The Pharma Major That Just Lost Its Most Profitable Friend

When Your Golden Egg Becomes An Expired Patent

Let’s talk about Dr. Reddy’s Laboratories — a 40-year-old Hyderabad-based pharma giant that spent the last five years enjoying a relationship so profitable it became a liability. The relationship? A limited-time settlement with Celgene (now BMS) that let DRL sell generic Lenalidomide (brand name: gRevlimid) in high-margin, controlled-supply contracts. In Q3 FY26, that relationship just ended. Patent expired January 2026. Game over.

For context: gRevlimid used to contribute meaningfully to North America generics revenue. Now it’s gone. EBITDA margin fell 401 basis points YoY. PAT margin dropped from 17.2% to ~14%. The stock went up anyway because investors suddenly realized DRL has about 15 other things cooking — Semaglutide (diabetes + weight loss), Abatacept (biosimilar), Denosumab (approved in Europe), innovation franchises scaling 15-19% annually in India, and a ₹1.09 trillion operating cash flow machine.

This is a company learning to live without its crutch. And honestly? It’s not even hobbling.

Consolidated revenue in Q3: ₹8,753 crore. IFRS reported (not standalone). FY25 full-year was ₹32,644 crore. The quarterly cadence is lumpy because APIs, formulations, and geographies all move at different speeds. India is growing at 15-19% and “absolutely sustainable” per management. Russia is double-digit despite macro headwinds. The US is in transition. And yet, the company traded P/E 19.5x while Nifty pharma median sits at 27.6x. Which means DRL is either cheap, or everyone’s waiting to see if Semaglutide can actually move the needle.

APIs, Generics, Biosimilars, and Innovation. Pick Your Underdog Story.

Dr. Reddy’s operates across four business segments, each with a different personality disorder. Global Generics (~83% of FY22 revenue) is the workhorse — 400+ high-quality drugs sold into regulated markets (US, Europe, India, Russia). Nervous system (14%), GI (13%), anti-infective (10%) are the top therapeutic areas. The US is 45% of consolidated sales, India is 17%. Margins are compressed due to price erosion and competition, but volume is king.

Pharmaceutical Services & Active Ingredients (PSAI, ~10% of consolidated FY25) is the hidden gem. DRL manufactures APIs for its own formulations AND sells to competitors. Backward integration means lower costs and faster time-to-market for its own generics. Q3 FY26 PSAI fell 5% YoY because of lower Lenalidomide demand and adverse mix (cheaper products growing faster). But management sees PSAI as a medium-term growth driver — proprietary manufacturing, quality edge, regulatory approvals.

Biosimilars are the future. Abatacept (TNF-inhibitor for rheumatoid arthritis) is the hero — BLA filed in December 2025 for US IV, filing July 2026 for subcutaneous, European submission July 2026. Management expects US approval “toward end of calendar 2026” and EU approval “July 2027.” Market size in Europe alone: ~US$2 billion. Denosumab (osteoporosis) received CHMP positive opinion in Europe, launched Germany in December, UK and EU rollout underway.

India Innovation Franchise is the dark horse. Premium formulations, chronic disease focus, differentiated products. In Q3 FY26, India revenue grew 19% YoY to ₹1,603 crore, and management claims “absolutely sustainable” growth at 15-16% going forward. Innovation portfolio estimated at 10-15% of India sales. This is where DRL will hide from US generic pricing collapse.

Q3 FY26: The Bloodletting Ledger

Result type: Quarterly Results  |  Q3 FY26 EPS: ₹14.50  |  Annualised EPS (Q3×4): ₹58.00  |  Full-year FY25 EPS: ₹67.77

What’s This Pharma Phoenix Actually Worth?