Dr Reddy's to shift Betapharma activities to Hyderabad

Dr Reddy's Laboratories will relocate majority of the manufacturing activities carried out by its German subsidiary Betpharma GmbH to Hyderabad by the year end. It had it acquired the German company in March last year for about Rs 2,550 crore.

The move to shift manufacturing from Germany to a comparatively cheaper Indian location follows the pricing pressures in the German healthcare market, coupled with the ongoing healthcare reforms which offer minimal incentives to the drug manufacturers.

At present, Betapharm, the fourth largest German pharmaceutical company employing about 450 people, outsources the production requirements of its 140 plus drugs from local partners.

Betapharm contributed over Rs 800 crore revenues, out of a total of about Rs 960 crore earnings from the entire European market for Dr Reddy's in 2006-07.

"It is not possible to quantify the cost-advantages as the current healthcare reforms in Germany will necessitate us to choose from Betapharm's product portfolio. The option to relocate manufacturing to India was one of the main synergistic reasons for Dr Reddy's to acquire that company", said Prabhir Jha, senior vice president and global chief of HR, Dr Reddy's.

With this in view, Dr Reddy's is now expanding one of the drug manufacturing plants at Hyderabad for exports to the stringently regulated markets of the US and Europe. The facility is likely to be ready before December, this year.

The integration process of Betapharm with Dr Reddy's is on and some of the human resources in Germany have been re-deployed for better efficiency. The company has not decided either to add more people or retrench the existing employees of Betapharm, he said.

Earlier, GV Prasad, vice chairman and CEO Dr Reddy's had said the company was planning to initially relocate manufacturing of about ten drugs to India.

Analysts said Betapharm may need to phase out certain drugs as the new laws in Germany restricts sale of non-insured drugs.

The German government is currently implementing reforms to reduce healthcare costs and the recently enacted Economic Optimization of Pharmaceutical Care Act (AVWG) was to reduce the prices of copy cat version (generics) drugs. Another recent Act allowed insurance companies to enter into exclusive contracts with suppliers of generics drugs.

It also mandated the doctors to prescribe and pharmacies to dispense drugs covered only by contracts with insurance companies.