What: Investors in Indian drugmaker Dr. Reddy's Labs (NYSE:RDY) are having a rough day. The company's stock has plunged by more than 18% as of 2:50 p.m. EST after the company reported results from the first quarter of fiscal year 2017.
So what: Nearly every metric investors like to look at headed in the wrong direction for Dr. Reddy's this quarter.
Revenue plunged 14% to $479 million. Gross margins declined by 490 basis points to 56.2%. Spending on both R&D and SGA increased by 9% and 12%, respectively.
The combination of lower revenue, lower profitability, and higher spending caused the company's bottom line to tank. Diluted earnings per share for the period came in at $0.11, down 80% from the year-ago period.
Here's what Dr. Reddy's CEO GV Prasad had to say about the company's performance:
We have come through a very difficult first quarter, with our top and bottom lines impacted by a decline in volume growth, particularly in the US market and the loss of business in Venezuela. We also faced a number of challenges in the quarter including price erosion and delayed launches as a result of the warning letter, which significantly impacted our earnings.
He later commented that the company is taking actions to improve its quality systems and get the company back on track for long-term growth.
Now what: Dr. Reddy's stock has been bludgeoned ever since it received that warning letter from the FDA back in November. You can clearly see how badly the company's stock has performed when you compares it against the performance of the iShares Dow Jones US Pharmaceuticals (NYSEMKT:IHE).
Dr. Reddy's recently stated that 94% of the issues from the FDA's letter have been addressed, which shows that the company is making progress. Once that issue is fully in the company's rear-view mirror, it should be able to once again return to top-line growth. After all, Dr. Reddy's currently has 79 generic drug and three proprietary products applications pending FDA approval.
Still, until that issue with the FDA is fully addressed, the company might struggle to bring any of these new products across the finish line. That could put continued pressure on both its top and bottom lines moving forward, so I, for one, will be approaching this stock with caution.
Brian Feroldi has no position in any stocks mentioned. Like this article? Follow him on Twitter where he goes by the handle @Longtermmindset or connect with him on LinkedIn to see more articles like this.
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