Company Overview

Dr. Reddy’s (NSE: DRREDDY) commenced its generics business in India in 1986 and is today a trusted name in the healthcare industry consistently serving the needs of millions of patients with high quality, affordable and innovative medicines across therapy areas.1


The company's Generic Formulations business addresses this urgent need by offering more than 200 high-quality generic versions of expensive innovator medicines—at a fraction of the cost—in over 80 countries around the world. Generic Formulations, including tablets, capsules, injectables, and topical creams, is the largest part of its business portfolio, making products across the major therapeutic areas of gastrointestinal ailments, cardiovascular disease, pain management, oncology, anti-infective, pediatrics and dermatology.2


in addition to accelerating access to prescribed medicines, the company actively develop appropriate products that are available without a doctor's prescription. These important over-the-counter (OTC) medications reach a much broader population. In Russia and India, for example, its strong OTC portfolio contains some of the most trusted brands in the industry. The company make and market OTC medicines in the areas of pain management, dermatology, allergy management areas, and gynecology. In the coming years, the company will continue to explore offering OTC versions of its generic products as regulations allow.3

Active Pharmaceuticals Ingredients

The company's API Business caters to leading innovator and generic companies across the US, Europe, Latin America, Japan, Korea and other emerging markets. With deep technical strengths in the development of complex APIs such as steroids, peptides, complex long chain synthesis and oncology the company consistently deliver high-quality APIs.4


Diseases like cancer or autoimmune disorders often require the long term use of Biologics – large molecule protein therapies – for an effective treatment that may have fewer side effects. Effective as they are, biologics are very expensive and can place a significant cost burden on both, the patient as well as the payor. Fortunately, its decades-long experience in the generics business, coupled with its world-class capabilities and best-in-class team allow it to create high quality, equally effective, but significantly more affordable generic biosimilars. The company's product development capabilities and its global reach have quickly made it a leader in this relatively small, but fast-growing biosimilars segment. Dr Reddy’s Laboratories leads the industry with four biosimilar products marketed in several countries, and with an extensive development pipeline.5

Differentiated Formulations

The company's Proprietary Products division aims to fulfill these unmet patient needs. In some cases, this involves developing a new dosage of a current drug. In other cases, it may involve developing new combinations of synergistic medications. In doing so, the company focus on improving the overall efficacy of the medicines. Currently Dr Reddy's Lab has three new drug applications (NDA) filed in therapeutic areas of dermatology and neurology, and are looking to serve the US market by 2018.While efficacy and safety are important, they are not the only considerations for successful adherence to a treatment protocol. This is why its Proprietary Products division focuses on initiatives to improve patient experience with its products. Better experience results in better compliance, which means better health and outcomes for patients.6

Custom Pharmaceutical Services

CPS (Custom Pharma Services) supports pharmaceutical companies across the value chain from development to manufacturing; and from intermediates and drug substances (APIs) to drug products. Dr Reddy's Lab has capabilities and extensive experience with complex molecules to understand and solve challenges that impede a new drug's journey to market. The combination of its experienced scientists, state-of-the-art R&D laboratories, cGMP manufacturing sites and technologies (small molecules, peptides, chirals, HPAPIs, steroids, activated mPEGs and dosage forms) makes CPS your preferred CDMO partner.7

Business Overview

Through its portfolio of products and services, the company operate in multiple therapeutic areas — the major ones being gastrointestinal, oncology, cardiovascular, pain management, central nervous system (CNS), anti-infective, respiratory and dermatology.8

Dr Reddy's Lab is present in several countries across the world, with the key geographies being the US, Europe, India and Russia.

After the last couple of years, when the company had to deal with extremely difficult market conditions on account of intense price competition, channel consolidation in the US, regulatory hurdles and consequential delays in launches of new products, FY2019 witnessed much better performance for it. Though challenges continued in terms of pricing pressure in the US as well as in Europe, the company were able to grow significantly in the branded markets - India, Russia and several other emerging markets.

Improved financial performance in FY2019 were on account of the following factors:.

