HYDERABAD: New York-listed Dr Reddy’s Laboratories (DRL) suffered an unexpected net loss of Rs 85 crore in the third quarter after writing down the intangible value of the products of its German acquisition, Betapharm, and seeing a sharp fall in revenues from generic drugs. Pricing pressures in Germany and the United States also pulled down revenues for the quarter ended December by 20% year-on-year. The company said on Friday it expected to revert to revenue and profit growth in 2008-09, when India and Russia should fuel demand for its products. The US and Europe will continue to be important markets too, top officials said. Dr Reddy’s reported a net loss of Rs 85 crore following amortization of the value of Betapharm’s products to the tune of Rs 236.1 crore. But for the write-down, net profit would have been Rs 103.4 crore, still nearly a fifth lower than average estimates of four brokerages reported by ET. Explaining the changing dynamics in the German market that impacted Dr Reddy’s financials, Satish Reddy, managing director and chief operating officer, said the rebates paid by manufacturers to insurance companies are rising. “The new price reforms in Germany from April last year have given insurance companies more leverage to negotiate higher rebates from manufacturers as pharmacists are mandated to dispense only products under rebate,” he said. “We will recognise revenues after deducting such rebates.” In fact, DRL’s purchase of Betapharm in 2006 for 480 million euros, touted as one of India’s biggest overseas acquisitions then, has impacted the company’s revenues from Germany for a third successive quarter. Revenues from that country declined to Rs 200 crore in the latest quarter, from Rs 260 crore in the year-ago period. “The short-term outlook is clouded by severe pricing pressure in Germany and US,” a senior pharmaceutical analyst said. “The Betapharm acquisition has been a drag on earnings because of supply constraints and the appreciation of the rupee against the Euro. However, the company is expected to gain from their acquisitions in the long term.” Other analysts said the financials were not a big surprise, if the impact of the write-down were to be excluded. Though further price cuts are expected in Germany by March, the company has also been shifting drug manufacturing to India, thus saving on costs. About 60-65% of manufacturing should have come to India by March, enabling Dr Reddy’s to stabilise profit margins, said Angel Broking vice-president for research Sarabjit Kour Nangra. Dr Reddy’s third quarter revenues dropped to Rs 1,232 crore. Revenues from authorised generics fell by about 45% to Rs 420 crore. But the company hopes to turn around its German business in the coming fiscal year, even as it focuses on India and Russia. “We expect sustained profit and sales growth in APIs (active pharma ingredients) and branded generics business in India and Russia. We also expect to benefit from the potential launch of Sumatriptan in the US in the third quarter of FY 09. Germany continues to be an important market for us,” said DRL vice-chairman and CEO G V Prasad. He said the company continues to scan the US market for acquiring a branded formulation company.