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Pharmaceuticals

Dr. Reddy's quarterly profit beats estimates on gains from U.S. pact

Sale of three drug brands also helps Indian pharmaceutical firm

MUMBAI (NewsRise) -- Dr. Reddy's Laboratories reported a better-than-expected 45% jump in first-quarter net profit as the Indian drugmaker gained from a settlement agreement in the U.S.

The company also appointed its operating chief Erez Israeli as the new chief executive, effective Aug. 1. Israeli will report to the co-chairman and managing director G.V. Prasad.

Dr. Reddy's and most Indian drugmakers 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. Amid the price erosion, Dr. Reddy's has shifted focus to cost controls to boost its profitability, divesting some proprietary drug brands and selling one of its active pharmaceutical ingredient unit in southern India's Hyderabad city. In June, it sold two neurology drug brands for $110 million, a move that will also help it earn royalty payments in the future.

The company's consolidated net income for the quarter ended in June stood at 6.63 billion rupees ($96 million), compared with 4.56 billion rupees a year earlier, it said in a statement. Analysts were expecting a net profit of 4.89 billion rupees, according to Refinitiv data.

The profit included 159 million rupees of earnings from the sale of U.S. rights for three dermatology brands to Encore Dermatology in April, it added. The cost rationalization measures helped the company's operating earnings expand 780 basis points to 29.5% in the last quarter.

The latest quarter included 3.46 billion rupees in non-operating income the company received from a confidential settlement agreement with the U.S. biotechnology firm Celgene for its new drug submissions related to a generic version of cancer drug Revlimid.

Total revenue from operations grew 3.3% to 38.44 billion rupees. Sales in North America rose 3% during the quarter, helped by new product launches and an increase in volumes that were partly offset by price erosion and adverse foreign exchange movement, the company said.

Analysts were expecting the company to gain from the sale of a generic version of U.K.-based Indivior's blockbuster opioid treatment Suboxone film in the U.S. as well as anesthetic propofol launched in January.

Over the past few quarters, the pressure on prices in the U.S. 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.

Revenue from emerging markets surged 19%, aided by new launches and improved sales volume, while India business reported a 15% jump in sales.

The drugmaker is yet to resolve the regulatory issues plaguing one of the three plants which were under a warning since 2015, due to quality issues and violations of good manufacturing practices. Earlier this year, the FDA lifted the warning on two plants, while the third at Srikakulam in Andhra Pradesh continues to struggle with blocks on new approvals.

"Despite pricing pressure in the U.S., the company is able to maintain its margins due to effective cost rationalisation," ICICI Direct Research wrote in a note. In the near term, the key growth drivers for the drug maker would be new launches in the U.S. and the clearance of Srikakulam plant, besides strong growth in global generics business, the brokerage said.

Shares of Dr. Reddy's lost 1.9% in Mumbai trading ahead of its earnings, while the benchmark S&P BSE Sensex closed down 0.5%.

--Dhanya Ann Thoppil

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