After losing a string of legal battles at the cost of several millions of dollars and steadily shrinking margins on generics exports to the US, Dr Reddy's Labs is now all set to try its luck in the European continent. The company has been under serious financial stress during last two years on account of these factors and its huge recurring research expenditure with no returns. Dr Reddy's decision to acquire Betapharm of Germany, one of the leading generics firms of Europe last week, reflects this desperation to survive in the international market. Europe, particularly Germany, also has a growing generics market although that is no comparison to the size of the US market. If Dr Reddy's has to remain alive and kicking in the current international and domestic environment, it has no option but to continue to pursue new challenges and opportunities overseas. The domestic market is no more a hope to generate huge profits to support its heavy research expenditures and costly litigations in the US. This is true in the case of a few other top Indian drug companies like Ranbaxy which are also depending on the US market for most of their profits. What the government needs to take note now is that this growing attraction of the overseas markets for better profits should not motivate the pharma companies to shift bulk of their operations out of India by totally neglecting the Indian market.
For Dr Reddy's, take over of Betapharm is going to be a big gamble as it has to use up its entire cash reserve of Rs 950 crore built up over the years besides heavy borrowing it has to resort to, to finance this Rs 2550 crore acquisition. What the company is hoping with this move in Germany is to get a foothold to market Dr Reddy's products in German and in the European markets. Currently, Betapharm commands 3.5 per cent of Euro 27 billion German pharmaceutical market. There is indeed a growing market for generics all over the world including Europe because of the increasing aggressiveness of various pressure groups to lower drug prices. By 2010, world generics market is estimated to be in the region of 80 billion dollars. This emerging preference for generics is also attracting competition on a big scale including from brand companies. Today, Novartis, a leading brand company, is also a very serious generics player in the US and European markets. Some of the other world's top companies have taken this market reality quite seriously and have started launching what is known as authorised generics. When the generics game hots up in the next couple of years from now, the brand leaders are not going to sit idle with their massive financial resources and ability to win over the medical community. Dr Reddy's, Ranbaxy, Cipla, Lupin, Sun and half a dozen others have to take note of these imponderables while rejoicing over the explosive generics opportunity of the coming years.