We recently met DRRD’s CFO and Global head of Biologics, and also visited their flagship biologics facility at Bachupally. Despite experiencing sluggish progress over the past two decades, the company is now anticipating a significant increase in biosimilars sales, aiming to expand their current market share of 2-3% and contribute positively to their Ebitda in the upcoming years. Additionally, the improved pricing stability in the US generics business is expected to have a favourable impact.
However, considering the current valuations, we believe that the positive outlook for DRRD’s non-US operations is already priced into the market. Therefore, we maintain our Reduce rating for the company and assign a fair value of Rs 4,800.
According to DRRD, out of the 12 biosimilars in its portfolio, it aims to bring 7-8 products to market within the next 7-8 years. Currently, the company has an installed biologics capacity of 15KL, which will be scaled up. Apart from mABs, the company is also investing a lot on antibody-drug conjugates (ADCs), CAR-T and viral vectors. Going ahead, starting with Tocilizumab and Abatacept, DR Reddy’s will be largely commercialising biosimilars globally on its own. Within biosimilars, the focus is on being first to market, compliant, with ample capacity as well as cost and talent advantage. The company expects to spend 8.5-9% of overall sales on R&D, out of which more than one-third is on biosimilars as well as Aurigene’s biologics segment.
According to the DRRD, the erosion in pricing of US generics has stabilised. Some companies are conducting a strategic review of their US business due to their high levels of debt. However, DRRD, with its strong balance sheet, anticipates this situation to present long-term opportunities for the company.
DRRD aims to achieve higher growth than the Indian Pharmaceutical Market (IPM) and expects its domestic growth to be driven by various factors such as over-the-counter (OTC) products, specialty medicines, in-licensing, M&As, nutraceuticals, digital therapeutics, and unique products. Currently, OTC products account for approximately 2% of DRRD’s domestic sales, but the company believes this figure can increase to high single digits in the coming years.