Viswanath Pilla Moneycontrol News Dr Reddy's Laboratories said it will be focusing on the resolution of pending regulatory issues, and continue to work on cost optimisation as it tries to beat the pricing pressure in its key US market.
“Our continuous focus on execution, operational efficiency and cost optimization are showing results,” said GV Prasad, Co-Chairman and CEO of Dr Reddy’s.
“Looking ahead, our priority will be to resolve pending regulatory issues, and continue to work on execution and cost structures that will enable affordable medicines for more patients,” Prasad added.
The company on October 26 reported net profit rise of 77 percent year-on-year (YoY) to Rs 504 crore in the second quarter ended September helped by cost optimisation measures and a favourable forex, despite sustained US pricing pressure.
The net profit was partly helped by Rs 46.4 crore gain on account of sale of rights relating to Cloderm brand including its authorised generic in the US and profit on the sale of the antibiotic manufacturing facility in Bristol, US. The net finance income stood at Rs 62.5 crore due to forex gain.
Revenue during the quarter grew 7 percent to Rs 3,797.8 crore compared to Rs 3,546 crore in the same quarter last year.
Earnings before interest, tax, depreciation, and amortisation (EBITDA) margins for Q2FY19 stood at 22.8 percent improved by 340 basis points over last year and 110 basis points on a sequential basis.
The North America business that constituted about 38 percent of global generic sales declined 0.4 percent Rs 1,426.5 crore in Q2 on YoY basis, primarily due to the absence of generic de-addiction drug Suboxone sales in Q2 and competitive pricing pressure on some of the key molecules.
As of September 30, 2018, cumulatively 113 generic filings are pending for approval with the USFDA. Of these filings, 61 are Para IVs out of which 32 have 'First to File' status, that makes them eligible for 180-days marketing exclusivity.
Emerging markets that contribute 20 percent of generic sales business rose 36 percent to Rs 749.2 crore in Q2. Revenues from Russia grew 18 percent to Rs 380 crore on account of new launches and volume traction in some of the key molecules.
Revenues from India grew 8 percent to Rs 690 crore in Q2FY19, by new products and improvement in base business. Europe sales declined 21 percent in Q2FY19 to Rs 190 crore on account of higher price erosion in some of its key products.
Pharmaceuticals services and active ingredients (PSAI) revenue during the quarter increased 7 percent to Rs 600 crore YoY driven by volume traction in some of our key molecules. The company was also helped by the Chinese shortages.
Proprietary products saw 4 percent YoY growth to Rs 77.6 crore.
R&D expenses in Q2 declined 1 percent to Rs 412 crore.
Regulatory updates
The company said the Duvvada oncology formulation facility or FTO-7 is undergoing USFDA re-inspection that started on October 22. With respect to API manufacturing facility at Srikakulam, the Dr Reddy’s was asked to carry out certain detailed investigations and analyses by USFDA.
In response, the company said it had submitted the results of the investigations and analyses in October 2018. US FDA responded with certain additional follow-on queries. The company said it is in the process of responding to these queries.
The company received a warning letter from USFDA in November 2015, regarding certain deviations with current Good Manufacturing Practices at its API manufacturing facilities in Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as regarding violations at its oncology formulation facility at Duvvada, Visakhapatnam, Andhra Pradesh.
The company managed to resolve API manufacturing facility at Miryalaguda in June 2017. The status of the warning letter on the remaining two facilities remained unchanged.
Status of key approvals
Dr Reddy’s is banking on generic Suboxone film, generic Nuvuring and generic Copaxone to drive US sales growth in coming quarters.
Indivior, a spun-off of UK-based Reckitt Benckiser has secured a temporary restraining order from a US court restricting Dr Reddy’s from selling the copy version of blockbuster Suboxone sublingual film indicated for the treatment of opioid dependence.
The company said it is expecting the court to decide on the matter before January 4, 2019.
“If we win, we will launch the drug, if we’ll lose, we will continue to be under an injunction,” said Erez Israeli, Chief Operating Officer and Global Head of Generics of Dr Reddy’s to analysts.
On generic contraceptive vaginal ring Nuvuring, Dr Reddy’s said it has responded to the queries raised by US FDA and expects approval by second half of 2019, on Copaxone the company said it expects approval by end of 2019.
The company also said it is expecting 10-15 approvals from USFDA in the remainder of FY19.
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