Dr Reddy’s shakes up US market with Mayne Pharma acquisition
Dr Reddy’s Laboratories, the Indian multinational pharmaceutical company, recently made a noteworthy acquisition of Mayne Pharma Group’s US generic prescription product portfolio. This deal has caught the attention of many in the pharmaceutical industry for two reasons.
Investing in a Challenging Market
The first reason is that Dr Reddy’s has chosen to pour more money into a market that is persistently facing price erosion – the US. The US pharmaceutical market has been experiencing significant pricing pressure for some time now, leading many drug companies to pull back on fresh investments. In fact, the Q3 FY23 results showed a decline in investments from small Indian pharmaceutical companies in the US market. According to analysts at Jefferies India, small companies were the last to enter the US generics market and are unable to scale up their revenue base.
Even large pharma companies like Lupin, which were early entrants into the North American market, are having a rethink. Lupin has been prioritizing investments and plans to selectively pursue drug opportunities in the US market. Analysts at Nomura noted that Lupin has discontinued selling loss-making products and is likely to continue to prune its portfolio further if required.
Nature of Mayne Pharma’s US Portfolio
The second reason that this acquisition is significant is the nature of Mayne Pharma’s US portfolio. The acquired portfolio consists of 45 commercialized products, four pipeline products, and 40 approved non-marketed products. However, much of the existing business is facing pricing pressure. In FY22, Mayne Pharma’s retail generic business revenues declined by 27%.
Despite this, investors should not overlook the benefits at the company level. Mayne’s US portfolio has several limited competition products that can help Dr Reddy’s withstand the current price erosion in the base generic drug business. Analyst calculations suggest that the acquired portfolio can increase US revenues by 9% in the current fiscal year and FY24 revenues by 7%.
A Foot in the Door for Dr. Reddy’s
The acquisition strengthens Dr Reddy’s US generic drug business and gives it a foothold in women’s health drugs. Mayne’s portfolio includes gNuvaring, a hormonal product that Dr Reddy’s previously struggled to launch. According to analysts at JM Financial Institutional Securities, “the acquisition will strengthen the US base business while also aiding Dr Reddy’s ambition of consistently growing its overall top line.”
The US as a Key Market
Apart from India and other emerging countries such as China, Dr Reddy’s continues to count the US as one of its key markets. The US remains the world’s largest pharmaceutical market, a fact no drug company operating at scale can ignore. The current headwinds may make the US market less remunerative. However, as the market stabilizes (due to moderation in pricing pressure), companies that withstand the business vagaries better and strengthen their core portfolio will benefit the most.
Final Thoughts
While the acquisition of Mayne Pharma’s US portfolio may seem like a risky move, it is a smart one for Dr Reddy’s Laboratories. It not only strengthens its foothold in the US market but also gives the company a competitive edge by providing access to limited competition products. This acquisition has the potential to aid Dr Reddy’s Laboratories in its ambition to consistently grow its overall top line.