Hyderabad: Dr.Reddy’s Laboratories Ltd, India’s second-largest drug maker, will announce its fiscal third quarter results on 9 February. The company had a spectacular second quarter, posting a record profit of 722 crore on sales of 3,989 crore, with growth rates of 26% and 11%, respectively, compared to the year-ago period.

But a lot has changed since 30 September. The company on 5 November received a warning letter from US Food and Drug Administration (FDA) for alleged violations in manufacturing standards for its active pharmaceutical ingredient (API) plants at Srikakulam in Andhra Pradesh and Miryalaguda in Telangana, and an oncology formulations facility in Visakhapatnam (Andhra Pradesh). The company said it has responded to the warning letter with a remediation plan.

Since then, the stock of Dr Reddy’s has shed nearly a third of its market value.

Here are five things to watch out from Dr.Reddy’s Q3:

Impact of FDA warning letter: The sales contribution from these facilities to the US market is around 10-12% of annual sales or $250 million ( 2,000 crore). The warning letter doesn’t restrict the company from selling its products in the market, but may delay fresh approvals from these facilities and thereby the earnings. The FDA action might not have an immediate impact on the company’s US revenues.

US generic sales: The US contributes about half of the total global generic sales for Dr.Reddy’s. The company has no new launches in the third quarter. Generic Nexium was expected to be one of the key products for Dr.Reddy’s in the third quarter given its approval on 28 September. The company estimated $50 million from sales of generic Nexium in the next 12 months. However, it was forced to take the drug off the shelves on 10 November due to a restraining order from a US court based on a litigation involving the use of pink colour for the pill. Dr.Reddy’s re-launched the drug on 31 December with a different colour, but lost around 50 valuable days of sales in a highly competitive generic market. The company is expected to hold on to market shares of its high-margin limited competition products such as Eisai’s Dacogen (decitabine), and Celgene’s Vidaza (azacitidine), Roche Holding AG’s antiviral Valcyte (valganciclovir HCl), AstraZeneca Plc’s blood pressure drug Toprol XL and anti-coagulant Fondaparinux. The company’s North America sales in the quarter ended 30 September stood at 1,856.3 crore, of which US accounts more than 90%.

Domestic market: Indian sales of Dr.Reddy’s are expected to be strong in the third quarter. According to analysts, the domestic formulation revenues are expected to grow by 29% due to delayed despatches from the September quarter and aided by sales from UCB, which was acquired in June. India sales of the company stood at 546.4 crore in the second quarter.

Russia: Sales from Russia, the third largest market, fell 29% to 290 crore in the second quarter mainly on account of rouble depreciation and ongoing macroeconomic uncertainties in the country. Russian sales are expected to be in the decline.

Venezuela: Venezuela continues to remain an overhang on Dr.Reddy’s following currency repatriation issues due to restrictions imposed on transferring money out of the country after it ran short of foreign exchange due to a slump in crude oil prices and the worsening economy. Sales from the Latin American country stood at $136 million in FY15, making it the fourth largest country by sales. The sales from Venezuela have declined to $50 million in the first half.

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