Dr Reddy’s better-than-expected June quarter performance, announced last week, may have been helped by a few one-offs. There were some positives too. Consequently, there have been gains in the stock, which is up about four per cent. However, further gains would depend on the pace of new product launches, especially the restart of Subaxone generics.
Sales in the company’s biggest market, North America (43 per cent of consolidated revenue), grew 10 per cent sequentially and six per cent year-on-year. Sales of the recently launched generic version of the multi-million dollar drug Subaxone may have also contributed to the top line growth in June quarter. Analysts feel that given the mega launch was only for a few days before the court restrained Dr Reddy’s from selling the drug, some improvement in base business too may have taken place — thereby adding to revenues. Nevertheless, the results highlight some stability in the base business in the US, which has remained in the range of $225-250 million over the past nine quarters, say analysts at Nomura.
The company, too, has seen some uptick in approvals in the recent past, which may have helped offset some pressure on account of price erosion, which now seems to be in single digits.
Domestic market growth of 30 per cent — even though on a low base of last year that saw destocking prior to implementation of GST — still indicates healthy performance. Even emerging markets sales, which have remained lumpy in the last few quarters because of cross-currency headwinds, grew well. Russia, other CIS (Commonwealth of Independent States) and Romania, as well as Rest of World (RoW) sales — grew 14 per cent, 37 per cent and 17 per cent, respectively.
While growth in smaller contributing geographies and stabilised sales in the US are positives, clarity on the restart of opioid treatment drug, Subaxone generics, and timeline for the launch of large generic launches such as hormone medication drug NuvaRing all remain key to growth in earnings.
Analysts say if the firm resolves the Subaxone litigation in a few months and restarts sales, gains would be more in FY20 when more competition creeps in. Ranvir Singh at Sytematix Shares sees the results and gross margin improvement as a positive.
However, he adds, clarity on launch timeline for key products and resolution of USFDA related issues associated with Indian manufacturing facilities is critical for future prospects.