Generic drugmakers continue to navigate a challenging U.S. market defined by persistent price erosion, intense competition and structurally thin margins. While demand for generics remains steady, profitability has come under pressure as commoditized products face rapid price declines and limited differentiation.As a result, most generic manufacturers are leaning heavily on complex generics, injectables and biosimilars. These categories offer higher margins and, in many cases, limited-competition or exclusiv ...

Core Insights - Indian drugmaker Dr Reddy's has entered into an exclusive licensing agreement with Australia's Immutep for the manufacturing, development, and distribution of Immutep's cancer therapy [1] Company Summary - Dr Reddy's will be responsible for the manufacturing and distribution of the cancer therapy developed by Immutep, indicating a strategic move to expand its oncology portfolio [1] - The partnership highlights Dr Reddy's commitment to enhancing its capabilities in the oncology sector, which is a growing area in the pharmaceutical industry [1] Industry Summary - The collaboration between Dr Reddy's and Immutep reflects the increasing trend of partnerships in the pharmaceutical industry aimed at accelerating the development of innovative cancer therapies [1] - This licensing agreement may position Dr Reddy's favorably in the competitive oncology market, which is characterized by high demand for effective cancer treatments [1]

Core Insights - The focus is on value investing with an emphasis on fundamental research across various sectors including chemicals, homebuilders, building materials, industrials, and metals & mining [1] - The investment strategy targets stocks that are undervalued and have potential catalysts within a timeframe of one quarter to two years [1] - The experience includes over three years of active investing and a role as a buy-side analyst at a boutique research firm and family offices [1] Sector and Company Analysis - The sectors of interest are diverse, indicating a broad approach to identifying investment opportunities [1] - The strategy is centered on identifying stocks that are "cheaply available," suggesting a focus on price-to-earnings ratios and other valuation metrics [1] - The investment horizon is relatively short to medium-term, which may influence the selection of stocks based on upcoming events or earnings reports [1]

Core Insights - Dr. Reddy's Laboratories Limited (RDY) reported Q2 fiscal 2026 earnings of 19 cents per American Depositary Share (ADS), exceeding the Zacks Consensus Estimate of 18 cents, and up from 17 cents per ADS in the same quarter last year [1][5] - Revenues increased by 9.8% year over year to $992 million, surpassing the Zacks Consensus Estimate of $983 million, primarily driven by growth in global generics revenues [1][5] Revenue Breakdown - Global Generics revenues reached INR 78.5 billion, reflecting a 10% year-over-year increase, mainly due to the acquired Nicotine Replacement Therapy portfolio in Europe and strong performance in branded markets [2] - Pharmaceutical Services & Active Ingredients (PSAI) revenues amounted to INR 9.5 billion, up 12% year over year, driven by new active pharmaceutical ingredients (APIs) and favorable foreign exchange [7] - Revenues in the Others segment totaled INR 0.1 billion, down 42% year over year [7] Regional Performance - North America segment revenues declined by 13%, attributed to increased price erosion in key products like Lenalidomide, although this was partially offset by favorable foreign exchange and contributions from new product launches [3] Product Development and Approvals - As of September 30, 2025, Dr. Reddy's had 75 generic filings pending FDA approval, including 73 abbreviated new drug applications (ANDAs) and two new drug applications, with 45 of the ANDAs being Para IVs [4] - The European Medicines Agency's Committee for Medicinal Products for Human Use (CHMP) issued a positive opinion for AVT03, a proposed biosimilar to Amgen's Prolia and Xgeva, which is now under review by the European Commission [10][12] Financial Metrics - Gross margin decreased by 492 basis points to 54.7% due to higher price erosion in generics and reduced operating leverage [8] - Research and development (R&D) expenses were $70 million, down 15% year over year, as investments in biosimilars decreased following major funding completion for the Abatacept biosimilar candidate [8] - Selling, general and administrative expenses rose to $298 million, up 15% year over year, driven by increased sales and marketing investments [9] Strategic Moves - Dr. Reddy's announced an agreement to acquire the Stugeron portfolio from Johnson & Johnson, marking its entry into the anti-vertigo market, enhancing its central nervous system portfolio [16]

