Dr Reddy’s Laboratories Ltd’s December-quarter results were expected to be off-colour due to a one-off revenue from selling a drug in the US market in the year-ago quarter. But US market sales were flat sequentially, and the company said it is difficult to predict product approvals, which makes it difficult to predict a recovery in sales growth as well.
The element of unpredictability on the approval front could cut both ways. It could see low contribution from new launches for some more quarters, or could see a sudden bunching of approvals, leading to an unexpected spurt in growth.
Since future launches are of more complex products, the approval process could be taking longer and the company management said that guiding on expected launches is not possible. Price erosion is visible in parts of its base business in the US market as competition increases, and it needs a few big launches every quarter to maintain the growth momentum.
In the December quarter, Dr Reddy’s revenue rose 3% to Rs.2,865 crore, but its profit after tax declined 26%. But excluding the US market revenue of generic Zyprexa (olanzapine)—an anti-depressant—in the December quarter, revenue rose 23%. In the US market, sales rose 39% year-on-year but were flat on a sequential basis. The firm launched only one product in the quarter, but will benefit from sales during the exclusivity period on the drug.
Though the US market disappointed, other markets came to the rescue. Russia did well, with sales rising 35% over the year-ago period, and by 16.5% sequentially. Sales in India rose 12%, and it bettered the market growth during the quarter. Though Europe saw sales decline over the year-ago period, sequentially, sales rose 8.4%. The pharmaceutical services and active ingredients (PSAI) segment, too, stepped up during the quarter, benefiting from growing demand for generic launches as sales rose 28% over a year ago; but sales declined 9.5% on a sequential basis.
Though India and the other emerging markets are providing good support to Dr Reddy’s, it needs the US market—which contributes 44% of generics’ revenue—to drive its growth momentum. Shareholders will be looking forward to new launch announcements from that region to spot a recovery. Till then, it will be its base business that will drive growth, though the March quarter will benefit from a ramp-up of sales of generic Propecia (finasteride), a $136 million drug prescribed to treat enlarged prostates. Dr Reddy’s has a 180-day exclusive marketing window for this drug. On Friday, the stock was down 3.6% as shareholders digested the sobering news delivered by the company.