 "Dr Reddy's: Concerns fail to deter investors")
Dr Reddy’s Laboratories scrip continues to gain on the back of growth momentum in its US generics business. It scaled to an all-time high of Rs 2,974.95 a share on Monday despite the news of a competitor (InnoPharma) receiving approval for generic launch of blood dysfunction treatment drug Decitabine. The product is the single-largest contributor for Dr Reddy’s, having clocked sales of $77 million (Rs 462 crore) in FY14.
Hitesh Mahida at Antique Broking says the drug, with a market size of $300 million, is expected to contribute five per cent to the company’s earnings in FY15. While the product approval makes it a three-player market, InnoPharma and its marketing partner, Sandoz, are the real threat for Dr Reddy’s, given that Sun Pharma’s (third player) product is not the exact generic substitute. While the market had anticipated some competition, larger-than-expected marketshare gains for the new players can entail a revision in analysts’ earnings estimates for Dr Reddy’s.
The US Food and Drug Administration accepting drug applications from Natco and Momenta Pharma for launch of multiple sclerosis drug Copaxone (market size $411 million) is another concern. Dr Reddy’s was the sole first-to-filer with a 180-day marketing exclusivity. However, if either or both the companies also get first-to-file status as they are claiming now, upsides from the drug for Dr Reddy’s will be capped.
Analysts are positive on the company’s growth prospects, given strong drivers from the US pipeline and continued momentum from India and Russia.
JPMorgan analysts say while the US business will see high base for the next two quarters, continued momentum in injectibles and market share gains in select products would support growth trends. Dr Reddy’s is their top pharma pick because of its focus on execution of its complex generic strategy in the US, investments in R&D for future growth and bio-similar opportunity in Russia in the medium term.
While analysts are expecting Dr Reddy's profit growth to double to 20 per cent in FY16 (from estimated 10 per cent in FY15), the average target price of 20 analysts (18 buy/accumulate and two having hold rating) polled by Bloomberg since August stands at Rs 3,256.
Hitesh Mahida at Antique Broking says the drug, with a market size of $300 million, is expected to contribute five per cent to the company’s earnings in FY15. While the product approval makes it a three-player market, InnoPharma and its marketing partner, Sandoz, are the real threat for Dr Reddy’s, given that Sun Pharma’s (third player) product is not the exact generic substitute. While the market had anticipated some competition, larger-than-expected marketshare gains for the new players can entail a revision in analysts’ earnings estimates for Dr Reddy’s.
The US Food and Drug Administration accepting drug applications from Natco and Momenta Pharma for launch of multiple sclerosis drug Copaxone (market size $411 million) is another concern. Dr Reddy’s was the sole first-to-filer with a 180-day marketing exclusivity. However, if either or both the companies also get first-to-file status as they are claiming now, upsides from the drug for Dr Reddy’s will be capped.
Analysts are positive on the company’s growth prospects, given strong drivers from the US pipeline and continued momentum from India and Russia.
JPMorgan analysts say while the US business will see high base for the next two quarters, continued momentum in injectibles and market share gains in select products would support growth trends. Dr Reddy’s is their top pharma pick because of its focus on execution of its complex generic strategy in the US, investments in R&D for future growth and bio-similar opportunity in Russia in the medium term.
While analysts are expecting Dr Reddy's profit growth to double to 20 per cent in FY16 (from estimated 10 per cent in FY15), the average target price of 20 analysts (18 buy/accumulate and two having hold rating) polled by Bloomberg since August stands at Rs 3,256.