Core Insights - The Indian pharmaceutical industry has evolved from reliance on multinational companies to becoming a $25 billion generics export powerhouse, yet it still lags in new drug discovery compared to Western firms [3][4] - Kallam Anji Reddy is recognized for his vision of transforming India into a hub for drug discovery, emphasizing the joy of discovering new drugs in his autobiography [2][3] - The 2005 amendment to India's patent laws shifted the landscape, requiring Indian companies to adapt their strategies to focus on innovation rather than reverse engineering [7][8] Company Overview - Dr. Reddy's Laboratories was founded by Kallam Anji Reddy in 1984 with an initial investment of ₹25 lakh, initially focusing on manufacturing active pharmaceutical ingredients for export [6] - The company entered the US generic market in 1997 and became the first Indian pharma company to list on the NYSE in 2001, raising $132 million [6] - Despite setbacks in drug discovery and a failed acquisition, Dr. Reddy's Laboratories grew to become India's second-largest pharma company with operations in 20 countries by the time of Reddy's passing in 2013 [9][10] Industry Context - The global pharmaceutical landscape is dominated by a few hundred companies, with the cost of developing a new drug ranging from $1 billion to $2.6 billion and only 1 in 5,000 compounds reaching patients [3] - Indian generics account for nearly 90% of all prescriptions in the US, highlighting their critical role in the American healthcare system [4] - The shift to product patents in 2005 necessitated a strategic pivot for Indian pharma companies, pushing them towards innovation and drug discovery [7][8]

