Dr. Reddy's Laboratories Ltd. Q3 FY2025 earnings call

• Delivered double-digit top-line growth and steady margins while continuing to invest in R&D, innovation, and commercial capabilities. - Completed the acquisition of the NRT business in September and is focusing on its phased integration starting April 2025. - Launched Toripalimab, an immuno-oncology drug, and Elobixibat, a first-in-class drug for chronic constipation, in India. - Secured marketing authorization for rituximab in the UK and filed denosumab in the US and Europe. - Focused on driving productivity in R&D, scaling manufacturing and commercial capabilities, and leveraging market access. - India business grew significantly but had segments like cardiac and gastrointestinal with slower growth, with plans to regain market-leading growth in these areas.

Consolidated revenue for Q3 FY 2025 stood at Rs. 8,359 crores (US$977 million), registering a 16% year-over-year growth and 4% quarter-over-quarter growth. Excluding the acquired Nicotine Replacement Therapy (NRT) business, the underlying revenue growth was 7.5% year-over-year but declined 3% quarter-over-quarter. The consolidated gross profit margin was approximately 59%, up 19 basis points year-over-year but down 91 basis points quarter-over-quarter. SG&A spend was Rs. 2,412 crores (US$282 million), up 19% year-over-year and 5% quarter-over-quarter. R&D spend was Rs. 666 crores (US$78 million), up 20% year-over-year but down 8% quarter-over-quarter. EBITDA was Rs. 2,298 crores (US$269 million), up 9% year-over-year but flat quarter-over-quarter. Net profit attributable to equity holders was Rs. 1,413 crores (US$165 million), up 2% year-over-year and 13% quarter-over-quarter. Segment-wise, North America Generic revenue was $401 million, flat year-over-year but down 10% quarter-over-quarter; Europe Generic (excluding NRT) saw a 22% year-over-year growth and 5% quarter-over-quarter growth; India business revenue was Rs. 1,346 crores, up 40% year-over-year but down 4% quarter-over-quarter; PCI business revenue was $97 million, up 3% year-over-year but down 3% quarter-over-quarter.

• Expect R&D investment to be in the range of 8.5% to 9% for the full fiscal year. - The NRT business is expected to remain profitable with continued investment and growth, aiming to maintain a 20-plus digit EBITDA margin. - Anticipate approvals for multiple products in the US, including Iron Sucrose and other drugs.

• FDA inspection at the CTO-2 facility in Bollaram, Hyderabad issued a Form 483 with seven observations. - Foreign exchange volatility, which impacted net finance expense. - Intensifying market competition, especially in segments like Semaglutide where pricing could be affected by increased competition.

Q: On the India business, how transitory is the weakness in cardiac and gastrointestinal segments?

A: Erez Israeli stated that segments like gastro will recover relatively soon, while cardiovascular may take additional quarters with more adjustments, and the company is investing more in these areas.

Q: On biosimilar foray, economics of denosumab?

A: Denosumab was filed in the US and Europe, with the strategic rationale being to facilitate the launch of abatacept, having timelines for approval in the US around 12 months and in Europe around 14-15 months.

Q: On US business product decline, reason?

A: Erez Israeli said it was due to competition entering the market, a combination of market share and price factors.

Q: On NRT business profitability, synergy benefit?

A: Erez Israeli said the NRT business should continue to be profitable with planned investment and aiming to keep the EBITDA in the 20-plus digits.

Q: On Semaglutide Canada market and supply?

A: Erez Israeli said the Canada market patent expires in January 2026, needing to obtain approval, similar to the US/UK in collaborating with distributors, and the reimbursement mechanism in Canada leads to price reduction with increased competition.

Q: On Iron Sucrose filing?

A: Erez Israeli said it was filed long ago, recently received a CR on the API side, and was planned to be launched but delayed to address the CR.

Q: On abatacept FDA approval confidence?

A: Erez Israeli said there was a successful Phase 1, giving a good chance in Phase 3, with plans to submit for approval in December 2025.

Q: On lenalidomide post settlement?

A: Erez Israeli said similar behavior is likely to be seen until after summer 2025, then unlikely to sell at current pricing.

Q: On Semaglutide addressable market and market share?

A: Erez Israeli said markets like Canada, India, and Brazil will open in 2026, a combination of B2B and B2C, with global partners, and going for all products, but it was hard to indicate specific market share.

Q: On Semaglutide oral formulation timelines?

A: Erez Israeli said oral will come later, 12-18 months after injectable in most markets, with some markets seeing launches in 2027-2028.

Q: On European market growth sustainability?

A: Erez Israeli said it was sustainable due to new product launches, expanding to more markets, and leadership in top countries.

Q: On selling expenses in NRT and other?

A: M V Narasimham said SG&A includes NRT business expenses, and the previous quarter had an exceptional stamp duty expense.

Q: On US biosimilar landscape?

A: Erez Israeli said it was a competitive landscape with many products and bispecifics, preparing for competition by selecting certain products with less competition.

Q: On DFD-29 sales-based royalties?

A: Erez Israeli said it was eligible for sales-based royalties as the product is approved.

Q: On depreciation and amortization rate?

A: M V Narasimham said this quarter included NRT amortization, but the rate will continue.

Q: On Russian currency hedging?

A: M V Narasimham said hedges were in place, covering some extent, and Russia revenue in INR was affected by ruble volatility but not much difference in constant currency.

Q: On Semaglutide manufacturing integration?

A: Erez Israeli said it was fully integrated for API and formulation, with buying devices.