Dr Reddy’s is now No.2 drug firm as old order changes


BENGALURU : Dr. Reddy’s Laboratories Ltd and Cipla Ltd beat Aurobindo Pharma to become the country’s second and third biggest drugmakers by sales in the three months to 30 September, the first change in the pecking order of the country’s $50 billion pharmaceutical industry in over seven years.

Sun Pharmaceuticals retained the position as India’s largest drugmaker, with sales of 10,809 crore for the three months ended 30 September.

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Hyderabad-based Dr. Reddy’s reported a revenue of 6,331.8 crore in the September quarter, while Aurobindo saw its revenue slip to 5,739.4 crore. Mumbai-based Cipla posted a revenue of 5,828.5 crore in the period.

The stellar performance of Dr. Reddy’s and Cipla was aided by sales of the generic version of the oral cancer drug Revlimid, which accounted for a little over a third of Dr. Reddy’s total business in the US, according to an analyst at Axis Securities. Cipla has not disclosed new business from the blood cancer drug. The first few companies to submit an application that meets the US drugs regulator’s requirements get the coveted 180 days of selling the drug in the US without any competition from generic rivals. In this case, Cipla and Dr Reddy’s got approval from the US FDA for their generic versions after the patent for Revlimid, developed by Bristol Myers Squibb, ended last year.

“Dr Reddy’s is currently investing in various businesses that could provide growth in the long term,” Ankush Mahajan, an analyst at Axis Securities, wrote in a note dated 1 November. “While high inflation and price erosion could reduce margins, the company is proactively building a global pipeline of biosimilars, developing NCE (novel chemical entities) for Immuno-oncology, and building up a neutraceuticals portfolio, vaccines, CDMO (contract development and manufacturing organization), and digital healthcare platforms.”

Aurobindo has been bogged by weak sales and price decline for its current formulation business in the US, which accounted for 46% of total sales. Aurobindo’s revenue declined sequentially for the second time in nine months after sales slipped 3.2% in January-March.

“We cut our FY23-25E EPS estimate by 10-17% to factor in lower margins and US sales. Aurobindo Pharma’s performance was weak in H1FY23, given cost headwinds and lower US sales,” Param Desai and Akshaya Shinde, analysts at Prabhudas Lilladher, wrote in a note dated 16 November. “However, pick-up in US sales hinge on timely niche approvals along with stabilization of pricing pressure in the base business.”

Until a few years ago, Lupin Ltd was the second largest pharma firm before Aurobindo displaced the Mumbai-headquartered firm in January-March period of 2015. Subsequently, both Cipla and Dr.Reddy’s also overtook Lupin, which is now the fifth largest pharma firm by sales.

Earlier this month, Aurobindo saw one of its directors (the son of the company’s co-founder Ram Prasad Reddy), P. Sarath Chandra Reddy, arrested by the enforcement directorate. The central agency alleged Sarath Reddy, through a privately held firm, paid bribes to win rights to sell liquor in Delhi. This development made investor Abu Dhabi Investment Authority (ADIA) reprimand Aurobindo’s management. ADIA is the world’s third-largest sovereign wealth fund, with over $790 billion in assets under management.

“(On) corporate governance, you know, serious work needs to be done there about what directors are doing,” said Prashant Poddar, a portfolio manager at ADIA, in an investor interaction with Aurobindo on 14 November. “Just because some of them are promoters, they cannot do anything they want, right? I mean, such a responsible position—that of a director of a large company, which is making more than $400 million Ebitda and such large responsibility as an exporter—it is disappointing, you know, because this would not even work well with your buyers. I mean, they would also want you to abide by certain corporate governance, I would believe.”

Poddar declined to comment, while an email seeking comment from a spokesperson for Aurobindo went unanswered.

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