Dr. Reddy's Laboratories
(
RDY
) reported third quarter fiscal 2012 earnings per American
Depositary Share (
ADS
) of 60 cents, significantly above the year-ago earnings of 30
cents per ADS. Higher revenues boosted earnings.
Quarter at a Glance
The company reported revenues of $522 million during the
quarter, reflecting a year-over-year increase of 46%. Dr. Reddy's
reports revenues under two segments - Global Generics and
Pharmaceutical Services & Active Ingredients (PSAI). While
revenues at the Global Generics segment jumped 57% to $402 million,
PSAI revenues climbed 12% to $105 million during the quarter.
Generics revenues soared 133% in North America, 15% in Russia
and other CIS (Commonwealth of Independent States) markets, 14% in
Europe and 11% in India. Growth was mainly driven by the launch of
a generic version of
Eli Lilly & Co.'s
(
LLY
) Zyprexa (olanzapine) 20 mg. Dr. Reddy's currently has 180-day
marketing exclusivity for the generic drug. Since generic Zyprexa
was launched in the third quarter of fiscal 2012, the exclusivity
runs till the fourth quarter of fiscal 2012. The company expects
the Generic segment revenues to benefit from the generic launch
even in the fourth quarter but not as much as in the third
quarter.
Additionally, new product launches aided Generic segment
revenues and the Pharmaceutical Services segment mainly contributed
to PSAI revenues. Both the segments gained from exchange rate
fluctuation.
Gross margin at Dr. Reddy's inched up from 59% in the year-ago
quarter to 60% in the reported quarter. Gross margin improved due
to higher revenues and exchange rate fluctuation.
Selling, general and administration (SG&A) expenses amounted
to $145 million, reflecting an increase of 20%. Higher freight
charges, increased manpower and exchange rate fluctuation led to
the rise in SG&A costs.
Increased research and development (R&D) activities led to a
16% surge in R&D expenses, which came in at $29 million.
During the quarter, Dr. Reddy's launched 33 new generic
products, filed 16 new product registrations, and 7 drug master
files (
DMF
) globally. The total number of abbreviated new drug applications
(ANDAs) awaiting US Food and Drug Administration (FDA) approval
were 79 at the end of the quarter. Of the 79 ANDAs, 40 were Para IV
filings and 10 are first-to-file.
Our Take
We currently have a Neutral recommendation on Dr. Reddy's. The
stock carries a Zacks #2 Rank (Buy rating) in the short-run. We
expect generic Zyprexa to continue contributing to the company's
revenues, given the drug's exclusivity till the fourth quarter of
fiscal 2012.
Moreover, we believe Dr. Reddy's is in a strong position to
benefit from the huge potential presented by the US generics
market, as quite a few blockbuster drugs such as
Johnson & Johnson
's (
JNJ
) Concerta and
Pfizer Inc.
's (
PFE
) Lipitor have lost patent exclusivity and more drugs are slated to
go off-patent in the coming years.
JOHNSON & JOHNS (
JNJ
): Free Stock Analysis Report
LILLY ELI & CO (
LLY
): Free Stock Analysis Report
PFIZER INC (
PFE
): Free Stock Analysis Report
DOCTOR REDDYS (RDY): Free Stock Analysis Report
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