January 20, 2010 / 12:49 PM / 9 years ago

UPDATE 1-India Dr Reddy's incurs Q3 loss, cuts FY10 f'cast

* Forecasts low single digit revenue growth in FY10

* Net loss at 5.22 bln rupees vs f’cast of 1.45 bln profit

* Writes off $174 mln of intangibles, goodwill at German unit * Revenue from U.S. halves on sumatriptan, products recall (Adds CEO comments, changes dateline from MUMBAI) By Sumeet Chatterjee

BANGALORE, Jan 20 (Reuters) - India’s Dr Reddy’s Laboratories (REDY.BO) on Wednesday reported an unexpected loss for the latest quarter after incurring write-off related losses at its German unit and trimmed revenue growth forecast for this fiscal year.

Chief Executive G.V. Prasad said the company expected to post a “low single digit” revenue growth in the fiscal year that ends in March, down from its previous forecast of a 10-percent growth over the previous year. “Our German business has contracted beyond our expectations and there is a little bit of slowdown in the U.S. business,” Prasad told Reuters. “That’s the reason we expect the revenue growth this year to be lower than forecast.”

“The next fiscal year looks exceptionally strong with at least two good launches in the first few months.”

Dr Reddy’s, India’s second-biggest drug maker by sales, said it wrote off 124 million euros ($174 million) towards Betapharm’s goodwill and other intangibles in the December quarter following a “significant deterioration” in prices in the German market.

Prasad said it was unlikely that Dr Reddy’s would incur further write-off related losses at its German unit.

Betapharm, which Dr Reddy’s bought in 2006 for $572 million, has been a drag on its earnings due to regulatory issues. It started supplying drugs to German health insurer under contracts won in 2008, which has boosted volume but has crimped prices.

Shares in Dr Reddy’s ended up 1.8 percent at 1,201.50 rupees, after rising as much as 3.2 percent, as analysts said earnings in the near-term could be boosted by the U.S. launch of omeprazole, a generic version of AstraZeneca’s (AZN.L) Prilosec.

Omeprazole, which was launched late last month, is used to treat stomach ulcers and acid reflux and Dr Reddy’s has became the second generics maker after Perrigo PRGO.O to sell the copycat variant in the U.S.

“Dr Reddy’s is expected to launch lot of new products, which will have exclusive marketing period, over the next couple of years and the market is looking at that opportunity,” said Carrol D’Silva, a sector analyst with brokerage K.R. Choksey.

Global demand for generic drugs from drugmakers such as Dr Reddy’s and domestic rivals Ranbaxy Laboratories RANB.BO and Cipla Ltd (CIPL.BO) is booming as nations battle rising healthcare costs.

The Indian generics business boom has lured Western drug makers that want to raise exposure in fast-growing emerging markets where a burgeoning middle class wants the assurance of cheap, safe drugs.

GENERIC DEMAND

Dr Reddy’s U.S. sales more than halved to 3 billion rupees ($65 million) in the quarter from 6.7 billion a year ago. In the year-ago quarter, sales were boosted by the acute migraine drug sumatriptan, a generic of GlaxoSmithKline’s (GSK.L) Imitrex.

The firm’s exclusive marketing period for sumatriptan ended in last August, allowing the entry of a slew of rivals.

Prasad said sales in the U.S. was also hit by the company’s decision in September to voluntarily recall four products from its biggest market as they had been observed to contain some oversized tablets. [ID:nBMA006038]

Revenue from India, one of its key markets, rose 30 percent to 2.6 billion rupees as it launched new products.

Hyderabad-based Dr Reddy’s said its posted a consolidated net loss of 5.22 billion rupees in the October-December quarter, compared with a profit of 2.45 billion rupees in the year-ago period under the international accounting standards.

A Reuters poll had forecast an average net profit of 1.45 billion rupees.

Under the India accounting standards, Dr Reddy’s standalone net profit for the quarter was 1.68 billion rupees and on a consolidated basis it posted a net loss of 2.3 billion rupees.

Ranbaxy Laboratories RANB.BO, the top drugmaker by sales, is expected to report 3.01 billion rupees profit for the quarter, compared with a loss of 6.8 billion a year ago, helped by the launch of generic version of Glaxo’s Valtrex. [ID:nDEL280226]

Shares in Dr Reddy's, which is valued at $4.5 billion, rose 16 percent in the December quarter, outperforming a 14-percent surge in the sector index .BSEHC and a 2-percent rise in the benchmark index .BSESN. ($1=45.9 rupees) (Additional reporting by Janaki Krishnan; Editing by Malini Menon)

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