  • Growth in the branded generics markets: the company saw good growth across key branded markets, namely India, Russia, Brazil, CIS countries and some other regions. The company improved its base business across these markets, launched new products and scaled up in new geographies like Brazil and Colombia. The initial hiccups faced during the GST transition in India in FY2018 were settled, and the business was back to normal in FY2019.
  • Executing measures for prudent cost control: The company embarked on a journey to prune its cost structures to be more productive and eliminate waste across the businesses. Robust initiatives were put in place to drive cost efficiencies in manufacturing; to improve procurement efficiencies; to optimize on research and development expenditure and productivity; and to apply productivity metrices on marketing spends. In addition, several measures were undertaken to improve manpower productivity, such as restructuring the levels of hierarchy, delayering and eliminating overlaps.
  • Creating a leaner business model: The company's renewal strategy includes achieving self-sustainability, streamlining and optimizing global cost structures to create profitable growth for each of its businesses. During FY2019, as part of this strategy, the company sold (a) the antibiotic formulations manufacturing facility and related assets in Bristol, (b) the API manufacturing business unit at Jeedimetla, Hyderabad, and (c) the rights to distribute and market the specialty derma brands portfolio. These, and other such initiatives, should significantly contribute in focusing each business to drive future growth.

Industry Overview

According to IQVIA (formerly Quintiles and IMS Health Inc.) in its January 2019 report, the global pharmaceutical industry is expected to exceed US$ 1.5 trillion by 2023 growing at a compounded annual growth rate (CAGR) of anywhere between 3% and 6%. Prescription drug sales are expected to grow at a CAGR exceeding 6.4% for  2018-24 and reach US$ 1.2 trillion a significant increase in the annual growth rate compared to around 1.2% for period 2011-17.

Orphan Drugs: The orphan drugs sector is expected to continue outperforming the market almost doubling during 2018-2024 to reach US$ 262 billion, and accounting for approximately 20% of prescription sales in 2024. This highlights the industry’s continued move to address small groups of neglected patients with high unmet need and to benefit from regulatory and financial incentives.

Gene and Cell Therapies: Gene and cell therapy is no longer a distant possibility but a reality. Building on the approval and launch of CAR-T therapies in 2017 and the launch of Luxturna (Spark Therapeutics), the first USFDA approved gene therapy for vision loss in 2018, these treatments are expected to gain momentum and should increasingly contribute to growth. This space though is not devoid of various challenges including commercialization, market access, patient and physician adoption, cost/benefit discussions, reimbursement and manufacturing scale-up. Despite these challenges, the area is generating enormous interest. There has been a surge in activity, and new therapeutic areas are being targeted which are being augmented with a healthy pipeline.

Biologics and Biosimilar: One should expect to see a greater number of USFDA biosimilar approvals in 2019, as more innovator biologics reach their market exclusivity expiration.

Artificial Intelligence (AI) to improve productivity: In the pharmaceutical industry, there is enormous scope for increasing efficiency, particularly in drug development, where it often lacks the necessary capital to run large trials and testing. At the same time, AI is maturing from hype to more tangible use. The predictive and analytic powers of AI should enable companies to make smarter, faster and more strategic decisions. AI will increase drug development efficiency by not wasting research eff orts - for example, by creating alternative hypotheses for trials by discovering more data to enable drug repurposing. Additionally, the influx of data from new devices will enable real-time, on-the-go, instant results.

Industry-Wide Consolidation: Every segment of the pharmaceutical industry is expected to continue witnessing consolidation throughout 2019.

Outlook for the US Market: According to a recent IQVIA report, while the invoice spend in the US is expected to grow at a rate of 4% to 7% to US$ 600 billion by 2023, the net growth in manufacturers’ revenue will be a bit lower, at 3% to 6%. Growth is expected to be driven by new products and brand pricing, which shall partially be off set by patent expiries and generic launches after the expiry of market exclusivity.

Value Based Pricing (VBP): Payors, insurers and hospitals are no longer willing to pay simply for a product; but are looking for VBP which is dependent upon success of the products and procedures through measurable outcomes. Although VBP comes with its share of risks and challenges, there is a large potential to create a win-win situation for multiple healthcare stakeholders if structured and implemented correctly.

Rise of China: Despite concerns about a trade war between the US and China, it is not a surprise that China is still viewed as a huge market opportunity for the pharmaceutical industry. With its huge population and growing middle class, it has become a leader in R&D innovation for medicine, particularly regenerative medicine - and perhaps even gene-editing based on the news from late 2018.

Better life expectancy and lower mortality rates culminating in an aging global population: The United Nations projects that the global life expectancy will reach beyond 75 years by the year 2050. This means that the number of elderly people will see a substantial increase in the years to come. It is projected that this number will globally rise to over 19% in 2050.


