Growth in the post-Lenalidomide era for pharma stocks

Cipla and Dr. Reddy’s have posted their Q3FY26 results and as was expected, did not fare well with 57 per cent and 15 per cent year-on-year decline in profits respectively, despite 0.2 per cent and 4 per cent revenue growth. The US, which accounts for 25 per cent and 37 per cent of revenues in 9M-FY26, reported weak numbers.

In Q3FY26 results, Cipla reported US revenues of $167 million, which is a $66-million decline sequentially (-28 per cent quarter on quarter) or a $59-million decline (-26 per cent). This was largely attributed to Revlimid (Lenalidomide) sales decline. The product is used in the treatment of various forms of cancers associated with blood (multiple myeloma, myelodysplastic syndromes and mantle cell lymphoma). Cipla reported consolidated EBITDA margins of 17.7 per cent in Q3FY26 compared to 25 per cent in Q2FY26 and 28 per cent in Q3FY25.

Similarly, Dr. Reddy’s reported a 12 per cent decline in US sales and a 520-basis point decline in consolidated EBITDA margins in Q3FY26, primarily driven by lower lenalidomide sales. The other companies, including Zydus Lifesciences, Sun Pharma and Lupin, are also expected to report lower US sales in the quarter, with varying degrees of impact on margins.

Indian pharma companies were long expected to enter the post-lenalidomide phase starting January 2026, as was reported in bl.portfolio edition dated December 7, 2025 — “Pharma’s post Covid run faces a realty check”. Despite being a known factor, the initial results from Cipla and Dr. Reddy’s bear the extent of loss the companies will have to bear. This element of surprise can be attributed to the size of the opportunity that has eroded.

A large opportunity

It was in March 2022 that Natco Pharma announced the launch of the first generic version of Revlimid. This was followed by launches from all major pharma companies including Sun Pharma, Cipla, Cadila and Dr. Reddy’s. 

The confidential agreement between Celgene (the innovator) and others provided for volume-limited licence for sale from March 2022 to January 2026 and normal generic competition from thereon. The agreement, rather than being restrictive, was highly opportunistic to the generic companies. In a normal launch, upon arrival of generics, the price erosion on day one can range anywhere between 80 per cent and 90 per cent, as generics compete only on price to gain higher volumes. But with a clear definition of volumes, price competition was eliminated, thereby allowing companies to secure a larger revenue share than the generic pricing would have allowed. 

While companies did not report lenalidomide revenues (confidentiality agreement), it was expected that companies would have made $100-200 million from the one product accounting for 10-20 per cent of annual US revenues. The impact on margins would be even higher, as the product would have had high EBITDA margins of 60-70 per cent.

Pipeline assets

The results have not impacted the valuations of companies. Cipla and Dr. Reddy’s trade at 23.6 and 21.4 times one-year forward earnings, which is a (-2)/6 per cent premium to their last five-year average. The decline was well anticipated and companies have utilised the one-time opportunity to build other sustainable franchises, some of which have taken shape and others are expected to show up in the next one year or so.

Dr. Reddy’s, for instance, has signed an agreement with Haleon, a UK-based company, to acquire Nicotine Replacement Therapy (NRT) products for a total consideration of £500 million in 2024. Dr. Reddy’s has also started a JV with Nestle (51:49) and the subsidiary will induct global brands of Nestle in India gradually.

Generic Semaglutide is the other large opportunity for companies in 2026 and Dr. Reddy’s is at the forefront to participate. Semaglutide is a leading product for diabetes, which has applications in weight-loss as well. The drug loses patent protection in March 2026 across several markets and Dr. Reddy’s plans to be present in more than 80 countries before that happens. It expects to launch it in India by March, in Brazil and Turkey by July in the first phase. The company has applied and received queries from Canada, for which the earliest resolution date is in May. It plans on filing for other markets based on these approvals or build partnerships and license the product.

Cipla has invested in developing a complex portfolio. The company’s launch-pipeline includes four respiratory and four peptide assets in the next one year. These are high-value, complex products, which despite being generics are not expected to witness a high price erosion or price competition. Similarly, for other companies, the results discussion will be centred around the “replacement” pipeline to lenalidomide.

But the results and discussion from Cipla and Dr. Reddy’s in Q3FY26 results have shown that even if companies can offset the revenue loss, the new pipeline will not have the similar margin profile as lenalidomide and the margin impact has to be anticipated. Investors must brace for the weak reported earnings growth, but must factor the growth prospects from impending pipeline assets that will be announced by companies.

Published on January 31, 2026