Betapharm to pressure profitability for 3 yrs: Dr Reddy's

HYDERABAD: Betapharm, the German arm of Dr Reddy's Laboratories may continue to put pressure on the company's profitability for next three years as the prices quoted in recently won health insurance tenders are almost 30 per cent less than normal prices, a top official said.

However, the company may witness a growth in revenues from Germany owing to more number of drugs awarded in the recently concluded Allgemeine Ortskrankenkasse ( AOK) (health insurance fund) tenders.

The company reported a decline in revenues from Germany by 25 per cent to Rs 550 crore ($ 123 million) in FY'11. Its revenues had decreased by 26 per cent to Rs 730 crore ($ 162 million) in FY'10.

The Hyderabad-based drug-maker had written down Rs 323.3 crore of intangible assets and Rs 514 crore goodwill of Betapharm in 2009-10 and had to adjust Rs 90.5 crore in its finances toward the restructuring cost of Betapharm in FY'11.

According to Dr Reddy's Chief Financial Officer Umang Vohra, there will be a significant growth in top-line and the company will participate in more tenders in Germany to mitigate the margin erosion.

The company won as much as 17 per cent of the total products offered in the AOK conducted tendering process, he said.

"Offtake (revenues) will be higher from whatever we were selling. But the prices will be much lower. I think in terms of overall value, it will be an increase, but margins will be lower. 17 per cent products, which we got (in the AOK tenders), will continue for the next three years," Vohra told PTI, adding, "The margin difference is quite high, because the prices in AOK are 25-30 per cent lower than the regular market."