North America Generics (NAG)

NAG is its largest market. In FY2019, it contributed to around 49% of the GG sales, and 39% of its overall sales. Revenue from the region for FY2019 was Rs 60 billion (US$ 862 million), representing an almost fl at growth of 0.2% over the previous year. As mentioned earlier, the year was challenging on account of significant price erosion faced due to increased competition across some of the major products. The negative impact was off set by increase in volumes for some of its base products and new product launches - the major ones being Buprenorphine and Naloxone sublingual film, Levetiracetam bags, Colesevelam, Hydroxychloroquine and Thiotepa injection

Emerging Markets

Revenue from Emerging Markets for FY2019 was Rs 28.9 billion, representing a growth of 28% compared to the previous year. This significant growth has been a result of increased revenues from its base business, new product launches and scale up of business in new markets.

Revenue from Russia for FY2019 was Rs 15.3 billion, representing a 21% growth over the previous year. The growth was 26% in terms of the local currency (ruble).

Revenue from CIS countries (including Romania) was Rs 5.2 billion, representing 34% growth over the previous year. The growth was led by Kazakhstan, Romania and Ukraine through the increasing sale of existing products as well as new launches.

During FY2018, the company had entered Brazil, Turkey and Algeria. In FY2019, the company scaled up its business in these markets. Further the company entered in some select ASEAN markets. The company's focus is primarily on institution business in most of these countries through biosimilars and oncology products. Dr Reddy's Lab has also grown well in China and expect it to be a relatively high growth market in the next few years.

The company's strategy for growth in Emerging Markets is to continue improving its market share in its chosen therapy areas, including expansion of biosimilars and the oncology portfolio. The company will focus on scaling up in its major markets, which include Russia, China, Brazil, South Africa and Ukraine.


Revenue from Europe in FY2019 was Rs 7.9 billion, representing a decline of 4% vis-a-vis the previous year. This was on account of lower sales in the UK, which was partly off set by increasing revenues from Germany. Revenue growth was impacted due to price erosion in few of its key products, coupled with temporary supply disruptions, and delays in some of the launches. The supply issues have been largely resolved and the company expect this market to register growth in FY2020.

The company launched multiple new products in Germany and the UK during the year and also continued making inroads into the newly entered countries of France, Italy, and Spain. Currently, Europe comprises 6% of its global generics sales. In the medium to long-term, the company expect to grow this share by leveraging its in-house portfolio, seeking in-licensing opportunities, and scaling up business in the three new countries.


Revenue from India in FY2019 was Rs 26.2 billion, or a growth of 12% compared to previous year. According to the IQVIA in its report for the 12-month period ended 31 March 2019, its growth has been 11.3% versus a market growth of 10.5%. During the year, the company improved its market rank by three places - from number 16 as per MAT (March 2018) to number 13 as per MAT (March 2019). This growth has been primarily on account of improvement in the base business performance led by increase in volumes and price in certain products

During the year, the company launched 15 brands in India, including Hervycta (the fifth biosimilar from its internal pipeline), which aided growth. Eight of its brands (Omez, Omez D, Atarax, Econorm, Razo D, Nise, Stamlo, Razo) are in top 300 brands of the IPM


The PSAI business recorded revenues of Rs 24.1 billion in FY2019, representing a 10% growth over the previous year. In FY2019, the company fi led 82 DMFs globally, of which nine were in the US.

Proprietary Products (PP)

The PP business recorded revenue of Rs 4.7 billion in FY2019, with a growth of 12%. The contribution from its lead in-house commercialized product in the neuro franchise, i.e. ZEMBRACE® picked up through the year along anticipated lines.

