Dr Reddy's Laboratories Ltd ADR RDY

Dr. Reddy's Offsets Base Business Erosion and Boosts Margins with Lenalidomide and Regadenoson

Dr. Reddy’s is one of the largest generic drug manufacturers in the world. By our estimate, Dr. Reddy’s generics business makes up over 75% of company’s sales and, along with other generics manufacturers, it continues to suffer low- to mid-single-digit erosion year over year in developed markets like North America and majority of Europe. Because price and margin headwinds exist predominantly in small-molecule oral tablets that are easy to produce, we expect Dr. Reddy’s future pipeline to focus on complex generics—drugs that have complex formulations, dosage forms, or are injected or have more complex administration. Complex generics are more difficult to manufacture which by nature limits competition. And since price, volume, and margin are highly dependent on the competitiveness of a drug, complex generics pave an opportunistic road for Dr. Reddy’s. A fourth of its North American sales comes from complex injectables and we expect this number to increase as the company prioritizes these offerings. But other players in the industry are employing a similar strategy so success in this area relies on the company’s ability to seek out profitable drugs and efficiently launching them to market.