Bangalore: Dr Reddy’s Laboratories expects revenue at its pharmaceutical ingredients and outsourcing services unit to rise 10-15% in this fiscal year, helped by stability in global economy, an official said.
Dr Reddy’s, India’s No. 2 drug maker by sales, is seeing a pickup in business in the second half of the year to March 2010 versus the first half when the recession crimped demand for active pharmaceutical ingredients by global generic players.
“We are getting out (from the slowdown) slowly in the second half, but it is not like a swing from one end to another, its a gradual emergence,” said Dr Reddy’s president of pharmaceutical services & active ingredients (PSAI) unit, Abhijit Mukherjee.
“Outsourcing will continue to gain momentum,” Mukherjee told Reuters in a phone interview on Tuesday from the company headquarters in Hyderabad. “The business momentum in the next three to four years is quite positive.”
Revenue at Dr Reddy’s pharmaceutical services and active ingredients unit, which accounts for about a third of its business, rose 13% in the last fiscal year to March 2009 to Rs18.76 billion ($403 million). Global drug giants, faced with thinning pipelines for new products and stiff competition from generic drugs, are increasingly outsourcing drug development work to firms in countries such as India to help cut costs and shorten the time for a drug launch.
Analysts say growth in the sector will also be boosted by the biggest loss of patent protection in history in the next couple of years, depriving global pharma majors of exclusivity on some of the world’s most famous and profitable medicines.
The ongoing restructuring in the sector and the tough new climate has put costs at centrestage for drugmakers.
“It (pharma outsourcing services) is not just going to come back but it is going to come back with higher intensity,” said Mukherjee. “We, as a generic API player, are well poised to take substantial advantage out of this.” The unit’s sales rose 11% in the quarter ended 30 September from a year ago to Rs5.38 billion, and Mukherjee said growth in the remaining two quarters of the fiscal year could be higher as companies increase outsourcing on global economic revival.
At 9:50am, shares in Dr Reddy’s was trading up 1.4%, after having risen as much as 2% in the opening deals, on the Bombay Stock Exchange.
Dr Reddy’s is setting up a new plant for its pharma service and active ingredients unit in a special economic zone in southern India with an initial investment of Rs2.5 billion, Mukherjee said. The first phase will start operations in 2011.
The company has six plants in India, which have been approved by the United States Food and Drug Administration. It also operates one plant each in Mexico and Britain, approved by the US regulator.
New York-listed Dr Reddy’s Laboratories last month beat forecasts by more than doubling quarterly net profit and maintained its full fiscal year forecast of 10% revenue growth on the launch of new generics.
Shares in Dr Reddy’s, which has a market value of $4 billion, have more than doubled so far this year, outperforming a 54% jump in the healthcare index and 70% surge in the main index.
The 12-month mean target price for its shares is Rs1,005.23, according to Thomson Reuters I/B/E/S. Of the 33 brokerages polled, 14 have a strong buy rating on the stock compared to 11 three months ago.