Dr. Reddy’s Laboratories (NYSE:RDY) reported second-quarter FY2027 revenue of INR 8,671 crore, or $905 million, down 1.5% from a year earlier but up 7.4% sequentially, as lower North American lenalidomide sales offset growth in its underlying business.
Chief Financial Officer M.V. Narasimham said the company’s base business, excluding lenalidomide in North America, delivered double-digit growth. EBITDA, including other income, totaled INR 1,783 crore, or $186 million, representing a 20.6% margin. Profit attributable to equity holders was INR 925 crore, or $97 million, while diluted earnings per share were INR 11.1.
Management attributed the revenue performance to new product launches and favorable foreign-exchange movements across several operations, partly offset by weaker results in Europe and the pharmaceutical services and active ingredients, or PSAI, segment.
Margins Rebound Sequentially
Gross margin was 52.1%, improving 562 basis points from the prior quarter but declining 254 basis points from a year ago. Narasimham said the year-over-year decline largely reflected lower lenalidomide sales. The preceding quarter had been affected by provisions for inventory and other costs tied to semaglutide API-related challenges.
SG&A spending increased 6% year over year to INR 2,808 crore, or 32% of revenue, due to personnel costs following annual increments, foreign-exchange movements and higher freight costs associated with supply-chain disruptions from the Middle East crisis. R&D spending fell 16% year over year to INR 524 crore, representing 6% of revenue, due primarily to lower generics development spending.
During the question-and-answer session, Narasimham said the company expects R&D spending to return to a range of 7% to 8% of revenue in coming quarters. He also said higher costs for key starting materials, solvents and outbound logistics had an EBITDA impact of about 100 basis points and are expected to continue through the third and fourth quarters if current conditions persist.
Chief Executive Officer Erez Israeli said management expects EBITDA margins to remain above 20% and reiterated the company’s longer-term goal of reaching 25%. He cited a more favorable business mix, growth in India, emerging markets and consumer health, as well as expense controls and new-product launches.
Semaglutide Relaunch Expected in November
Israeli said Dr. Reddy’s expects to relaunch semaglutide in November 2026, subject to successful validation. The company has addressed its API scale-up issue and has shipped the necessary API to its fill-and-finish partner, he said. Validation of the drug product using the revised API remains underway.
Most semaglutide supply is expected to go to Canada, with additional volumes intended for Latin America and, to a lesser extent, Africa. Israeli said management remains confident in its previously discussed target of 6 million to 7 million devices during the fiscal year, citing orders already received. For the 12 months beginning in April, he said the company is preparing for an estimated run rate of 12 million to 15 million pens, though he characterized that forecast as tentative.
Generic semaglutide has been approved in 10 countries, including Canada and India, as well as markets in Latin America, Africa and the Middle East. Israeli said regulatory processes are continuing across a total of 89 markets, although some approvals were delayed because product samples needed to be supplied after the scale-up issue was resolved.
Regional Results and Pipeline Developments
North America generics revenue was $264 million, down 29% year over year due to lenalidomide but up 12% sequentially. Excluding lenalidomide, the business posted double-digit growth, supported by new product launches. The company launched six products during the quarter, including a first-to-market launch of sugammadex injection.
The branded franchise, including India, emerging markets and nicotine replacement therapy, accounted for 53% of total revenue. Emerging-markets revenue rose 24% year over year and 12% sequentially to INR 2,059 crore, supported by product launches, acquisitions and favorable currency movements. India revenue increased 17% year over year and 8% sequentially to INR 1,851 crore, driven by recent launches, acquired brands, price increases and higher volumes.
European revenue, including nicotine replacement therapy, fell 6% year over year to EUR 127 million. Management cited generic price erosion and the impact of operating-model changes following the integration of the nicotine replacement therapy business. Israeli said that business is growing under its new model, though reported sales comparisons will continue to be affected by the shift away from payments to former handler Haleon.
PSAI revenue declined 19% year over year to $88 million because of lower API volume uptake. Israeli said the CDMO business generated more than $100 million in revenue over the past 12 months and is expected to grow through discovery, innovation-focused projects, production transfers from larger companies and clinical-stage work. He said the company aims for the CDMO operation to reach two to three times its current size within three to four years.
Biosimilars Remain a Focus
Dr. Reddy’s received U.S. Food and Drug Administration approval for its rituximab biosimilar, which will be commercialized in the U.S. through Fresenius Kabi. The company also launched nivolumab in India, marking its entry into biosimilar immune oncology in the country.
Israeli said the company is awaiting the FDA’s establishment inspection report for its Bachupally facility as it pursues approval for abatacept, which has a Dec. 22 goal date. He said Dr. Reddy’s is preparing to launch upon approval, although broader formulary-driven uptake would likely occur about six months later. Management estimated that a fair U.S. market-share range for the intravenous version could be 15% to 25%, assuming the company is initially competing against the innovator.
The company expects to file its subcutaneous abatacept application around February or March 2027. Israeli said the commercial infrastructure for the U.S. launch has largely been established, with only limited additional hiring anticipated.
As of Sept. 30, Dr. Reddy’s reported net cash of INR 2,502 crore, or $261 million. The company expects full-year capital expenditures of approximately INR 1,600 crore to INR 1,700 crore, below its earlier guidance of roughly INR 1,800 crore.
About Dr. Reddy’s Laboratories (NYSE:RDY)
Dr. Reddy’s Laboratories Limited is a global pharmaceutical company headquartered in Hyderabad, India. Founded in 1984 by Dr. Kallam Anji Reddy, the company develops, manufactures and markets medicines intended to make healthcare more accessible.
Its business includes generic prescription drugs, active pharmaceutical ingredients, biosimilars, specialty products and over-the-counter consumer healthcare products. Dr. Reddy’s offers medicines across therapeutic areas such as cardiovascular care, diabetes, oncology, gastrointestinal health, pain management and dermatology.
The company serves patients and healthcare providers in India, the United States, Europe and a range of other international markets, including emerging markets.
