore for the year ended March 31, 2009 as compared to a net profit of Rs 438.1 crore for the previous corresponding year.

According to a press release, the company recorded an impairment loss with respect to intangible assets related to its acquired German subsidiary Betapharm, amounting to Rs 316.7 crore (euro 47 million), before tax and with respect to goodwill of Rs 1,085.6 crore (euro 162 million). This is a one-time non-cash charge in the income statement and incorporates the provisions of applicable accounting standards.

Dr Reddy’s said a $290 million write down against its German unit pushed it to a March quarter loss, and said volumes were growing but prices remained under pressure.

However, Dr Reddy’s expects its earnings to grow 10 percent in the 2009/10 fiscal year as it launches new drugs and focuses on key markets such as the United States, Germany, Russia and India, chief executive G.V. Prasad said.

“I think we are seeing significant volume growth all around, that’s what helping the growth,” Prasad stated.

Still, revenue growth is expected to slow sharply from 39 percent in 2008/09. Prasad said revenue in 2008/09 was boosted by the launch of the U.S. launch of a generic and a weaker rupee.

Dr Reddy’s launched its acute migraine drug Sumatriptan, a generic of GlaxoSmithKline’s Imitrex, in the US market in the December quarter, helping it more than double its revenue from North America to $390 million in the year.Excluding revenues from Sumatriptan, the year-on-year growth is at 24 per cent.

The US launch of omeprazole is also expected to contribute to its revenues. Omeprezole is indicated in the treatment of stomach ulcers and acid reflux. Dr Reddy’s expects to get the approval for the drug in the second half of 2009/10, and it was expected to contribute $35 million in annual sales.

Dr Reddy’s German unit, Betapharm, which has been lagging behind in creating revenus, was seeing a surge in volume but pressure on prices remained. Dr Reddy’s has moved Betapharm’s main manufacturing unit to India and other facilities in Europe to cut costs.Betapharm, which Dr Reddy’s bought in 2006 for $572 million, has been facing supply constraints and falling prices.

Dr Reddy’s wrote off 10.86 billion rupees in goodwill and 3.17 billion rupees in intangible assets at Betapharm — more than half what it paid for the company at current exchange rates.

“If you look at the market, when we acquired the company it was in a branded market,” Prasad said. “It has moved to become a commodity market and, based on the new valuations today, I think the write-off reflects our view of the value of the company.”

Betapharm won eight supply contracts in a tender by Germany’s largest health insurer, Allgemeine Ortskrankenkasse (AOK),in December last year. Dr Reddy’s hopes the contracts would boost volumes but at lower margins.

Dr Reddy’s total income for the fiscal year increased by 34.73 per cent to Rs 7,000 crore from Rs 5,195.4 crore recorded in previous year. The growth in revenues was driven by the successful launch of the authorized generic version of GlaxoSmithKline’s Imitrex

The company said revenues from global generics business is at Rs 4,980 crore ($979 million) in FY09 as against Rs 3,300 crore ($649 million) in FY08, with a year-on-year growth of 51 per cent. Revenues from pharmaceutical services and active ingredients (PSAI) increased by 13 per cent to Rs 1,880 crore ($369 million) in FY09 as compared with Rs 1,660 crore ($327 million) in FY08.

During the year, the company launched 116 new generic products, filed 110 new generic product registrations and filed 55 DMFs globally.

The company has also recommended a final dividend of Rs 6.25 (125 per cent) per equity share of Rs 5 face value, subject to the approval of shareholders.

Established in 1984, Dr. Reddy’s Laboratories produces finished dosage forms, active pharmaceutical ingredients and biotechnology products and markets them globally, with focus on India, US, Europe and Russia. The Company conducts research in the areas of cancer, diabetes, cardiovascular, inflammation and bacterial infection.