Revenue Performance - Consolidated revenues for the three months ended September 30, 2025, were Rs. 88,051 million, a 10% increase from Rs. 80,162 million in the same period of 2024[214]. - Revenues from the Global Generics segment were Rs. 78,498 million, a 10% increase compared to Rs. 71,576 million in the prior year[216]. - Revenues from the Pharmaceutical Services and Active Ingredients (PSAI) segment increased by 12% to Rs. 9,450 million from Rs. 8,407 million[228]. - Total revenues for the six months ended September 30, 2025, were Rs. 173,503 million, an increase of 11% from Rs. 156,889 million for the same period in 2024[245]. - Revenues from the Global Generics segment increased by 10% to Rs. 154,118 million for the six months ended September 30, 2025, compared to Rs. 140,434 million for the same period in 2024[247]. - Revenues from Europe surged by 138% to Rs. 13,762 million, largely due to the Acquired NRT Business and new product launches[220]. - Revenues from Europe in the Global Generics segment surged by 140% to Rs. 26,506 million for the six months ended September 30, 2025, compared to Rs. 11,035 million for the same period in 2024[250]. - Revenues from India increased by 13% to Rs. 15,780 million, supported by new product launches and increased sales volumes[221]. - Revenues from North America decreased by 13% to Rs. 32,408 million, primarily due to price erosion, despite launching seven new products in the region[217][218]. Profitability Metrics - Gross profit for the same period was Rs. 48,140 million, representing 54.7% of revenues, down from 59.6% in the previous year[229]. - The gross profit margin for the Global Generics segment decreased to 59.1% from 63.1% due to price erosion in existing products[230]. - The PSAI segment's gross profit margin fell to 18.0% from 30.0%, attributed to unfavorable changes in product mix and lower operating leverage[231]. - Profit before tax for the six months ended September 30, 2025, was Rs. 37,397 million, a decrease of 2% from Rs. 37,988 million for the same period in 2024[244]. - Profit for the period increased by 4% to Rs. 28,364 million for the six months ended September 30, 2025, compared to Rs. 27,335 million for the same period in 2024[244]. - Global Generics segment gross profit decreased to Rs. 92,514 million (60.0% of segment revenue) for the six months ended September 30, 2025, down from Rs. 89,680 million (63.9%) for the same period in 2024[260]. - PSAI segment gross profit margin fell to 15.8% for the six months ended September 30, 2025, compared to 26.7% for the same period in 2024, primarily due to unfavorable product mix changes[261]. - Profit for the period increased to Rs. 28,364 million (16.3% of total revenues) for the six months ended September 30, 2025, compared to Rs. 27,335 million (17.4%) in 2024[271]. Expenses - Selling, general and administrative expenses increased by 15% to Rs. 26,436 million for the three months ended September 30, 2025, compared to Rs. 23,007 million for the same period in 2024, representing 30.0% of total revenues[232][235]. - Selling, general and administrative expenses increased by 14% to Rs. 52,083 million for the six months ended September 30, 2025, from Rs. 45,698 million in 2024, representing 30.0% of total revenues[262][265]. - Research and development expenses decreased by 15% to Rs. 6,202 million for the three months ended September 30, 2025, compared to Rs. 7,271 million for the same period in 2024, representing 7.0% of total revenues[233][234]. - Research and development expenses decreased by 8% to Rs. 12,446 million for the six months ended September 30, 2025, down from Rs. 13,464 million in 2024[266]. Taxation and Other Income - The effective tax rate decreased to 22.2% for the three months ended September 30, 2025, from 30.0% for the same period in 2024[239]. - Effective tax rate decreased to 24.2% for the six months ended September 30, 2025, from 28.0% in 2024, with tax expense at Rs. 9,033 million[270]. - Other income, net increased significantly to Rs. 2,673 million for the three months ended September 30, 2025, compared to Rs. 984 million for the same period in 2024[237]. Asset and Cash Flow Management - The company had 75 filings pending approval with the U.S. FDA, including 73 ANDAs and two NDAs, with 45 being Paragraph IV filings[219]. - Impairment of non-current assets charge decreased by 28% to Rs. 662 million for the three months ended September 30, 2025, compared to Rs. 924 million for the same period in 2024[236]. - Net cash from operating activities was Rs. 30,202 million for the six months ended September 30, 2025, up from Rs. 17,812 million in 2024, primarily due to decreased working capital requirements[279]. - Net cash outflows from investing activities were Rs. 28,735 million for the six months ended September 30, 2025, compared to Rs. 39,319 million in 2024[281]. - Principal debt obligations included Rs. 27,936 million in pre-shipment credit and Rs. 13,219 million in working capital borrowings as of September 30, 2025[275].

