Brightly coloured pharmaceutical medication, including antibiotics, are arranged for a photograph. (Photographer: Chris Ratcliffe/Bloomberg)

Dr. Reddy’s Earnings Indicate Tough Quarter Ahead For Indian Generics In U.S.

Dr. Reddy’s Laboratories’ September quarter results indicate that pricing pressure and intense competition are hurting profitability of Indian generic drugmakers in the U.S., their largest market.

U.S. sales, which contribute 38 percent of Dr. Reddy’s total revenue, fell 14 percent from the previous quarter to $204 million in the July-September period, according to its exchange filings. That compares with the street’s estimate $220-225 million.

The decline in sales can be attributed to the absence of blockbuster drug Suboxone—the generic of London-listed Indivior Plc’s opioid addiction drug, which the company was prevented from selling or exporting to the U.S. pending a patent-infringement lawsuit. Intense competition and price erosion in key products such as Toprol XL, Decitabine and Nitroglycerin also impacted the sales.

Yet, net profit of India’s fifth-largest drugmaker by sales rose for the second straight quarter. That’s because of a strong growth in India and other emerging markets, lower taxes and cost cuts.

Erez Israeli, chief operating officer of Dr. Reddy’s, in an analyst call, said though prices have stabilised in the U.S. over the previous quarter, any new competition for its key large drugs can put further pressure. Drugs like Suboxone, Copaxone and Nuvaring will be crucial for Dr. Reddy’s growth in the U.S. market, Israeli told BloombergQuint.

What brokerages are saying

  • CLSA: With no major U.S. launch on the cards, a recovery in sales is expected only in the financial year ending 2020.
  • Citi: Near-term prospects are dependent on launches of gSuboxone, gNuvaring and gCopaxone.
  • Nomura: A ramp-up in non-U.S. markets and cost cuts support Dr. Reddy’s base earnings.

With continued pricing pressure in the U.S. and higher base for domestic business, drugmakers are likely to face pressure even in the third quarter.

Shares of Dr. Reddy’s Laboratories are trading as much as 3.79 percent higher at Rs 2,495 apiece on the BSE.

Watch Dr. Reddy’s COO Erez Israeli’s interview post Q2 earnings here