Dr. Reddy's Q2 net up 72% costs down

Posted AtThe Financial Express

India's Dr. Reddy's Laboratories Ltd. reported on Saturday a better-than-expected 72 per cent rise in quarterly profit, helped by lower research costs and strong growth in Europe, but sales flagged in the key US market.

Dr. Reddy's, India's only New York Stock Exchange-listed drug maker, said its July-September net profit according to US accounting standards rose 72 per cent to 890 million rupees ($19.8 million) from 517 million a year earlier. Revenue rose 7 per cent to 5.80 billion its highest in 16 quarters.

A Reuters poll had forecast the firm to post a net profit of 505 million rupees on revenue of 5.65 billion.

Dr. Reddy's had previously seen profits drop for several quarters as it invested heavily in drug research and development and had no big drug launches abroad.

Its performance has steadily been on a downturn since its exclusive marketing rights for a version of Eli Lilly & Co.'s anti-depressant Prozac ended in early 2002.

But its investment in research and development fell 29 per cent to 444 million during the second quarter to September, from 627 million a year ago.

RESEARCH COSTS DEAL

Dr. Reddy's said it had received 155 million rupees during the quarter as income under a research and development partnership deal with ICICI Venture. The private equity firm had entered into an agreement with Dr. Reddy's in March to fund its generic drug development.

The company's R&D expenses during the quarter stood at 8 per cent of revenue, down from 12 per cent a year earlier.

In September it transferred four chemical compounds to Perlecan Pharma Pvt Ltd., a joint venture with ICICI Venture Funds Management and Citigroup Venture Capital International, to cut research expenses that were eating into profitability.

Overall revenue grew during the quarter, helped by a 17 per cent increase in sales of bulk drugs to 2.13 billion rupees and a 46 per cent increase in sales of generic drugs in Europe, where omeprazole and amplodipine maleate Saw improved prices.

Sales to Russia and the CIS states and to India also improved 10 and 12 per cent respectively.

But revenue from North America fell 58 per cent to 299 million rupees, from 715 million in the year-ago quarter, amid intense competitive pressure that has plagued all generic players.

Rival Ranbaxy Laboratories Ltd. reported a 91 per cent drop in July-September profit due to pricing pressure.

"The pricing pressure in the US generics market continued in the second quarter," Dr. Reddy's said. "As a result of the intense competition, revenues from fluoxetine and tizanidine declined sharply leading to an overall decline."

Dr. Reddy's has 50 applications pending with the US Food and Drug Administration, the statement said.

Dr. Reddy's shares rose 13 per cent in July-September, outperforming the BSE Healthcare index which rose 11 per cent.

October 31, 2005