Financial Data and Key Metrics Changes - Consolidated revenue for Q2 FY 2026 was INR 8,805 crore ($992 million), reflecting a year-over-year growth of 9.8% and a sequential growth of 3% [5][6] - EBITDA margin stood at 26.7%, a decrease of 174 basis points year-over-year but flat sequentially [8][9] - Profit after tax attributable to equity holders was INR 1,437 crore ($162 million), a growth of 14% year-over-year, remaining flat on a quarter-over-quarter basis [10][11] - Operating working capital as of September 30, 2025, was INR 13,331 crore ($1.5 billion), with a free cash flow of INR 1,046 crore ($118 million) generated during the quarter [11][12] Business Line Data and Key Metrics Changes - North America generic business generated revenues of $373 million, a decline of 16% year-over-year and 7% sequentially, impacted by price erosion in key products [19] - European business reported revenue of €135 million, a growth of 150% year-over-year and 3% quarter-over-quarter, driven by the acquired nicotine replacement therapy portfolio [20] - Emerging market business delivered revenue of INR 1,655 crore, reflecting a growth of 14% year-over-year and 18% sequentially, supported by new product launches [20] - India business reported revenues of INR 1,578 crore, achieving a double-digit growth of 13% year-over-year and 7% sequentially [21] Market Data and Key Metrics Changes - The U.S. generics faced pressure from product-specific price erosion and lower Revlimid sales, while overall growth was supported by the integration of the consumer healthcare business [6][14] - The company moved up one place to the ninth position in the India pharmaceutical market, outpacing market growth with a moving annual total growth of 9.4% compared to the industry growth of 7.8% [21] Company Strategy and Development Direction - The company aims to grow its base, scale its presence in consumer healthcare, and advance innovative therapies and biosimilars [13][14] - Focused R&D investments are being made in complex generics, APIs, and biosimilars, with a strategic collaboration to enhance innovation [8][22] - The company is actively pursuing strategic collaborations and acquisitions to support sustainable growth and enhance capabilities [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving double-digit growth and steady profitability, despite challenges in the U.S. generics market [13][14] - The effective tax rate for the quarter was lower at 22.2%, primarily due to a favorable jurisdictional mix [10] - Management remains committed to returning to a 25% EBITDA margin in the next two years, focusing on key products and operational efficiency [58] Other Important Information - The company has received positive opinions for its biosimilar candidates and is making progress on key pipeline products [15][16] - The company retained its MSCI ESG rating of A for the second consecutive year, indicating strong sustainability performance [17][18] Q&A Session Summary Question: Expectations for Revlimid sales in Q3 - Management indicated that Revlimid sales will continue in Q3 but at a lower level than in Q2, possibly tapering off towards Q4 [27] Question: U.S. product pipeline and meaningful launches - Management acknowledged the challenges in the U.S. product pipeline but highlighted that significant growth will come from biosimilars and complex generics [28] Question: Legal status of Semaglutide in India - Management confirmed ongoing litigation regarding Semaglutide patents in India, awaiting a court decision [38] Question: Abatacept filing and risk mitigation strategies - Management confirmed plans to submit the BLA for Abatacept by December 2025, with a CMO in place to mitigate risks [40][41] Question: Growth drivers in India and impact of GST - Management stated that GST was not a significant obstacle and attributed growth to strategic execution and brand acquisitions [47] Question: Future margin outlook - Management remains confident in returning to a 25% EBITDA margin, addressing the impact of Revlimid sales decline through strategic initiatives [58]

Financial Performance - The company achieved consolidated revenue of ₹8,805 crores (approximately $992 million), reflecting a year-over-year growth of 9.8% and a sequential growth of 3% [8][19] - EBITDA margin for the quarter was reported at 26.7%, a decrease of 174 basis points year-over-year, but flat sequentially [13][20] - Profit after tax attributable to equity holders was ₹14.37 crores (approximately $162 million), representing a 14% year-over-year growth [16] Business Line Performance - The North America generic business generated revenues of $373 million, a decline of 16% year-over-year, primarily due to price erosion in key products [27] - The European business reported revenues of €135 million, a growth of 150% year-over-year, driven by contributions from the acquired nicotine replacement therapy portfolio [28] - The emerging market business delivered revenue of ₹16.55 crores, reflecting a growth of 14% year-over-year [30] Market Performance - The India business reported revenues of ₹15.78 crores, achieving a year-over-year growth of 137% [31] - The company's market position in India improved, moving up to the ninth position in the pharmaceutical market as of September [31] - The PSAI business reported revenue of $108 million, registering growth of 8% year-over-year [32] Strategic Direction and Industry Competition - The company is focused on growing its base business, scaling its presence in consumer healthcare, and advancing innovative therapies and biosimilars [19][33] - The integration of the acquired nicotine replacement therapy business is progressing well, with successful integration in key markets [23] - The company aims to enhance cost efficiencies while pursuing business development activities to support sustainable growth [19] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in maintaining double-digit growth in markets outside the U.S. over the next one to two years [10][96] - The company is actively pursuing strategic collaborations and partnerships to enhance its innovation ecosystem and accelerate development timelines [32] - Management acknowledged challenges in the U.S. generics market but remains optimistic about future product launches and pipeline developments [39][86] Other Important Information - The company retained its MSCI ESG rating of A for the second consecutive year, indicating strong sustainability performance [26] - The company has a net cash surplus of approximately $310 million, reinforcing its balance sheet strength [21] Q&A Session Summary Question: What should be expected for the U.S. business in Q3? - Management indicated that some revenue from settlements would still be expected in Q3, but less than in the current quarter [38] Question: How is the product pipeline in the U.S. evolving? - Management confirmed that the focus is on biosimilars and complex generics, with around 100 products in the pipeline [40] Question: What is the status of semaglutide litigation in India? - The company is currently challenging the patents in the Delhi High Court and awaiting the judge's decision [53] Question: What are the growth drivers for the India business? - Management highlighted successful execution of strategy and acquisitions as key factors driving growth in India [65] Question: What is the outlook for EBITDA margins? - Management remains committed to returning to 25% EBITDA margins in the next two years, despite current pressures from product discontinuations [78]

