Dr Reddys Laboratories Ltd Q2 FY2026 Concall Summary

Key Takeaways

• Resilient quarter despite Revlimid cliff: Consolidated revenue grew +9.8% YoY as broad-based growth in India, Europe, and Emerging Markets absorbed the predictable decline in Lenalidomide sales and US base-business price erosion.
• Gross margin took a 492 bps YoY hit: The drop reflects the Revlimid mix shift, US price erosion, and one-time inventory provisions from pipeline rationalization, partially offset by a large IP settlement gain in other income.
• Semaglutide and Abatacept are now the central story: Management expects Semaglutide approvals across 87 countries in 12–15 months and will file Abatacept's BLA by end-CY2025, with a dual-site US manufacturing strategy to de-risk approval and tariffs.
• The 25% EBITDA margin commitment is reaffirmed but stretched: Management targets a return to 25% within "the next two years," with the pace hinging on Semaglutide volume, Abatacept launch, and business development, while current underlying margin sits at 27.5% after one-time items.
• What to watch next quarter: The Delhi High Court ruling on Semaglutide's India patent challenge, the pace of NRT market transitions from Haleon, and whether the US base business truly stabilizes as management expects.

Revlimid Erosion & US Base Business Reset

• Revlimid tail nearly done: Q3 will still carry some Lenalidomide revenue but less than Q2, and management expects it will be either the last quarter or a small tail into Q4.
• Base business stabilized, erosion concentrated: The US generics decline beyond Revlimid is driven by roughly five products facing competition and price erosion, not volume loss. Management sees no additional erosion trends on base products in coming quarters, and erosion on newly launched products is "insignificant as we speak."
• Gross margin mechanics: The 492 bps YoY gross margin decline is overwhelmingly a Revlimid mix story, plus product-specific US price erosion and one-time inventory provisions from discontinuing certain pipeline products that hit technical challenges.
• Other income provided a cushion: Other operating income jumped to ₹267 crores (vs ₹98 crores last year) from a product-related IP settlement in the US and a one-time ₹88 crore liability reversal tied to a discontinued pipeline product.

Erez Israeli: "I absolutely believe and I'm maintaining it that in the next two years, we will absolutely get back to the growth and to the margins. The question is, what will be the journey at this point of time? The more Semaglutide we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster."

Semaglutide: The Near-Term Catalyst

• Global launch wave incoming: Management expects approvals in 87 countries over the next 12–15 months, with India, Brazil, and Turkey as notable markets alongside partners in Latin America and Asia.
• India launch gated by patent expiry: The current patent expiration date is March 2026, and Dr. Reddy's can launch in India only at that point. A Delhi High Court patent challenge is fully heard and awaiting the judge's decision, with an appeal likely from whichever side loses.
• Export already permitted: A May court decision allows production and export of Semaglutide, so the company can manufacture and ship to markets where it has approval, just not sell domestically yet.
• Volume ambition is material: Management sees a path to "for sure to 15" crore units by 2027, possibly higher, depending on product evolution and FTO-11 cartridge-line qualification toward the second half of calendar 2027.
• Fill-and-finish capacity: In-house FTO-11 capacity will not affect launches in the next 12 months; it will be a post-approval qualification. The current partner arrangement at 1.2 crore units remains relevant with possible upside.
• Canada pricing unknown: On the question of whether 80–85% price erosion is expected in Canada, management declined to speculate: "I have no clue. I wish I knew."

Erez Israeli: "We are challenging the patents in India. And, it's currently in the High Court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decisions. And likely that whoever will not like the decision, will appeal."

