Consolidation in the generic drug industry has been the trend for 2006, thanks to the low-margin and increasingly competitive nature of the business. Mergers and acquisitions give the generic drug manufacturers the opportunities to achieve a degree of scale in the operations, which will be necessary going forward, as margins continue to decrease for all the companies in this industry. As Dr. Reddy's Laboratories
For the quarter, revenues were up 245% to $436 million, but gross margins declined to 41% from the year-ago level of 52%, because most of the sales growth occurred in the relatively lower-margin generic drugs divisions. Even so, sales expanded rapidly across all three of the company's major divisions:
|
Sales* |
Y-O-Y Growth |
|
|---|---|---|
|
Generic Drugs |
$263 |
57% |
|
Branded Drugs |
$67 |
19% |
|
Active Pharmaceutical Ingredients |
$63 |
36% |
Excluding the amortization of acquired research and development expenses, net income came in at $70 million, about 230% higher for the quarter, and operating margins were up to 21% compared to the 12% level last year.
Reddy's is actively growing its sales and geographic reach through its recent acquisitions, and its German and Mexican operations contributed 20% to the top-line results compared to the year ago period. As Reddy's further integrates these two acquisitions (both less than a year old) into its operations, revenue growth should remain strong and margins may improve.
I've always liked the mid-cap international pharmaceutical companies, as they are generally more shareholder-friendly; they often pay a dividend, they don't hand out options like they are Halloween candy, and even making their websites easier to read than their U.S.-based counterparts. Reddy's is no different, and it's worth a look for investors who want a fast-growing pharmaceutical company specializing in selling generic drugs.
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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.
