Semaglutide Setback Plunges Dr Reddy’s Stock as API Impurities Force Supply Disruption

Semaglutide Setback Plunges Dr Reddy’s Stock as API Impurities Force Supply Disruption​

Drugmaker Dr Reddy's Laboratories witnessed a significant slide in its stock price on July 10, continuing the decline following disclosures regarding its generic semaglutide supply. The company's stock was last trading 1.6% lower at Rs 1,248.9 and stood as the top loser on the pharma index, which saw a minor dip of 0.2%.

The steep slide followed earlier warning from the drugmaker after it disclosed a temporary disruption in generic semaglutide supply for both India and Canada due to concerns over Active Pharmaceutical Ingredient (API) impurities. This operational snag has cast doubt on Dr Reddy's ability to fully capitalize on its early lead in the highly competitive diabetes medication market.

Operational Disruption and Revised Guidance​

The supply constraint has forced a downward revision of company expectations, particularly concerning the output volume for the coming years. Dr Reddy’s initially projected around 10 million semaglutide pens for the second half of the fiscal year 2026-27. The company now anticipates supplying only 6 to 7 million pens during that period.

The supply disruption is expected to persist throughout Q2FY27, with management anticipating a resumption of supplies in Q3FY27. This adverse development was previously preceded by the drugmaker wiping Rs 6,500 crore off its market value after halting commercial injections following the impurity detection.

Analyst Scrutiny and Earnings Downgrades​

Brokers globally have responded to the news with significant downgrades, citing the loss of first-mover advantage in the Indian semaglutide segment. Systematix downgraded the stock from "buy" to "hold," noting that rivals could enter the market sooner and potentially erode Dr Reddy's pricing power.

Emkay Global cut its fiscal 2027 earnings estimates by approximately 7%, stating that the setback weakened the investment case for semaglutide. Meanwhile, Systematix reduced its fiscal 2028 semaglutide revenue estimate to $100 million from the previous $150 million and lowered its target price to Rs 1,398.

International Market Impact and Valuation Changes​

The impact on the Canadian market segment is also reflected in revised forecasts. For FY27, semaglutide sales in Canada are now estimated at $50 million compared to a previous estimate of $120 million. Revenue estimates for FY28 have also been moderated, standing at $70 million against prior guidance of $80 million.

Elara Securities downgraded the stock to 'Reduce' from 'Accumulate,' setting a target price of Rs 1,283. The brokerage stated that quick resolution of the Semaglutide API issues and timely approval of biosimilar abatacept are key upside risks for the company moving forward.

Brokerage Outlooks Range From Bearish to Bullish​

Motilal Oswal Financial Services maintained a Neutral rating with a revised target price of Rs 1,210. The firm cut its FY27/FY28 earnings estimates by approximately 11% and 2%, respectively, due to slower semaglutide ramp-up and delayed supplies, but expects recovery from FY28 onwards.

In contrast, JM Financial maintained a "Buy" rating with a target price of Rs 1,561. The domestic brokerage acknowledged the cuts made to revenue, EBITDA, and PAT estimates for FY27 but clarified that this does not imply a substantial change in the target price due to the limited scope of the supply disruption during that fiscal year.