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Dr. Reddy's Laboratories posts surprise fall in profit amid US pricing pressure

North America sales decline 6% as competition intensifies

Indian pharmaceutical companies have been grappling with falling drug prices in the U.S.   © AP

MUMBAI (NewsRise) -- Dr. Reddy's Laboratories reported a surprise 3% drop in quarterly net profit, as the Indian drug maker continued to grapple with pricing pressure in the U.S.

Consolidated net income for the fourth quarter ended in March stood at 3.02 billion rupees ($44 million), compared with 3.13 billion rupees a year earlier, the company said in a statement on Tuesday. Analysts were expecting a net profit of 3.59 billion rupees, according to a Reuters poll.

The latest quarter included a one-time charge of 374 million rupees due to changes in U.S. tax laws. Revenue fell 1% to 35.35 billion rupees. Sales in North America declined 6% due to higher price erosions, and increased competition in some key molecules, the company said.

The last fiscal year was "challenging," while the fourth-quarter performance was "relatively muted," Dr. Reddy's Co-chairman and Chief Executive G.V. Prasad said in the statement.

The weak performance was mainly due to "continuing headwinds in the U.S. markets and a temporary drop in sales in Russia, attributable to a shift in the channel purchasing pattern," Prasad said.

Indian pharmaceutical companies have been grappling with falling drug prices in the U.S., where the Food and Drug Administration has expedited its approval rate for generics, paving the way for increased competition. A rising number of retail pharmacies in the U.S. are joining hands to gain leverage in buying generic drugs in bulk, pushing prices down further.

Meanwhile, smaller rival Cipla reported a fourth-quarter profit of 1.79 billion rupees, compared with a loss of 617.9 million rupees a year earlier. But the profit missed analysts' expectation of a profit of 3.57 billion rupees, according to a Reuters poll.

Cipla also said its board approved a plan to raise up to 40 billion rupees through equity and debt.

Dr. Reddy's Prasad said the company continues "to work diligently on resolving pending regulatory issues," which has been hurting its performance over the past few years.

In 2015, the U.S. drug regulator issued a warning letter to three of the company's plants, citing quality issues and violations of good manufacturing practices. Until Dr. Reddy's fixes the problems, it won't receive U.S. approvals for drugs made at these plants, which account for 10%-12% of its sales.

The company has been transferring the production of several critical products out of the affected plants. Last year, in March, the FDA audited those plants and issued new notices with repeat observations on data integrity at two facilities.

Shares of Dr. Reddy's jumped 6.3% on Tuesday, while Cipla's stock added 0.9% in Mumbai trading. The benchmark S&P BSE Sensex gained 0.1%.

--Dhanya Ann Thoppil

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