Dr. Reddy's (RDY) Q3 Earnings And Revenues Increase Y/Y

Dr. Reddy's Laboratories Ltd. (NYSE:RDY) reported third-quarter fiscal 2020 loss of 48 cents per share, per American Depositary Share (ADS). However, the loss includes an impairment charge of $156.5 million related to the generic launch and an authorized generic launch of the product-Nuvaring, which led to considerable erosion in the value of this product for the company. Excluding the impairment charge, earnings were 63 cents per ADS compared with 41 cents in the year-ago quarter.

Moreover, revenues grew 14% year over year to $614 million. In the second quarter of fiscal 2020, the company out-licensed two neuro products from the proprietary products business and recognized revenues of $7.2 billion. Adjusting for this, the sequential growth in the quarter was 7% — the highest-ever quarterly sales from operations, without any one-off item.

In the past year, shares of the company have gained 18.7% against the industry’s decline of 8.9%.

Quarter in Detail

Dr. Reddy’s reported revenues under three segments — Global Generics, Pharmaceutical Services & Active Ingredients (“PSAI”), and Proprietary Products and Others.

Global Generics revenues were INR35.9 billion ($503.5 million), up 15% year over year in the fiscal third quarter. Growth was led by contributions from Europe, emerging markets and India, primarily owing to volume gains and product launches.

PSAI revenues were INR6.9 billion ($96.8 million), up 16% from the year-ago quarter.

Revenues at the Proprietary Products segment came in at INR0.2 billion ($0.11 million) compared with INR0.7 billion in the year-ago quarter. The company had out-licensed its commercialized derma products in the fourth quarter of fiscal 2019 and commercialized neuro products in the second quarter of fiscal 2020. This, mainly, led to the decline.

Research and development expenses were up 8% year over year to $55 million.

Selling, general and administrative expenses were $178 million, up 5% year over year.

As of Dec 31, 2019, Dr. Reddy’s had 101 generic filings (99 abbreviated New Drug Applications [ANDAs] and two new drug applications) pending FDA approval. Of these 99 ANDAs, 53 were Para IV filings and 32 have first-to-file status.

Our Take

In third-quarter fiscal 2020, Dr. Reddy’s top and bottom lines registered year-over-year growth. This was supported by strength in Europe, emerging markets and India, and a pickup in product launches.

However, the company continues to face price erosion in the North America generics market, which will adversely impact sales.

Zacks Rank & Stocks to Consider

Dr. Reddy’s currently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks from the large cap sector are Bristol-Myers Squibb Company (NYSE:BMY) , Eli Lilly and Company (NYSE:LLY) and Sanofi (NASDAQ:SNY) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bristol-Myers’ earnings per share estimates have increased from $4.29 to $4.34 for 2019 and from $5.35 to $6.12 for 2020 in the past 90 days. The company delivered a positive earnings surprise in the trailing four quarters, the average being 8.30%.

Lilly’s earnings per share estimates have increased from $5.79 to $5.80 for 2019 and from $6.56 to $6.77 for 2020 in the past 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters, the average being 1.20%.

Sanofi’s earnings per share estimates have increased from $3.25 to $3.29 for 2019 and from $3.46 to $3.49 for 2020 over the past 60 days. The company came up with a positive earnings surprise in the trailing four quarters, the average being 8.25%.

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