Q2 Review: Dr Reddy's Labs' Profit Sees Double-Digit Growth

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Dr Reddy's Labs' MV Ramana decodes earnings and shares outlook for coming quarters, in conversation with Monal Sanghvi.

Transcript

00:00 Welcome to BQ Prime.

00:01 You're watching Earnings with BQ,

00:02 and our guest today is Mr. M.V. Ramana,

00:05 the CEO of Branded Markets at Dr. Reddy.

00:08 Welcome to the show, sir.

00:11 - Hi.

00:11 - So Dr. Reddy has reported a PAT which was up 33%

00:17 and a margin which came in at 29%,

00:19 strong again, similar to the first quarter.

00:22 So I think I will begin with the margins now.

00:27 You had given a guidance of 24, 25%,

00:31 I think 25% more or less.

00:34 So do we see an upside now that,

00:36 you know, you've had two strong quarters?

00:38 - So I think in terms of the long-term,

00:42 we still stick to our guidance of 24, 25%.

00:46 You might have fluctuations between the quarters.

00:50 So from a long-term perspective,

00:53 we are sticking to our estimations that we had suggested.

00:57 - So for the year, you're saying we'll still come in at 25.

01:02 Now, there's a couple of things

01:04 that I want to understand here.

01:06 There's discussions about better freight rates,

01:09 raw material costs that are rationalizing.

01:12 So with all of these benefits accruing,

01:15 shouldn't we see some upward revision in terms of guidance?

01:18 Or what is it that you're seeing could hamper

01:22 or be an issue in the next two quarters

01:24 that it would bring down the margins to 25%?

01:27 - So I think as an organization,

01:29 we continuously work on productivity.

01:32 And of course, any improvements on the freight rates,

01:35 raw material rates, obviously will help.

01:38 But at the same time, if you remember,

01:40 we also said that we're also investing into the future.

01:44 We're investing in the portfolio,

01:46 we're investing in bisimilars,

01:47 we're investing in horizon-two initiatives.

01:50 So it's about also using the cash to create the future.

01:54 And that's the reason why we said

01:55 you might have fluctuations quarter on quarter,

01:58 but on a steady state, our aspiration is 25%.

02:02 - Okay, so now I'm going to go into the market.

02:05 So we'll begin with the North America region

02:08 where you reported a growth of 13%.

02:11 And there was, if I remember correctly,

02:15 in the press release, it said that some bit of growth

02:17 was offset by price erosion.

02:19 Again, now there's been a lot of discussion

02:23 around better pricing in the US,

02:26 reduction in competition, shortage of drugs.

02:29 Despite that, we're facing a price erosion.

02:32 So what part of the portfolio is seeing this

02:35 and why are we still going through it?

02:37 - So I would definitely say that

02:40 if you take the generics business by definition,

02:44 you have a price erosion.

02:45 But having said that, what we have seen at least

02:48 in the last quarter is relatively a much more stable

02:52 situation as far as the prices are concerned.

02:54 - Then we had a 13% growth.

03:03 So should we see an upside to this?

03:05 How should we look at it?

03:07 Also, what element has come in from Revlimid?

03:10 Because of course, that is one of your star drugs.

03:12 So does it mean that the base portfolio

03:14 without Revlimid has seen price erosion?

03:18 Where exactly are we witnessing?

03:20 - So we do see stability in our base.

03:25 We see growth in our base business.

03:28 And at the same time, Revlimid also continues

03:30 to be an important growth driver for the company.

03:34 So that's the way we look into it.

03:36 Our aspiration is to grow both.

03:37 And we will work on how we will bring in more new products

03:44 into the market and continue the growth

03:46 of the base business.

03:48 - Going to take off from there and ask you,

03:51 in terms of the launch pipeline.

03:53 So I think my chat with you last quarter said that

03:56 you're going to see a couple of big launches

03:58 in a year or two.

03:59 Where are we on that?

04:00 So one specific question is of course,

04:03 on the Batchupalli facility where we saw nine observations.

04:06 And that was a pre-approval inspection.

04:09 So the talk of the street was that it was related

04:11 to Rituzimab.

04:12 Is that correct?

04:14 And if that is, what are the steps that we are taking

04:17 and by when can we see this getting launched?

04:20 - Yeah.

04:21 So in terms of the new products, what we had spoken,

04:24 the aspiration is to launch 20, 25 products every year

04:29 into the US.

04:30 And while we are going after them,

04:32 there are also products that matter.

04:34 We expect limited competition and we are working

04:37 on the same to see how we will take them into the market.

04:41 Rituzimab is our first, you can say,

04:45 by a similar map that we plan to take into US, Europe

04:50 and the rest of the emerging markets as well.

04:53 As a consequence to that,

04:54 we have gone through the inspection and as stated,

04:59 we will continue to address the issues.

05:01 - Any launch timelines that we can get

05:05 because this I think is a high revenue product.

05:09 - So again, we are going through the process,

05:12 depends on how and when the process gets completed,

05:15 we expect to take the product into the market.

05:17 - And so what are the other products that we're looking at

05:20 in the next one or two years,

05:21 if you could help us with some names,

05:24 some therapeutic areas where we might see something?

05:28 - So there are products that matter for us

05:31 that we continue to work,

05:32 where we expect at this point of time,

05:37 a good traction in the market.

05:40 They belong to different therapeutic categories

05:43 like oncology, diabetes and several other therapeutic areas.

05:48 These are therapeutic areas that matter to the US

05:51 as well as it matters to the rest of the world as well.

05:54 And that is where we will continue our strategy

05:56 to leverage the development that we have for US

05:59 into the rest of the markets.