Abatacept: De-Risked for the 2028 Opportunity

• BLA filing on track: Management aims to submit the BLA by end-December 2025, with the Phase III trial expected to complete "very, very soon" and described as "so far, so good."
• Dual-site US manufacturing strategy: The initial BLA filing will come from the Bachupally facility, but a CMO in the United States is being prepared for the subcutaneous version. Management cites three reasons: a backup in case of a CRL or regulatory challenge at Bachupally, mitigation against potential tariffs or restrictions on biosimilars made outside the US, and additional capacity if market share is strong.
• Approval and launch timeline: Approval is expected in line with patent expiry in early calendar 2027, with the subcutaneous SKU launch targeted for the beginning of calendar 2028, subject to IP settlement. The CMO will be ready for large quantities by that point.
• Rituximab as a regulatory pathfinder: The recent CRL and Form 483 at Bachupally for Rituximab biosimilar were deliberately taken early to surface sterile-manufacturing issues before Abatacept's filing. Management believes the observations are addressable and notes an alternate line (FFM-2) exists as backup. Rituximab has already received European approval and launched in multiple countries.

Erez Israeli: "The confidence comes that we are not going only with Bachupally, but we increase the chance, because we will have also, for the United States, a CMO that will make the product."

NRT Integration & Branded Markets Momentum

• NRT acquisition outperforming: Growth in both pace and margin is exceeding internal expectations across the acquired Haleon NRT portfolio.
• Market transitions unlock margin: Markets not yet transitioned from Haleon are still managed by Haleon for a fee. As markets come in-house, the fee drops away and margins improve. Only the UK and Scandinavia are currently being invested in directly; two more waves of market transitions remain.
• India business outpacing the market: India revenues grew 13% YoY with MAT growth of 9.4% versus IPM's 7.8%, driven by new product launches, improved pricing, and higher volumes. The strategy of inorganic brand acquisitions, licensing of innovative products, and focus on identified therapeutic areas is now showing results.
• Europe generics ex-NRT: Grew 6% YoY and QoQ, with the headline 115% YoY growth driven by the NRT portfolio and new product launches offsetting pricing pressure.
• Emerging Markets and Russia resilient: Emerging Markets grew 14% YoY and 18% sequentially on new product launches and favorable forex. Russia delivered 13% YoY and 18% sequential constant-currency growth despite macro-economic challenges.
• Stugeron acquisition: Entered the anti-vertigo segment by acquiring the Stugeron brand and related assets across 18 APAC and EMEA markets from Janssen for \$50 million; the brand is over ₹100 crores in size across India and Emerging Markets combined.

Pipeline Rationalization & Cost Efficiency

• Pipeline cleaned up: Management rationalized several pipeline products facing extended regulatory uncertainty, limited market opportunity, or increasing competitive intensity. R&D focus is now anchored around complex generics, GLP-1 molecules, and biosimilars.
• Cost reduction program underway: The targeted 500–600 bps of cost reductions are already reflecting to a small extent in H1 numbers, evidenced by maintaining reasonably low costs despite the Revlimid decline. Full force is expected in subsequent quarters.
• SG&A and R&D modelling: SG&A is expected to stay in the 28–30% zone, with R&D around 7% of sales for now. Together, that is the "famous 5 to 7" percentage points of cost opportunity management referenced, with room for more if needed.
• PSAI gross margin improving: PSAI gross margin came in at 18% this quarter and is expected to move into the 20–25% range going forward, based on product mix and overhead leverage.
• Peptide pipeline building: The company is preparing for 40+ peptides to develop, either internally or with partners, in the coming years, including Tirzepatide as an R&D project.

Regulatory & Facility Updates

• Rituximab's strategic role: Management deliberately chose Rituximab as the first regulatory process for Bachupally to surface issues well before Abatacept's filing. The CRL queries relate to the sterile nature of the FFM-1 line design and are believed to be addressable.
• Tocilizumab scaled back: No longer planned as a global product; development will be only for India.
• Denosumab and Daratumumab partnerships: Denosumab biosimilar was developed by Alvotech under partnership; Daratumumab is licensed from Henlius, not developed internally.

Erez Israeli: "Rituximab was deliberately chosen, in order to start the regulatory process on time, to make sure that by the time that Abatacept will come, Bachupally will face those kind of stuff, and it is serving its purpose, and hopefully we can resolve it soon."

Guidance & Commitments

Key Metrics