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Dr. Reddy's Laboratories posts better-than-expected profit on sale of unit

Lower taxes during third-quarter also boosted net income

Consolidated net income of Dr. Reddy's for the quarter ended in December stood at 5 billion rupees compared with 3.03 billion rupees a year earlier.   © AP

MUMBAI (NewsRise) -- Dr. Reddy's Laboratories reported a better-than-expected 65% surge in third-quarter net profit, as the Indian drug maker gained from the sale of a unit and lower taxes.

Consolidated net income for the quarter ended in December stood at 5 billion rupees ($70 million), compared with 3.03 billion rupees a year earlier, the company said in an exchange filing on Friday. Analysts were expecting a net profit of 3.94 billion rupees, according to Refinitiv data.

The latest quarter had non-operating income worth 4.23 billion rupees from the sale of a drug manufacturing business in southern India's Hyderabad. Deferred tax slumped 79% to 4.01 billion rupees, primarily due to a cut in federal income tax rate in the U.S. and claim of a deduction, which was previously disallowed, the company said.

Total revenue from operations grew less than 1% to 38.65 billion rupees. Sales in North America declined 8% during the quarter, weighed by pricing pressure on some of the key drug molecules, Dr. Reddy's said. Revenue from emerging markets surged 31%, aided by new launches and improved sales volume, while India reported a 10% jump in sales.

The company's North America business was hurt by the absence of sales of generic version of the U.K.-based Indivior's opioid treatment Suboxone film, a drug that was expected to bring in millions of dollars in revenue. Dr. Reddy's had received regulatory approval for the drug in June, but a U.S. court temporarily blocked it from selling the drug the next month.

In November, another court lifted the ban on the sale, but by December Indivior secured a U.S. appeals court hold on the launch of the drug.

Dr. Reddy's and most Indian drug makers are grappling with falling drug prices in the U.S., where the Food and Drug Administration has expedited its approval rate for generics, paving the way for more competition.

To be sure, over the past few quarters, the pressure on prices eased a bit after several global generic drug makers, including Teva Pharmaceutical Industries and Novartis, shifted focus to more profitable drugs and exited some of the highly competitive generic drug portfolios.

Dr. Reddy's renewed focus on domestic business and cost controls helped the company post industry-leading growth in the third quarter, brokerage Antique said in a report.

"While this leads to improving earnings trajectory, it masks the weakness in the U.S. base business which is struggling to move beyond $200 million to 210 million per quarter," Antique said. That coupled with price erosion in legacy business due to increased competition is likely to be put pressure on margins in the coming quarters, it added.

Further, the drug maker is yet to resolve the regulatory issues plaguing the three plants which have been under a warning letter since 2015, due to quality issues and violations of good manufacturing practices. Until Dr. Reddy's fixes the problems, it won't receive U.S. approvals for drugs made at these plants, which account for 10%-12% of its sales.

The company has been transferring the production of several critical products out of the affected plants.

Shares of Dr. Reddy's gained 2.3% in Mumbai trading on Friday, while the benchmark S&P BSE Sensex rose 0.6%.

--Dhanya Ann Thoppil

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