06:01 And that is where we are seeing good amount of traction

06:04 because the same product that we're developing

06:06 for US and Europe, we are picking it up

06:09 and taking it to a large number of emerging markets.

06:12 - So I am probing into this a little more than usual

06:18 because I read a couple of reports

06:20 which came out during the quarter,

06:21 which said that there is no solid launch product pipeline

06:26 from Dr. Reddy that could be material enough

06:30 to offset the erosion that we are witnessing

06:32 in the base business,

06:33 which is why something specific

06:36 on the product launch pipeline

06:38 that could give us more color and more visibility

06:40 on your future plans, if possible.

06:43 - So again, we feel confident of our portfolio

06:47 and we are working to have a sustainable portfolio

06:52 over the next several years.

06:54 And on top of our small molecule,

06:56 we're also building a biosimilar portfolio as well.

07:00 So that's our aspiration

07:02 and we feel confident that we will be able to get products,

07:06 regularly products into not just US market,

07:10 to Europe market as well.

07:12 And also to leverage these assets

07:14 into the emerging markets.

07:17 We have a footprint of about 45 markets

07:20 where we are present by ourselves.

07:22 And then we have a set of markets

07:24 where we work through our partners.

07:26 So I think if you take in the sense

07:29 of what we can do with a molecule,

07:32 with our presence,

07:33 we feel confident that we would be able

07:36 to use new products as a growth tool.

07:38 - Okay, so now on the India side,

07:42 we've recorded a growth of a low single digit.

07:45 And we've stated that, of course,

07:48 the acute therapies of take was a little slow

07:52 and we saw an NLEM impact.

07:55 So if you could help break this down,

07:58 because yes, typically yes,

08:00 this quarter two is a strong quarter

08:02 when it comes to anti-infectors.

08:03 So what really went down?

08:06 And one question which extrapolates here

08:09 is that on the larger scale,

08:10 we've been seeing issues with volume of take

08:13 in the overall industry.

08:15 So can you just help us understand

08:16 what is happening in the Indian pharma space?

08:20 - So if you see,

08:21 there has been a delay in the season by about a month.

08:25 We see now in the month of October,

08:27 the season has kicked in

08:28 and we see the acute starting to pick up

08:32 in terms of volume.

08:34 And at the same time,

08:37 when it comes to what has been some of the reasons

08:40 why we have been on a single digit growth,

08:43 apart from NLEM, which has impacted us,

08:45 the second one is there's a planned reduction

08:48 in the price of sigmas that we bought

08:50 that is also contributing to a certain impact

08:55 in terms of the growth.

08:56 And the third one, of course,

08:57 you spoke, which is the post-mortem of the season,

09:02 which we now see in the month of October

09:05 that we are picking it up.

09:07 But I think what I'd also spoken to you

09:10 in our earlier conversations,

09:11 especially for India,

09:13 apart from our base business growth,

09:16 we're also working on several innovative initiatives.

09:21 So three pivots that we're doing

09:23 to drive the growth in India.

09:25 One is getting access to innovative assets.

09:28 The second one is consumer health.

09:31 And the third is digital.

09:34 All of these initiatives are in various stages

09:38 of, I would say, the minimum viable product.

09:41 And I do expect that innovation

09:44 also will contribute meaningfully to India

09:46 as we go into the next couple of years.

09:49 We are adding a layer of innovation.

09:54 And this innovation has got three pivots.

09:57 One pivot is the innovative products.

10:01 The second pivot is consumer health.

10:03 And the third pivot is digital.

10:05 As we speak, we have several of them

10:08 in various stages of implementation.

10:11 Some of them we had announced it

10:14 in terms of the recent launch of Cellvita Wellness,

10:16 which is a D2C platform for diabetes and prediabetes.

10:21 Earlier to that, it was Nerevio,

10:22 which is a launch of migraine product.

10:25 Very recently, we have also licensed in Pyrotenib,

10:29 which is a best-of-class product for breast cancer.

10:33 So we have these initiatives going on.

10:37 So we're pretty confident that we would be able

10:41 to not just beat the market as we go along,

10:44 but our aspiration to be in top five is still intact.

10:47 And we feel confident that we will get there.

10:51 - So do you believe that we need some acquisitions

10:55 and are we looking at some acquisitions

10:57 to propel us to the top five?

11:00 - So if you see, there are two ways

11:04 in which we are looking at, let's say, inorganic,

11:09 if you would want to call that.

11:10 One, of course, is to look at complementary products

11:13 that would help us in our therapeutic areas.

11:16 One of the areas we would like to acquire

11:18 is in the area of chronic.

11:21 The second is to acquire or to get access

11:24 to assets which are innovative.

11:26 So both of them, we will continue to pursue,

11:29 but of course, we feel that we will be able

11:31 to add value to those acquisitions.

11:33 - Okay, sir.

11:37 So and also my last update,

11:39 what is happening with the China, on the China front?

11:43 I mean, we had four approvals.

11:45 We were expecting quite a few this year.

11:48 So where are we on that?

11:50 - So approvals are on track.

11:51 As you see, we have received approvals

11:55 right from the beginning of the financial year.

11:57 There's also been an announcement of the new GPO

12:01 that we will participate in.

12:03 So both in terms of filings as well as approvals,

12:06 we're on track in China.

12:07 - Thank you so much, sir.

12:10 It was a pleasure speaking to you and all the best.

12:13 - Thank you, thank you so much.

12:15 (upbeat music)

12:18 (upbeat music)

12:21 (typewriter clicking)

12:24 [BLANK_AUDIO]

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