India's Dr Reddy's sees more challenges in U.S. business

By Zeba Siddiqui

MUMBAI (Reuters) - India's second largest drugmaker Dr Reddy's Laboratories Ltd (REDY.NS) is bracing for another challenging year in its biggest market, the United States, where its business has been hurt by regulatory scrutiny and fewer new drug approvals.

The company is working on bringing three of its key manufacturing plants in India back into compliance after the U.S. Food and Drug Administration issued a warning letter in November citing inadequate manufacturing standards there.

Dr Reddy's plans to send a final response to the agency this month outlining the remedial measures it has taken at the plants, Chief Operating Officer Abhijit Mukherjee told Reuters on Thursday.

The factories contribute about 12 percent to the company's total revenue, and the company cannot launch products made there until the issues are resolved.

It has been working on transferring products to other approved sites, and the COO said he believes the current financial year would be "more eventful" in terms of new product launches in the United States.

Mukherjee also said its emerging markets sales are expected to grow by more than 10 percent this year after the company took a write-off in its fourth quarter results related to Venezuela's economic crisis.

Several companies including Dr Reddy's have been trying for months to recover funds from the OPEC member Venezuela as oil prices sink and food scarcity and power cuts stir public protest in the country.

Dr Reddy's said it took a hit of 4.31 billion rupees ($64.7 million) in its fourth quarter because it could not get approval from the Venezuelan government to recover any more money beyond the $4 million it has already received.

"The country is not doing very well at the moment, so we have cleaned up our receivables," Mukherjee said.

As a result, the company's profit slumped nearly 86 percent to 746 million rupees in the three months to the end of March. Analysts polled by Thomson Reuters expected a profit of 5.52 billion rupees on average, without taking into account the Venezuela write-off.

While revenues from North America, Dr Reddy's biggest market, rose 12 percent, and those from India were up 11 percent, they could not offset declining sales in Europe and emerging markets.

"We will continue to actively engage with the Venezuelan government to provide affordable medicine to fulfil the need of the people of the country, subject to repatriation of funds," Dr Reddy's Chief Executive G.V. Prasad said in a statement.

($1 = 66.6 Indian rupees)

(Reporting by Zeba Siddiqui in Mumbai; Editing by Ruth Pitchford/Keith Weir)