Financial Performance - The company achieved consolidated revenue of INR 8,805 crore ($992 million), reflecting a year-over-year growth of 9.8% and a sequential growth of 3% [4][5] - EBITDA margin for the quarter was reported at 26.7%, a decrease of 174 basis points year-over-year [8][10] - Profit after tax attributable to equity holders was INR 1,437 crore ($162 million), representing a 14% year-over-year growth [10][11] - The effective tax rate for the quarter was 22.2%, down from 30% in the same period last year [10] Business Line Performance - North America generics revenue declined by 16% year-over-year to $373 million, impacted by price erosion and lower Revlimid sales [19] - The European business reported revenue of €135 million, a growth of 150% year-over-year, driven by the acquired nicotine replacement therapy portfolio [20] - Emerging markets delivered revenue of INR 1,655 crore, reflecting a 14% year-over-year growth, supported by new product launches [20] - The India business reported revenues of INR 1,578 crore, achieving a 13% year-over-year growth, driven by new product launches and improved pricing [21] Market Performance - The North America generics market faced pressure from product-specific price erosion, particularly for lenalidomide [19] - The European market growth was primarily due to contributions from the nicotine replacement therapy portfolio and new product launches [20] - The emerging markets, particularly Russia, showed resilience with a 13% year-over-year growth in constant currency terms [20] Company Strategy and Industry Competition - The company is focusing on growing its base business, scaling its presence in consumer healthcare, and advancing innovative therapies and biosimilars [13][24] - Strategic collaborations and acquisitions are being pursued to enhance the innovation ecosystem and expand capabilities in emerging therapeutic areas [23][24] - The company aims to maintain a commitment to returning to 25% EBITDA margin in the next two years, despite challenges from Revlimid sales [44] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory across various markets, with a focus on innovation and strategic acquisitions [15][24] - The company is actively addressing regulatory challenges and is optimistic about upcoming product approvals, particularly for abatacept and semaglutide [30][32] - The management acknowledged the competitive landscape in Canada for semaglutide, anticipating multiple players in the market [72] Other Important Information - The company has a net cash surplus of INR 2,751 crore ($310 million) as of September 30, 2025 [11] - The company retained its MSCI ESG rating of A for the second consecutive year, indicating strong sustainability performance [18] Q&A Session Summary Question: Expectations for Revlimid sales in Q3 - Management indicated that some Revlimid sales are expected in Q3, but at a lower level than in Q2 [27] Question: US product pipeline and meaningful launches - The management acknowledged the challenges in the US product pipeline but highlighted ongoing focus on biosimilars and complex generics [28] Question: Legal status of semaglutide in India - The company is currently challenging patents in India, awaiting a decision from the Delhi High Court [34] Question: Confidence in abatacept and semaglutide approvals - Management expressed high confidence in the upcoming BLA submission for abatacept and ongoing progress for semaglutide [30][32] Question: Growth sustainability in ex-US markets - Management affirmed confidence in maintaining growth in ex-US markets, driven by new product launches and strategic acquisitions [52]

Q2FY26 RESULTS UPDATE Dr. Reddy's 24 OCTOBER 2025 1 | September 2025 | Investor Presentation | As per consolidated financial statements under IFRS Safe Harbor Statement This presentation contains forward-looking statements and information that involve risks, uncertainties and assumptions. Forward-looking statements are all statements that concern plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fac ...