About Dr. Reddy's Laboratories

Dr. Reddy's Laboratories Ltd. (DRL) is a leading pharmaceutical company based in Hyderabad, India. DRL specializes in active pharma ingredients, custom pharma services, generics (branded and unbranded), new chemical entities, differentiated formulations and generic biopharmaceuticals. The company is listed in the New York Stock Exchange (NYSE:RDY) and the Bombay Stock Exchange (BSE: REDY.BO), and its branded products are marketed primarily in Asia, Latin America and Eastern Europe, while its generic drugs (such as Eli Lilly's Prozac) are sold in North America and Western Europe.
Aurigene Discovery Technologies, DRL's wholly owned subsidiary, is engaged in structural biology, medicinal chemistry and drug design for the treatment of cancer, autoimmune disorders and metabolic diseases.

The Company

The company, which reported revenues of $1.4 billion in fiscal year 2009, has posted a compounded annual growth rate of 25 percent from 2000 to 2009. Revenue from international sales surged from 40 percent in 2000 to 85 percent by 2009. Earnings before interest, taxes, depreciation and amortization was $286,000 for 2009. DRL has 50 products in the U.S. generics market, which contributed $400 million in revenue in 2009.
Sumatripan, a generic version of the migraine medication Imitrex, was launched in the United States and accounted for 10 percent of the company's total fiscal year 2009 revenue. According to IMS Health's National Prescription Audit, as of December 2008, DRL held 2.1 percent of the generic market share in the United States and was ranked eleventh among tier II U.S. generic companies. DRL owns a manufacturing facility in Shrevenport, Louisiana, which it acquired from BASF Corp. Its products are available at retail outlets including Walgreens, Wal-mart, RiteAid and CVS and to wholesalers such as AmerisourceBergen and Cardinal Health. Key competitors globally are Barr Pharmaceuticals, Nycomed and Ranbaxy.

Key Brands and Product Pipeline

DRL markets approximately 160 products in the European Union and has more than 200 branded formulations available in the rest of the world. In the United States, DRL sells leading generic drugs including but not limited to Simvastatin for lowering cholesterol (brand name Zocor from Merck), Sumatripan AG for migraine (brand name Imitrex from GlaxoSmithKline) and Oxaprozin for anti-inflammation (brand name Daypro from Pfizer). Generic drugs in Germany include Oxycodon and Ibuprofen. Branded dosages in India include Omez, Razo and Nise and in Russia, Omez, Ciprolet, Enam and Ketorol.
DRL had 159 abbreviated new drug applications and 351 drug master files as of March 2009. Research is underway to develop new chemical entities to treat metabolic, cardiovascular and respiratory diseases. The company has eight biopharmaceutical products in its pipeline, and its differentiated formulations division is in the process of developing therapies for the treatment of dermatological disorders through its wholly owned subsidiary Promius Pharma, located in New Jersey.

Timeline

1984: DRL founded by Dr. Anji Reddy.
1986: Listed in the Bombay Stock Exchange.
1989: Became the largest exporter of Ibuprofen (anti-inflammatory, pain relief) to the United States, Spain and Italy.
1993: Launched drug discovery program.
2003: Ibuprofen, DRL's first generic product sold under its own company label in the United States.
2005: Acquired Roche's API business in Mexico.
2007: Launched the world's first monoclonal antibodies treatment for non-Hodgkin's lymphoma.
2008: Acquired Dow Pharma's small molecules business in the United Kingdom.
2009: Entered into a strategic distribution alliance with GlaxoSmithKline plc (GSK).

Strategies

In 2009 DRL positioned itself to shore up its market share in rural India, strengthen its business in North and East India and launch biosimilars and differentiated products. Plans are underway to increase hospital coverage and launch products in key molecules in the Russian market. In line with its restructuring initiatives, DRL will close its research center in Atlanta and move its drug discovery operations to Bangalore-based Aurigene, which will develop small molecule therapies for the treatment of unmet medical needs in cardiovascular, lipid metabolism and inflammatory diseases. The company is in the process of exiting from markets that contribute 1 percent or less toward revenue--the outcome of an ill-conceived aggressive expansion strategy. DRL, in collaboration with GlaxoSmithKline plc (GSK), is slated to develop and market-select products in emerging global markets.

Outlook

DRL projects a 10 percent growth in revenue in fiscal year 2010 and anticipates growing revenues to $3 billion in 2013. The expected return on capital employed is mid- to high teens in 2010-2011.
Zacks Investment Research estimates earnings $0.94 cents per share for fiscal year 2110 and $1.16 for fiscal year 2011. The share price rose from a low of $7 in March 2009 to more than $16 in July 2009. Market capitalization was $2.8 billion as of July 1, 2009.

Management

DRL has a strong board and management, led by founder and chairman Dr. Anji Reddy, who is a member of the Prime Minister's Council on Trade and Industry, Government of India. G.V. Prasad, vice chairman and CEO, developed the company's global generics strategy and new business platforms. Satish Reddy, managing director and chief operating officer, heads the company's Pharmaceutical Services and Active Ingredients division and the Global Generics division. He was instrumental in expanding the branded products segment and was named Young Global Leader for 2007 by the World Economic Forum.

References

• Dr. Reddy's Labaratories
• Annual Report 2008-2009
• Hoover's research

Resources

• Zacks Investment Research