Dr Reddy's eyeing volume and value growth in the US

Dr Reddy’s is expanding its product basket for the US market which is expected to derisk its current focus on complex product portfolio. In line with this strategy the company is adding volume driven products such as the recent acquisition of 42 abbreviated new drug application (ANDAs) for an unspecified valuation. The portfolio, which includes more than 30 injectable products, has an addressable market size of $645 million.

With a portfolio of around 100 Abbreviated New Drug Applications (ANDA) pending approval, company is adding 42 new products to its portfolio. More importantly these 42 products are already approved by the US drug regulator though the company may require some time to launch given the technology transfer to the company’s facilities.

Analysts say that company was relying solely on a concentrated portfolio strategy in the injectable segment and is now adding volume based products as has been the strategy of peers. “We believe the portfolio is likely to be a mix of high-volume, simple-solution products with moderate to high competitive intensity,” say analysts at Kotak Institutional Equities who expect FY22 sales of $50-70 million and the acquisition will add 4-5 per cent to US sales.  

Meanwhile analysts at Credit Suisse say that as 75 per cent of the acquired portfolio is injectables, the company could potentially take some of these products to China and other emerging markets.

The company’s strategy to channel its energies more towards India, China and other emerging markets is looked at positively by analysts. The company could see a potential rerating with stable markets like India and emerging markets getting a higher valuation compared to the US.

The street is also confident of the company’s prospects. The company’s US sales in the March quarter is expected to be robust driven by opioid treatment generic Subaxone. Analysts at HDFC Securities say that cost control measures, generic Suboxone and oncology injectables will drive profitability. Operating margins are expected to expand 740 basis points year-on-year and 180 basis points sequentially.

Margin gains over the FY19-21 period is expected to come from key launches in the US  such as contraceptive Nuvaring and multiple sclerosis drug Copaxone in the next 18 months. The US FDA approval for its formulation plant at Bachupally, Hyderabad is another trigger for the stock.

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