Dr Reddy`s may miss sales forecast, say analysts

The potential upside from selling the migrane drug could be limited to a maximum of $20-30 million considering the possible launch of the generic version by year-end and an imminent generic competition thereafter, analysts said.  "Apart from the Imitrex upside, there are no other big launches for Dr Reddy's in the near future in the US market. This is likely to limit their revenues for 2008-09," noted Sarabjit Kaur Nangra, vice-president for research at Angel Broking.  Dr Reddy's and rivals, including Ranbaxy Laboratories and Wockhardt, have benefited from copying blockbuster medicines and selling them at a fraction of the price in the US and Europe.  Dr Reddy's has exclusive rights to distribute 25 mg, 50 mg and 100 mg strengths of the drug for six months as an authorised generic following an out-of-court settlement with GSK after a three-year patent litigation, which ended in 2006. The US patents on Imitrex expire by February 2009. Dr Reddy's can launch the product by the end of 2009.  Dr Reddy's had three big generic launches, one with a six- month exclusivity period and two as authorised generics, in 2006-07, which helped sales grow 168 per cent year-o-year to Rs 6,509 crore. Sales of the company eroded last fiscal for lack of any such opportunity, pulling down profit by 50 per cent.  Another first-t-file opportunity (FTF) this year for Dr Reddy's was letiracetam, Belgian pharmaceutical company UCB's anti-epilepsy drug branded as Keppra. However, the details of the out-o-court settlement among US-based Mylan Laboratories (which will launch the authorised generic), Dr Reddy's and Cobalt Pharmaceuticals is not known to ascertain the benefits for Dr Reddy's, analysts said. Further, the patent protection for this drug has been extended till January 2009.  According to research firm Prabhudas Liladhar, the topline growth of Dr Reddy's for 2008-09 could be a maximum of 23 per cent mainly powered by 46 per cent growth from the Commonwealth Independent States (CIS) and 32 per cent from the Russian market. While the generic and domestic business could grow 19-20 per cent, growth from rest of the world could be 31 per cent.  "The rupee has appreciated by 10 per cent in the last quarter and if the trend continues, the export growth could be in the range of 18-20 per cent for Dr Reddy's," noted Ranjit Kapadia, head of PCG research at Prabhudas Liladhar.  Almost three-fourth of Dr Reddy's business comes from overseas markets. In financial year 2007-08, the company saw unprecedented and significant fluctuations in the US dollar-Indian rupee exchange rate, coupled with an 11 per cent depreciation of the dollar.  Analysts also point out that profit from the business of acquired German company Betapharm could not happen quickly. Only three-four products have been moved to the Indian manufacturing locations and the challenges of the German market remain the same for the company.  In the last financial year, the German government introduced further amendments in its health care law, which now requires patients to use medicines endorsed by their sick funds. This increased the bargaining power of these funds and resulted in lower prices.  Reduction in total debt from Rs 2475 crore in the previous year to Rs 1,954 crore during 2007-08, new drug introductions, such as a biologic product last year, focus on cost cutting and streamlining of manufacturing could provide better fortunes for the company, said analysts.