Dr. Reddy’s Laboratories (RDY) reported fiscal 2011 earnings per American Depositary Share (ADS) of $1.50 compared with 10 cents per ADS posted in fiscal 2010. Higher revenues and lower operating expenses helped boost earnings.
Year at a Glance
The company reported revenues of $1.7 billion during the fiscal year, reflecting a year-over-year increase of 6%. Dr. Reddy’s reports revenues under two segments – Global Generics and Pharmaceutical Services & Active Ingredients (PSAI). Revenues at the Global Generics segment increased 10% to $1.2 billion. However, PSAI revenues declined 4% to $441 million during the year.
While generics revenues increased 18% in North America, 19% in Russia and other CIS (Commonwealth of Independent States) markets, and 15% in India, they deteriorated 13% in Europe. In the European market, Germany was worst hit with a 25% drop (due to a decline in the Euro currency), partly mitigated by the rest of Europe experiencing a 27% rise.
Gross profit margin at Dr. Reddy’s increased to 54% in fiscal 2011 from 52% in the previous year. Margins improved due to revenues from higher margin new products.
Selling, general and administration (SG&A) expenses amounted to $532 million, reflecting an increase of 5% due to higher legal expenses and elevated sales activities in India, Russia and CIS.
Higher research and development (R&D) activities led to a 33% surge in R&D expenses, which came in at $114 million.
Other Details
During the year, Dr. Reddy’s launched 135 new generic products, filed 107 new product registrations, and 56 drug master files (DMF) globally. The total number of abbreviated new drug applications (ANDA) awaiting US Food and Drug Administration (FDA) approval were 75 at the end of fiscal 2011. Of the 75 ANDAs, 37 were Para IV filings and 10 are first-to-file.
During the last quarter of fiscal 2011, Dr. Reddy’s entered into a collaboration agreement with Valeant Pharmaceuticals International Inc. (VRX) for the US rights to Cloderm Cream, 0.1%. As per the terms of the agreement, Dr. Reddy’s made an upfront payment to Valeant Pharma for the rights to manufacture, distribute and market Cloderm Cream in the US. Valeant Pharma is also entitled to receive royalties on future sales of the product.
Cloderm Cream, 0.1%, which is available only by prescription in 45 gm and 90 gm tubes, and in 30 gm and 75 gm pumps, is used for the relief of inflammatory and pruritic manifestations of corticosteroid-responsive dermatoses.
Dr. Reddy’s also completed the acquisition of GlaxoSmithKline plc’s (GSK) United States oral penicillin facility along with the product portfolio. Following the acquisition, Dr. Reddy’s owns the penicillin manufacturing site in Bristol, Tennessee, US, and the US rights to the Augmentin and Amoxil brands. Glaxo retains the ex-US rights to these brands.
Our Take
We currently have a Neutral recommendation on Dr. Reddy’s. We believe the company is in a strong position to benefit from the huge potential represented by the US generics market, as drugs with sales of about $75 billion are slated to lose patent exclusivity in the coming years.
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