Dr Reddy’s pulling out of small global markets

Drug maker Dr Reddy's Laboratories Ltd plans a gradual exit from some very small markets in order to cut costs and consolidate its business in more rewarding markets. The markets it was withdrawing from contributed less than one per cent of revenues, the company said in a statement.

 Dr Reddy's is the first pharmaceutical company in Asia outside of Japan to be listed on the New York Stock Exchange.

''We are exercising the restructuring strategy and withdrawing from some of our markets across all regions as the costs of servicing these markets are high compared to the revenues generated,'' said a company spokeswoman.

Outlining the rationale behind this move, Satish Reddy, managing director and chief operating officer said, ''We intend to aggressively step up our presence in our key markets with this strategic prioritisation. The market prioritisation exercise would lead to redeployment of resources within the organisation. The company will, however, continue to scan opportunities and attractiveness of international markets in line with its business strategy.''

In addition to the US, India, Russia and the CIS, and Germany, where its operations are already very large contributing to about 90 per cent of the global generics revenues, the company will continue its operations in 10-15 markets wherein its finished dosages sales are growing significantly. (See: Dr Reddy's sales in Russia and CIS top $150 million)

Last week the company said that it had crossed the milestone of $150 million of revenues in the Russia / CIS region for the fiscal year 2009.

After outperforming the market for about a year, the Rs5,006-crore company has lost some eight per cent in share value in a month. One reason for this could be that revenues from the Russian and CIS markets are expected to be hurt by the depreciation of the rouble, point out analysts. While these markets may bring in just about 12 per cent of the firm's revenues, they contribute around 20 per cent of the profits.

Dr Reddy's produces finished dosage forms, active pharmaceutical ingredients and biotechnology products. It markets its products in India, the US, Europe and Russia. The company conducts research in the areas of cancer, diabetes, cardiovascular diseases, inflammation and bacterial infection.

This move to withdraw is in keeping with the company's focus to consolidate and grow global generics presence where it already has a considerable presence. Moreover, it would result in a reduction of complexity of operations.

Dr Reddy said, ''The market prioritisation exercise would lead to redeployment of resources within the organisation. The company will however continue to scan opportunities and attractiveness of international markets in line with its business strategy, he added.

This milestone is a result of the efforts in building a branded franchise, cementing strong customer relationships and partnering with trade channels over last several years.

Today Dr. Reddy's is the largest Indian pharmaceutical company in Russia and is also the fastest growing international branded generic company by volume with Q3 FY08 generics revenues of Rs1,370 crore ($282 million) up from Rs800 crore in Q3 last year. Its year on year growth was 70 per cent driven by its key markets of North America and Russia. 

The Hyderabad-based company has wholly-owned subsidiaries in the US, the UK, Russia, Germany and Brazil and joint ventures in China, South Africa and Australia.