 "Is Dr Reddy's Lab out of the woods?")
After the sharp fall of over 20 per cent following the disappointing June quarter results, Dr Reddy's Laboratories' (DRL) stock has started gaining traction. Following some positive news, the stock is up about seven per cent to Rs 3,163-levels. Is this a trend-reversal?
DRL disappointed the Street in the June quarter with US growth as pressure on volumes and competition became evident. With DRL's plants under US FDA scanner and delayed launches, the pressure did come.
The optimism follows acquisition of some products from Teva that will help the former's US sales. DRL also signed an agreement with US-based biotech firm Amgen to market three products (used in therapy of oncology and osteoporosis) in India.
Success with the Nuvaring judgment can lead to launch in a year and will be an $80-100 million annualised opportunity for the company, say analysts. Thus, success with the first two drugs can drive FY18 earnings estimates upwards, while Subaxone may contribute thereafter. There are launches of generics of Gleevac (leukaemia drug) and Diprivan (co-administered before anaesthesia) that can also contribute in the second half of FY17.
Investors will need to be vigilant. Likewise, management commentary after Q2 results can lend clarity on the resolution of US FDA warnings for the company's three plants. However, even as analysts are watching these developments and can revise earnings estimates, they remain cautious.
An analyst with a foreign brokerage says the next two quarterly results will provide visibility on core US sales, new launches and litigation outcome, which will provide direction for FY18 earnings, but until then there are limited triggers for the stock. Analysts at Kotak Institutional Equities said the Teva deal adds to growth, but they do not believe the pipeline is sufficient to offset competitive pressures on the US business for FY18 and remain cautious on Nuvaring, as they do not rule out additional regulatory delays. But, as one analyst puts it, while there are potential rewards, there are downside risks too. So, patient investors may consider DRL on declines.
DRL disappointed the Street in the June quarter with US growth as pressure on volumes and competition became evident. With DRL's plants under US FDA scanner and delayed launches, the pressure did come.
The optimism follows acquisition of some products from Teva that will help the former's US sales. DRL also signed an agreement with US-based biotech firm Amgen to market three products (used in therapy of oncology and osteoporosis) in India.
Success with the Nuvaring judgment can lead to launch in a year and will be an $80-100 million annualised opportunity for the company, say analysts. Thus, success with the first two drugs can drive FY18 earnings estimates upwards, while Subaxone may contribute thereafter. There are launches of generics of Gleevac (leukaemia drug) and Diprivan (co-administered before anaesthesia) that can also contribute in the second half of FY17.
Investors will need to be vigilant. Likewise, management commentary after Q2 results can lend clarity on the resolution of US FDA warnings for the company's three plants. However, even as analysts are watching these developments and can revise earnings estimates, they remain cautious.
An analyst with a foreign brokerage says the next two quarterly results will provide visibility on core US sales, new launches and litigation outcome, which will provide direction for FY18 earnings, but until then there are limited triggers for the stock. Analysts at Kotak Institutional Equities said the Teva deal adds to growth, but they do not believe the pipeline is sufficient to offset competitive pressures on the US business for FY18 and remain cautious on Nuvaring, as they do not rule out additional regulatory delays. But, as one analyst puts it, while there are potential rewards, there are downside risks too. So, patient investors may consider DRL on declines.