Dr Reddy’s Laboratories (DRL) says it would keep focusing on emerging markets (which includes Russia and the CIS countries) and India for business growth, organically and via acquisitions.
The idea, it says, is to minimise dependence on any single region. Its growth was affected in the aftermath of a warning letter in 2015 from the American sector regulator, the Food and Drug Administration (FDA). At the time, US revenues were half its global sales of generic medicines and largely drove Dr Reddy’s generics formulation business. Today, combined revenue from emerging markets and India finely balance that of the North America, at 38 per cent of the total. The US revenue contribution is 36 per cent. To a question in a recent analyst call on possible acquisitions, Erez Israel, CEO, said: “We are always looking for opportunities, and are very active on this front. The priority is on emerging markets and India in particular because this is the area of focus.” However, the firm has also said growth would primarily be via organic means.
Delivering double-digit growth for the past several quarters, emerging markets and India, with respective contribution of 21 per cent and 17.4 per cent to revenues in the December 2019 quarter, have emerged as alternate growth centres for the company. Dr Reddy’s wants to further tap the potential of these markets.
It has also shed the earlier US strategy of pursuing only high value products. This created trouble with the delays in new product approvals and fewer launches in the US market after the warning letter. Its generic NuvaRing product met with huge price erosion after a delay in launch due to regulatory reasons, forcing the firm to take an impairment of ~1,100 crore during the December quarter.
“We will not be dependent on any single product to grow, including in the United States. With the notion of the past, the company focused on a relatively small number of assets, either complex generics or biologics or proprietary products for growth. This was indeed the strategy until two years ago. Since then, we've announced a new strategy in which we have multiple spaces which have synergy among them, much more opportunity and less risk. So, we moved from high risk, high reward to low risk, very high reward. We are not dependent on NuvaRing or Copaxone or any other big names to grow. In the US, we will grow because we want to have 350 products," he told analysts.
US revenue growth for Dr Reddy's has been in single-digit over recent years. In contrast, the turnaround in its India business in recent quarters has particularly attracted the attention of analysts. Erez said on this: "We decided India is a priority for us, that we want to be in the future top-five here, and we plan to achieve it."