Dr. Reddy’s Divests Three Brands To Focus On Profitability

Dr. Reddy's Laboratories Ltd. said it will sell its three specialty products to a U.S. firm as the drugmaker plans to focus on profitability.

The Hyderabad-based drugmaker, in an exchange filing today, said that it couldn't scale up the business of Sernivo spray, Promiseb cream and Trianex ointment—which it was marketing in the U.S.—and will sell them through a subsidiary, Promius Pharma LLC, for which Encore Dermatology will make “upfront payments” and “future milestone payments”. Details about the payments and milestones weren't disclosed.

The divestment is expected to fetch around $20-25 million, said Anubhav Aggarwal, pharma analyst at Credit Suisse. He said that the products weren't a significant contributor to Dr. Reddy's Laboratories' Ebitda. While Morgan Stanley expects the drugmaker to earn $15-20 million through the sale, Bank of America Merrill Lynch estimates it at $35-40 million.

The company's management had highlighted in an earnings call for the third quarter that it sought to reduce losses at its proprietary division.

GV Prasad, co-chairman and chief executive officer of Dr. Reddy's Laboratories, was quoted as saying in the filing that the sale is in line with the company's renewed strategy to enable achievement of self-sustainability and profitable growth for each of their businesses.

Agreed Morgan Stanley Analyst Sameer Baisiwala, who wrote in a note that the move is in line with the company's focus on rationalisation of unprofitable assets.

The divestment is likely to channel resources to other assets in proprietary products, Girish Bakhru, pharma analyst at Bank of America Merrill Lynch said, adding that the company will divest another dermatological product, Xeglyze, which is manufactured at its plant in Srikakulam and is waiting for approval. The company, he said, would gain by trimming its sales personnel and reducing research and development spends in its dermatological arm.

The sale, according to Aggarwal, will help the company focus on R&D activities for higher value products like PPC-06, which is used in the treatment of psoriasis, and E7777, a cancer treatment drug licensed from the Japanese pharmaceutical company Eisai Co.