Reduce Dr Reddy's Ltd for the Target 1,300 by Emkay Global Financial Services Ltd
Dr Reddy’s’ Form 20-F disclosures indicate that gRevlimid sales in FY26 were closer to our base-case estimate (~$300mn). However, assuming muted growth in the company’s base oncology portfolio since FY22, gRevlimid contribution would have been higher by ~$100mn in FY26 vs our base case. We have maintained the view that the debate around the magnitude of the Semaglutide opportunity for Dr Reddy’s (please connect with us for our detailed assumptions) is only meaningful if the ex-gRevlimid US base settles at ~$900mn-$1bn. To that extent, we now have greater clarity around the FY26 US base business levels (lower bound closer to $900mn) even as our and the street’s gRevlimid EBITDA contribution assumptions for FY26 might still prove to be conservative. Besides, price erosion in global generics in FY26 remained in the high single digit. We argue for measured optimism around an on-time approval for Abatacept (IV US launch base case - 4QFY27), given that a majority of the past CRLs issued by the USFDA to first biosimilar filers cited facility-linked queries (Exhibit 1) and Dr Reddy’s’ Bachupally facility has faced repeated challenges in meeting the FDA’s expectations over the last 3 years (US CMO option more likely for the subcutaneous filing). Note that even the company’s partnered biosimilar filings such as Denosumab have faced a similar set of challenges (delayed by a year vs the company’s initial expectations). We roll forward to Jun-28E EPS and revise up our TP by 8.3% to Rs1,300 from Rs1,200 earlier; retain REDUCE.
Bachupally has faced repeated challenges in meeting the FDA’s expectations
The Bachupally biologics facility has undergone three FDA inspections over the last 3 years (Oct-23, Sep-25, Jun-26). The first inspection was a pre-license inspection (PLI) for Rituximab which resulted in 9 Form-483 observations. A reinspection conducted in Sep-25 resulted in 5 Form-483 observations, with the FDA noting that CAPAs implemented in response to observation 2 from the Oct-23 inspection could not be adequately assessed. Note that Rituximab was expected to be launched in FY25. While Abatacept has been filed from a separate block and the company is confident of addressing the 7 observations issued post the recent PLI, we note that a majority of the past CRLs issued by the FDA to first biosimilar filers cited facility-linked queries (Exhibit 1), with some filers also receiving multiple CRLs.
Partnered biosimilar filings have faced a similar set of challenges
Alvotech, Dr Reddy’s’ partner for Denosumab, had received a CRL in Jan-26 following a PLI of Alvotech’s Reykjavik facility. Alvotech undertook remediation and following a reinspection in May-26, which concluded with observations that the company characterized as addressable, announced its intent to resubmit the BLA for Denosumab with an approval now expected in CY26 (delayed by a year vs Dr Reddy’s’ initial expectations).
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