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Dr. Reddy’s Laboratories (RDY - Snapshot Report) reported second-quarter fiscal 2014 (ended Sep 30, 2013) earnings per American Depositary Share (ADS) of 65 cents, above the Zacks Consensus Estimate of  45 cents and the year-ago earnings of 37 cents per ADS.

The company reported revenues of $537 million during the quarter, reflecting year-over-year increase of 17%. However, revenues missed the Zacks Consensus Estimate of $543 million.

Dr. Reddy’s launched 19 new generic products, filed 13 registrations for new products, apart from filing 8 drug master files (DMFs) across the globe in the second quarter.

Quarter in Detail

Dr. Reddy’s reports revenues under three segments – Global Generics, Pharmaceutical Services & Active Ingredients (PSAI) and Proprietary Products and Others. Revenues at the Global Generics segment rose 32% to $424 million. Strong sales in North America, Russia and emerging markets led to the growth at the Global Generics division. Strong sales of the generic versions of Vidaza, Dacogen, Aricept and Depakote ER (launched during the reported quarter) boosted segmental results.

Generics revenues increased in North America (43%), Russia and other CIS (Commonwealth of Independent States) markets (44%), rest of the world, or RoW (36%), India (8%). Revenues in India were affected by trade disruptions and the new pricing policy. Revenues in Europe declined 1%.

PSAI revenues fell 19% to $102 million during the quarter. The decline in this segment was due to a fewer number of new product launches. Revenues in the Proprietary Products and Others segment declined 25% to $10 million during the quarter.

Selling, general and administration (SG&A) expenses including amortization amounted to $156 million, reflecting an increase of 21% year over year. The improvement can be attributed to select brand building activities in the Emerging Markets. Research and development (R&D) expenses increased 48% to $71 million.

Dr. Reddy’s filed 4 abbreviated new drug applications (ANDAs) with the U.S. Food and Drug Administration (FDA) in the reported quarter. The company has 62 ANDAs pending approval with the FDA, of which 39 are Para IV filings and 9 are first-to-file.

Dr. Reddy’s carries a Zacks Rank #3 (Hold). We are pleased by the growth of global generics segment. Recent launches have also contributed to growth. Dr. Reddy’s strategy to expand its R&D activities will drive future growth. Currently, companies like Isis Pharmaceuticals, Inc. (ISIS - Analyst Report), AMAG Pharmaceuticals Inc. (AMAG - Snapshot Report) and Actelion Ltd. (ALIOF) look more attractive with a Zacks Rank #1 (Strong Buy).

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