Dr Reddy’s Laboratories Ltd (DRL) received a shot in the arm on 2 December, when the Delhi High Court allowed it to export the weight-loss drug semaglutide, which is set to become patent-free in several countries including Canada, China and Brazil from January 2026.
While the order restricts sales of semaglutide in India until it goes off-patent here in March, this window will help DRL prepare for the domestic launch. The market for weight-loss drugs is currently dominated by Danish company Novo Nordisk, which holds the patent for semaglutide. However, it’s seeing significant action with the patent set to expire in several countries in the coming months.
The court’s December order was in line with its interim order from May. DRL now hopes to get approval for domestic sales from the Central Drugs Standard Control Organization (CDSCO), a step that the regulator’s subject expert committee recommended in September. Dr Reddy’s currently manufactures the drug in injectable form and is developing an oral version.
Early bird? Not quite
“Overall, the current outcome is constructive for Dr. Reddy’s and One Source,” read a JM Financial Institutional Securities report on 2 December. The order could open the door for early international revenues and strengthen its position in the growing semaglutide market, the report added. OneSource Specialty Pharma is a contract development and manufacturing organization that DRL is collaborating with to manufacture semaglutide.
However, the company’s exports plan faces delays in approvals, with the pharmaceutical drugs directorate of Canada issuing it a notice of non-compliance in response to its application. The company has submitted a response to the notice, but expects to get the approval only by May or June 2026, six months after Novo Nordisk’s semaglutide patent expires in Canada.
A 19 November J.P. Morgan India report echoed this concern. “On semaglutide, while the company is targeting to be among the first wave in 87 countries, timely approval and competitive intensity will be key to determine the size of the opportunity,” it said.
Golden goose
The semaglutide opportunity comes at an apt time for DRL, which faces significant revenue and margin pressure once it loses exclusive rights to sell Revlimid, an expensive cancer drug, in January. The US business, which accounted for over 40% of generics business revenue, saw a 15% year-on-year decline in dollar terms in the first half of FY26 owing to price erosion and lower Revlimid sales. Against this backdrop, DRL’s earnings per share is expected to decline by 8% in FY26 and 8.5% in FY27 because of lower Revlimid sales, according to Bloomberg consensus estimates.
Besides, its pharmaceutical services and active ingredients (PSAI) business, which accounts for about 10% of consolidated revenue, saw a sharp erosion of 12 percentage points in its gross margin to 18%, owing to product-mix changes. This should remain in the range of 20-25% over the next two to three years, according to management.
Consolidated revenue rose by about 11%, to ₹17,400 crore in H1FY26, aided by the integration of the nicotine replacement therapy business, which it acquired in September 2024. However, Ebitda, adjusted for one-time VAT impact, fell by 1.3% to ₹4,200 crore thanks to a sharp increase in raw-material costs.
DRL stock is down about 7% so far this calendar year versus a 3% decline in the Nifty Pharma index. The stock trades at about 21 times one-year forward earnings, showed Bloomberg data. This valuation is higher than the long-term average and seems expensive. For the stock to re-rate and justify this valuation, the company will need a big-ticket approval or a sharp increase in the semaglutide opportunity.
