Here's an opportunity that might get some of the more far-sighted Fools out there sharpening their pencils. Quick, what is: (1) a life sciences company with interests ranging from generics to branded drugs to pharmaceutical ingredients, (2) based in the world's second-most populous nation, (3) granted access to high-level scientific talent at a more reasonable cost than many American or European rivals? Answer? Dr. Reddy's Laboratories (NYSE:RDY) -- a leading Indian pharmaceutical company.
To be sure, it hasn't been easy sledding up to this point. Where generics companies like Teva (NASDAQ:TEVA) and Barr (NYSE:BRL) have had pretty good historical success rates in challenging big-pharma patents, Dr. Reddy's hasn't had such glowing success. In fact, the past few years have been a little rough.
Nevertheless, the company saw revenue rise 25% in the quarter, to about $131 million. Growth was strongest in the pharmaceutical ingredients business (up 48%) and branded drugs (up 34%), but generics sales were down 14%, largely because of pricing pressures in the U.S. and the absence of new approvals. Even excluding the gain on sale that came from selling a plant to Watson Pharmaceuticals (NYSE:WPI), Dr. Reddy's saw a jump in net income to almost $12 million, from about $1 million last year.
What gets my attention here is that this isn't the same old Dr. Reddy's. The company has spun out much of its novel pharmaceutical research into a new company called Perlecan Pharma. Doing so will reduce the R&D burden on the company but still give it upside (through ownership and licensing) to experimental compounds in areas like diabetes and infectious diseases. Moreover, the next 12 months or so could be much more interesting on the U.S. generics front, with seven or eight possible launches -- some of which address branded markets worth in excess of $1 billion a year, including Motley Fool Inside Value pick Pfizer's (NYSE:PFE) Zoloft.
All told, this is an interesting idea. It's generally cheaper to develop drugs in India, and lower overhead gives the company the opportunity to sell low-priced drugs profitably into markets like Russia, China, and the developing world -- something that not all large pharmaceutical companies can manage. This is still a turnaround story, though, so investors unable or unwilling to assume above-average risk should probably steer clear.
For more pharm-fresh Foolishness, pop one of these:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
