Dr. Reddy's Company Analysis Report

Dr. Reddy's Company Analysis Report

Summary

• Dr. Reddy's is a leading globally generic manufacturer and a major Indian CMO. Its products are supplied and marketed all over the world, with major focus on India, US, Europe and Russia.
• The company's products and services are broadly categorized into: active pharmaceutical ingredients (API); Custom Pharma Services (CPS); Global Generics; Generic Biopharmaceuticals; and New Chemical Entities & Differentiated Formulations.
• Dr. Reddy's full-fledged R&D divisions are mainly concentrated on the development of chemical processes for API synthesis and intermediates used in Global Generics segment. It also supports its custom pharmaceutical line of business through strong knowledge of process chemistry and finished dosage development expertise.
• Although Dr. Reddy's consolidated revenues increased marginally in local currency, it recorded a y-o-y decline of 2% in dollar terms to reach $1.5bn in FY 2010. Its Pharmaceutical Services and Active Ingredients (PSAI) business which is mainly composed of APIs and custom pharmaceutical services remained the second best selling division for the company recording FY 2010 sales of $431m at a y-o-y growth of 5.3%.

Company overview

Table 8: Dr. Reddy's snapshot
Headquartered:	Hyderabad, India
Established:	1984
Consolidated revenue (FY 2010):	$1.5bn
Segmental revenue (FY 2010):	$431m*
Employees (as of March 2010):	>13,000 (2,600 outside India)
*Pharmaceutical Services and Active Ingredients (PSAI) division. FY = Fiscal Year (April 01 to March 31)

Source: Company information

Established in the year 1984, Dr. Reddy's is a leading globally generic manufacturer and a major Indian CMO. Its products are supplied and marketed all over the world, with major focus on India, US, Europe and Russia. Moreover, it also has a strong presence in emerging markets such as Venezuela, Romania and certain CIS countries. Dr. Reddy's strengths in science and technology range from synthetic organic chemistry, formulation development, biologics development to small molecule based drug discovery. Such expertise enables the creation of unique competitive advantages with an industry leading Intellectual Property (IP) rights and technology leveraged product portfolio. The company's products and services are broadly categorized into: active pharmaceutical ingredients (API); Custom Pharma Services (CPS); Global Generics; Generic Biopharmaceuticals; and New Chemical Entities & Differentiated Formulations. Its CPS business serves both big pharma and emerging biotech companies all over the world. Moreover, its end-to-end service along with competitive pricing structure makes a compelling value proposition to its global customers.

Business segmentation

Dr. Reddy's is an integrated global pharmaceutical player committed to provide innovative and affordable products through its three divisions: Global Generics; Pharmaceutical Services and Active Ingredients (PSAI); and Proprietary Products. Its PSAI division offers IP and technology-advantaged products at competitive prices to many innovator companies across the globe. The following figure illustrates the business segmentation of Dr. Reddy's in India.

R&D focus

Dr. Reddy's has a fully-fledged R&D division continuously engaged in research on new products and on process development of existing products. Its PSAI R&D activities are mainly concentrated on the development of chemical processes for API synthesis and intermediates used in Global Generics segment. It also supports its custom pharmaceutical line of business through strong knowledge of process chemistry and finished dosage development expertise.

Financial performance

Although Dr. Reddy's consolidated revenues increased marginally in local currency, it recorded a y-o-y decline of 2% in dollar terms to reach $1.5bn in FY 2010. Its Pharmaceutical Services and Active Ingredients (PSAI) business which is mainly composed of APIs and custom pharmaceutical services was the second largest division for the company recording FY 2010 sales of $431m at a y-o-y growth of 5.3%. International markets accounted for over 85% of PSAI's top-line sales in FY 2010. Revenues from Europe dominated this division, primarily due to increased sales of gemcitabine, clopidogrel and montelukast.

Table 9: Dr. Reddy's financial performance by segment ($m), FY 2010
Division	Sales FY 2010 ($m)	Sales growth FY 2009–10 (%)	Share of revenues FY 2010 (%)
Global Generics	1,026	-5.5	69.2
Pharmaceutical Services and Active Ingredients (PSAI)*	431	5.3	29.0
Proprietary Products	11	68.9	0.7
Others	16	21.8	1.1
Total	1,483	-2.0	100
*Dr. Reddy's did not disclose the revenue distribution of APIs and Custom Pharmaceutical Services under PSAI division.Note: all numbers were converted into $m considering an average exchange rate for the fiscal year (i.e. in FY 2009, INR1 = $0.0218; in FY 2010, INR1 = $0.0211). FY = Fiscal Year (April 01 to March 31)

Source: Company reports

Growth strategies

mPEG alcohol manufacturing facility in Mexico

In March 2010, the Custom Pharmaceutical Services (CPS) business of Dr. Reddy’s has commissioned its commercial scale methoxy pegylated (mPEG) alcohol manufacturing facility at its Cuernavaca facility in Mexico. This new addition in Mexico represents a significant investment in its c-GMP facility which is capable of producing a wide range of molecular weight mPEGs and has annual capacity in the multi-ton range. Moreover, the company has also branded its activated mPEG products as PEGtech. PEGtech branding has been used to bring together a broad range of products comprising a variety of activating groups and molecular weights (5-60 kDa), which are currently supported by backward integration to key starting materials. Furthermore, it also highlights Dr. Reddy's strength in c-GMP manufacturing of activated mPEGs.

Strategic alliance with GSK for emerging markets outside India

In June 2009, Dr. Reddy's entered into a strategic agreement with GSK to develop and market selected products across emerging countries outside India. According to the agreement, all products will be manufactured by Dr. Reddy’s and will be licensed and supplied to GSK in various emerging countries such as the Middle East, Africa, Latin America and Asia Pacific excluding India. However, in certain markets, products will be co-marketed by both the companies. Thus, this alliance will combine Dr. Reddy’s portfolio of high quality branded pharmaceuticals with GSK’s extensive sales and marketing capabilities in emerging countries.