New launches, patents: Multiple catalysts for Dr Reddy's US business

The ongoing pace of product launches in the US should lead to stronger growth after a good Q1, say analysts

Dr Reddy’s Laboratories (DRL) remains in news with new drug launches in the US and the winning of important patent litigation that paves way for a large product launch.

Since the start of September, DRL has announced at least three product launches in the US, including an injectable. However, the spotlight was shared by an important litigation victory pertaining to Vascepa patents. Vascepa, the brand owned by Irish Amarin Corporation, is used for controlling triglyceride in the blood to lower the risk of cardiac attack. It had clocked sales of $572 million in 12 months ended June 30, 2020. Given the constraints on active ingredients (raw material) for the product, the competition will be limited, thereby limiting price erosion (to much less than 20-25 per cent, which is the case with most generics launches).

These indicate a lucrative opportunity for DRL.

Analysts at Emkay Global say generic Vascepa’s launch is not part of their estimates yet and will add 6-7 per cent to annualised earnings (if launched in the near term), assuming a three-player market initially, 50 per cent price erosion, and 15-20 per cent market share for DRL. It, therefore, could easily be a $50-million per annum opportunity with high margins, say analysts, who expect the drug to continue driving growth for a long time, as had been the case with opiate addiction treatment Suboxone generics.

 

 

There are other products (already launched or in the pipeline), too, which will contribute to earnings in the ensuing quarters. DRL has launched Ciprodex generics (Otic treatment antibacterial combination), which can scale up to $20-25 million per annum sales.

The launch of Kuvan generics (to control blood phenylalanine levels) lined up in a month can also become a $40-45 million per annum opportunity. All eyes are also on the ongoing trials of Covid-19 treatment drug Favipiravir in the US (DRL has marketing rights globally, except for China, Japan and Russia).
 

DRL now has also enhanced focus on India and other markets, including China, which can boost growth. Also, the pharmaceutical services and active ingredients (PSAI) segment contributes about a fifth to revenues and DRL should benefit as Indian ingredient players are gaining favour from global customers de-risking their supply chain from China.

Overall, Credit Suisse expects the next three quarters to be stronger after a good June quarter (Q1); it has increased its FY21 and FY22 earnings estimates by 1.5-5.0 per cent to factor in generic launches, and its target price toRs 5,100 for the stock trading at Rs 4,400.