Dr Reddy's R&D expenses to stay around 8.5% in FY25, to launch key biosimilar in 2027

Dr Reddy's Labs reported its highest-ever quarterly revenue in Q2.

Much like the trend in the domestic pharma industry, Dr Reddy's Laboratories is investing heavily in research and development aimed at ramping up the biosimilars, generics, and biologics segments.

In its earnings call following the Q2 results, the management guided that R&D spending would stay around 8.5 percent for FY25. For context, Dr Reddy's R&D spending stood at 9.1 percent of total revenue in the July-September period, up from 8.1 percent in the previous quarter. In the first half of FY25, the company's R&D expense came to 8.6 percent of total revenue.

This R&D investment is primarily focused on developing high-value products. Of the total R&D spending, 36 percent is allocated to biologics and original assets, with a focus on oncology products. The largest portion of R&D—50 percent—is dedicated to generics, primarily peptides and injectables, along with APIs. The remainder is allocated to biosimilars.

Strengthening its focus on biosimilars, Dr Reddy's management announced plans to launch a key biosimilar in 2027. CEO Erez Israeli also expressed confidence in a robust pipeline of over 20 high-value products but withheld specific launch timelines, citing their dependency on regulatory approvals.

Regarding Revlimid, Dr. Reddy's star high-value, low-margin cancer drug, which supported its earnings through FY24, the company expects its contribution to remain healthy for the rest of the fiscal. The management anticipates Revlimid will continue to be a substantial opportunity for Dr Reddy's in FY26 as well.

The patent for Revlimid is set to expire in 2026, which is expected to open the market for more generic players to launch their versions of the drug—a development analysts believe could pressure its revenue potential.

For quarterly earnings, Dr Reddy's reported a 15 percent fall in net profit to Rs 1,255 crore, affected by one-offs such as acquisition costs related to the Nicotinell portfolio, government land tax, minority interest in Nestle, and impairment.

The company's revenue rose 17 percent to Rs 8,016 crore, its highest ever. Dr Reddy's attributed the sales growth in North America largely to a rise in volumes, though it noted that this was partly offset by price erosion.

The drugmaker's EBITDA margin was 28.4 percent for the quarter, down from a high base of 31.7 percent in the year-ago period. The management also indicated that EBITDA margins are expected to remain steady around current levels through FY25.

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