Financial highlights


Sales for the quarter is Rs 3.8 billion with a year-on-year growth of 14%. Sequentially, it has declined by 9%. In Q2 FY 20, the company had out-licensed 2 neuro products of the proprietary products business and recognized a revenue of Rs 7.2 billion. Adjusted for this, the sequential quarter growth is 7%, and is highest ever quarterly sales from operations, without any one-off item.9

Global Generics

  • Revenues from GG segment at Rs 35.9 billion. Year-on-year growth of 15%, primarily driven by Europe, Emerging Markets and India. Sequential growth of 9%, primarily driven by NAG, Europe and EM.
  • Revenues from North America at Rs 16.0 billion. Year-on-year revenues grew by 8%. Sequential growth of 12%, largely on account of higher volumes in some of its key molecules partly offset by price erosion in some of its key molecules. The company launched five new products (Bortezomib injection, Doxercalciferol, Deferasirox dispersable tabs, Deferasirox film coated tabs, Sodium Nitroprusside injection) during the quarter. As of 31st December 2019, cumulatively 101 generic filings are pending for approval with the US FDA (99 ANDAs and 2 NDAs under 505(b)(2) route). Of these 99 AND As, 53 are Para IVs out of which the company believe 32 have 'First to File' status.
  • Revenues from Emerging Markets at Rs 9.2 billion. Year-on-year growth is 19%. Sequential growth is 11%.
  • Revenues from India at Rs 7.6 billion. Year-on-year growth of 13%, driven by new products, improved realizations in base business and volume traction. Sequential growth is 2% due to improved realizations and launch of new products
  • Revenues from Europe at RS 3.1 billion. Year-on-year growth of 52%, primarily on account of new products and volume traction in base business partly offset by lower realizations as few key molecules entered tenders. Sequential growth is 12% due to improvement in the sales of base business.

Pharmaceutical Services and Active Ingredients (PSAI)

  • Revenues from PSAI at Rs 6.9 billion. Year-on-year growth of 16% largely driven by increase in volumes of AP! business. There is a sequential decline of 3% due to lower volumes pick up compared to Q2. Proprietary Products Segment (PP)
  • Revenues from PP at Rs 0.2 billion, as against Rs 0. 7 billion in Q3 FY 19 and Rs 7.4 billion in Q2 FY 20, as the company had out-licensed its commercialized derma products in Q4 FY 19 and commercialized neuro products in Q2 FY 20.


Gross profit margin at 54.1 % vs. Q3 FY 19 margin of 53.9% and  Q2 FY 20 margin of 57.5%

In December, 2019 there has been a generic launch and an authorized generic launch for the product Nuvaring®, which has led to a considerable erosion in the value of this product for it, and accordingly Dr Reddy's Lab has taken an impairment charge of Rs 1.1 billion($ 156.5 mn). In addition to this, considering the current market dynamics, Dr Reddy's Lab has taken an impairment charge of Rs 2.1 billion on the intangibles pertaining to other products. In total, Dr Reddy's Lab has taken an impairment of Rs 3.2 billion on the intangible assets for this quarter. In Q2 FY 20, the company had an impairment charge on3.6 billion.

R&D expenses at Rs 3.9 billion. As % to Revenues- Q3 FY20: 9.0% I Q2 FY 20: 7.6% I Q3 FY19: 9.5%. Focus continues on building healthy pipeline of products across its markets. And Capital expenditure is at Rs 1.2 billion.

Loss before Tax at Rs 5.3 billion, loss is primarily on account of impairment of intangible assets. Excluding impairment, profit before tax is at U. 9 billion.

Recent Developments

On April 14, 2020 Dr. Reddy’s Laboratories  announced that  the launch of Amphetamine Sulfate Tablets USP, a therapeutic equivalent generic version of Evekeo® (amphetamine sulfate) Tablets approved by the U.S. Food and Drug Administration (USFDA). Amphetamine Sulfate Tablets, USP is a Schedule II drug. The Evekeo® brand and generic had U.S. sales of approximately $38 million MAT for the most recent twelve months ending in January 2020 according to IQVIA Health. Dr. Reddy’s Amphetamine Sulfate Tablets USP are available in 5 mg and 10 mg dose in bottle count sizes of 100.10

On April 14, 2020 Dr. Reddy’s Laboratories  announced that the launch of authorized generic version of NitroDur® (nitroglycerin) Transdermal Infusion System.  The combined market for all Nitrogylcerin Transdermal Patch products had U.S. sales of approximately $14.7 million MAT for the most recent twelve months ending in January 2020 according to IQVIA Health. Dr. Reddy’s Nitroglycerin Transdermal Infusion System is available in four dosage strengths: 0.1 mg/hr, 0.2 mg/hr, 0.4 mg/hr, and 0.6 mg/hr, each in a box of 30 count. NitroDur® is a trademark of USpharma Ltd.11


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Created by Asif Farooqui on 2020/05/11 08:11
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