Date:27/10/2007 URL: http://www.thehindubusinessline.com/2007/10/27/stories/2007102751941200.htm

Dr Reddy’s new pill to revitalise betapharm

Multi-pronged strategy in place to ensure profits

G. Naga Sridhar

Hyderabad, Oct. 26

Stung by the impact of its German subsidiary, betapharm’s, blues, Dr Reddy’s Laboratories Ltd is now busy preparing a pill to return betapharm to the pink of health.

The stated reason for the Hyderabad-based company’s poor show in the second quarter of current fiscal with 37 per cent and 5 per cent dip in revenue and net profit respectively was the poor performance of betapharm due to supply constraints.

Further, the firm is also facing pricing pressure in Germany due to certain reforms taken up by German Government and increasing influence of insurance companies on pricing, according to Mr K. Satish Reddy, Managing Director, Dr Reddy’s.

The production at betapharm ran into rough weather as the main supplier, Salatus, failed to maintain schedules. “We are adopting a multi-pronged strategy to put betapharm back on track,” Mr Reddy told Business Line here.

Shifting key product manufacturing to India, adopting different cost structures and ensuring steady supplies from other suppliers would be part of the strategy, he explained.

About 20 products had been transferred out of Salutus so far including six products to India. “The shipments of two products have just begun from India,” he said.

The shifting of manufacturing base to India would be a profitable proposition for Dr Reddy’s as it is setting up two SEZs for active pharmaceutical ingredients (APIs) and formulations at Hyderabad and Visakhapatnam respectively with an investment of over $50 million, Mr Reddy said.

In addition, the firm plans to improve its sales in Germany which fell to Rs 190 crore in the second quarter of current fiscal from Rs 260 crore in the corresponding period of last fiscal through strengthening its competitive cost position and leveraging relationships with insurance companies by entering into rebate contracts and securing tenders. “We have started participating in major tenders. The focus is on driving demand through rebate contracts from large insurance companies in Germany,” he added.

Notwithstanding these measures, betapharm will continue to brew trouble for its parent at least for next 18 months. While improvement in betapharm’s performance would be “visible” from next quarter, the company would make profit only by FY09, according to Mr G.V. Prasad, CEO, Dr Reddy’s.