New launch traction for Dr Reddy's key to offsetting price erosion

Given that price erosion in the North American market is expected to continue in the near term, some brokerages have cut their earnings estimates for the stock

The July–September quarter of 2025–26 (FY26) saw pharmaceutical major Dr Reddy’s Laboratories (DRL) miss most brokerage estimates, with weak performance in the North American market dragging down consolidated results.

 

With price erosion in North America expected to continue in the near term, several brokerages have cut their earnings estimates for the stock, though some of the sales loss could be offset by drug launches.

 

While DRL stock has moved in line with the Nifty Pharma index — down 1 per cent over the past year — it has underperformed the Nifty, which gained 7.4 per cent in the same period.

 

 

For the quarter, consolidated sales grew 10 per cent year-on-year (Y-o-Y). The European business surged 139 per cent Y-o-Y, driven by the acquired nicotine replacement therapy portfolio integrated into operations from the third quarter of 2024–25 (FY25). The India business rose 13 per cent Y-o-Y, supported by launches, improved pricing, and higher volumes. The Rest of World segment registered 14 per cent Y-o-Y growth. 

 

What weighed on overall growth was a 13 per cent decline in US sales. The US, DRL’s largest market, accounts for 37 per cent of total revenue.

 

The decline stemmed from steep price erosion in the generic version of cancer drug Revlimid and other key molecules. With Revlimid going off-patent in January 2026 and several competitors already in the market, revenues, which have been on a downward trend, are expected to fall sharply in the October–December quarter.

 

DRL has earned over $1.7 billion from this product over the past four years. Beyond the base business, the company is banking on a clutch of filings to drive growth. These include 73 abbreviated new drug applications and two new drug applications through the hybrid pathway awaiting approval. Of these, 45 are Para IVs, and 22 could secure ‘first-to-file’ status.

 

After 2026–27 (FY27), several major patent expiries in the US will open up new opportunities. Analyst Sumit Gupta of Centrum Research highlights biosimilar abatacept—used to treat autoimmune diseases—as a promising prospect. The company plans to file for approval by December 2025 and expects a launch around December 2026 or January 2027.

 

Among the key revenue drivers ahead is semaglutide, the glucagon-like peptide-1 drug used for Type 2 diabetes. It will go off-patent in emerging markets and select developed markets, including Canada, in 2026. This could be a major opportunity for DRL, especially in Canada, where only two or three players are likely to launch initially.

 

Analysts at Elara Securities, led by Bino Pathiparampi, estimate annual sales of about $100 million for the company in Canada alone. DRL also plans to enter the Indian semaglutide market once the patent expires in 2027.

 

Elara Securities maintains a ‘buy’ rating with a target price of ₹1,588 but has cut core FY26 earnings estimates by 10 per cent due to lower Revlimid sales.

 

Systematix Research has a ‘hold’ rating with a target of ₹1,156, factoring in a 95 per cent decline in Revlimid revenues by FY27 and a $100 million boost from the generic semaglutide launch in Canada.

 

Motilal Oswal expects earnings to remain stable from FY25 through 2027-28, with the projected decline in Revlimid sales (from fourth quarter of FY26 onwards) offset by launches and stronger sales of legacy products in key markets. The brokerage has retained a ‘neutral’ stance, observing that current valuations already capture most of the earnings upside.