Dr. Reddy’s has benefitted significantly from gRevlimid sales in the US in the last three years. But that opportunity is now closing by FY26-end. The company has made significant investments with its cash surplus to tide over the revenue gap. The potential opportunities from these investments, though valuable, are not immediately available and the scope of value is yet to be fully ascertained. We earlier recommended accumulating the stock in September 2022 and the stock has returned around 60 per cent since then. With the stock now trading at 19 times one-year forward earnings, we recommend existing investors to hold the stock. While long-term drivers are in place and upside strong optionality exists if the new investments fructify, more clarity is required on the same. Till that plays out in the medium term, there could be some revenue slowdown and margin pressure.
Revlimid-sized hole
Dr. Reddy launched generic Revlimid (multiple myeloma) in September 2022 or H2FY23. The US segment (45 per cent of FY25 sales) reported sales growth in FY22-25 of 24 per cent CAGR compared with 8 per cent CAGR in the previous three years (FY19-22). A significant portion can be attributed to gRevlimid sales. The impact on margins and cash accruals is also impressive. The EBITDA margins improved from an average of 22.6 per cent in FY19-22 to 26.6 per cent in FY22-25. The net cash as on March 2025 stands at ₹2,454 crore despite meeting upfront cash consideration of £458 million (₹5,300 crore) for an acquisition in September 2024. From January 2026, Revlimid will cease to be a limited competition product and will be fully generic, and the revenue will slow down to a trickle while drivers for the next phase are in the works.
GLP-1 opportunity
The company has been on a 10-year capacity building exercise for GLP-1RA generics (glucagon like peptide 1 receptor agonist), which is a leading class of drugs for diabetes. The generic opportunity will begin from January 2026 when drug/product patents will start expiring. This will open access to a widespread opportunity across 80 geographic markets. According to Grand View Research, the global opportunity is estimated at $30 billion annually across the world, but at the innovator level.
The company has built capacity and capability in peptides, the basic blocks of GLP-1s, to manufacture the APIs and the formulation. The injectable device to deliver the drug will be outsourced.
Canada will be the first front where patent expiry is slated for January 2026. The innovator market stands at $1.8 billion with 10 million device sales. Assuming a four-player market, 40 per cent lower price, and 60 per cent market penetration for generics in the first year, the company should expect more than $100 million in the first year. Product approval is expected by the current year-end. A similar opportunity should be expected across markets, primarily India, Brazil, in the short term.
But regulatory and competitive hurdles will be significant. The product requires formidable capability to develop peptides in large quantities and getting prior regulatory approvals in swift cycles will be a challenge. However, approvals from Canada, India and Brazil should smoothen the process for later filings. The Intellectual Property (IP) challenges are another facet which will involve market-specific solutions, with a potential to delay the launches. In recent news, Dr. Reddy’s has given an undertaking to not sell the weight-loss variant of the GLP-1RA drug in India but only manufacture it.
The competition will also be intense, with Sun Pharma, Aurobindo and others similarly eyeing first-day launches across markets. But if Dr. Reddy’s with end-to-end development capability, which is in-house, can gain a market share in the highly chronic and modestly difficult to manufacture product, the long-term benefit should be significant.
Scaling across geographies
Dr. Reddy’s has been active on the inorganic front and has created a strong base for consumer health. In September 2024, the company signed an agreement with Haleon, a UK-based company, to acquire Nicotine Replacement Therapy products or NRT for a total consideration of £500 million. These added sales of ₹1,200 crore last year with only two quarters consolidated. Dr. Reddy’s has also started a JV with Nestle (51:49) and the subsidiary will induct global brands of Nestle in India gradually. This is along the lines of Sanofi partnership, through which vaccine brands are launched in the country and has boosted India sales by around ₹450 crore in FY25.
The Nestle JV and Sanofi partnership will leverage Dr. Reddy’s domestic reach and will gradually play out. The NRT acquisition can be leveraged in Europe (its current market) and other markets including India and Rest of the World markets over time. In the last one year, Dr. Reddy’s has relied on cross marketing its portfolio of generics across the US, India, Europe and Emerging Markets. This is more pronounced in Europe (28 per cent year-on-year growth in FY25) and EM (15 per cent), where it launched 39 and 85 products last year and the same can be expected to continue, driving strong growth.
R&D portfolio
Dr. Reddy’s has maintained a high investment rate in R&D at 8.5 per cent of sales compared to industry range of 6-8 per cent. This includes investments in biosimilars as well. Rituximab biosimilar is expected to be launched in Europe followed by the US and will be followed by bevacizumab, denosumab and abatacept. The ramp up will be gradual, and partner economics will impact shareholder realisations, but the large portfolio will add a lever to long-term growth. The company is also developing early-stage oncology assets by itself which are under trials in India (CAR-T therapy) and the US for lymphomas.
The company reported revenue growth of 15 per cent CAGR in FY22-25 to ₹32,552 crore along with PAT growth of 36 per cent CAGR. The 400-bps EBITDA margin expansion from 22 per cent to 26 per cent has boosted earnings growth. As gRevlimid boost is nearing a close, the next set of drivers are in place but will show up in earnings with a lag.
