 "FDA approvals to boost Dr. Reddy’s prospects in US: Nomura")
Recent approvals for the two new drug applications (NDAs) received from the US FDA by Dr Reddy's Laboratories Limited have evoked considerable interest among the analysts over the long term prospects of the company's US sales performance.
With both being proprietary products, a much-needed differentiated product area to sustain and improve the revenues in the highly competitive US market, the efforts and high R&D spend of the company are seen bearing the fruit.
“Although the near-term financial impact will be limited, approvals and visibility on long-term sales prospects can have a positive impact on P/E multiples. Dr Reddy's trades at a discount to peers despite its higher R&D investment," said Nomura in its latest research report in the light of new approvals.
The company has received approval for Zembrace Symtoch — a 3 mg Sumatriptan autoinjector, a migraine relief injection and tentative approval for Zenavod (Doxycycline 40 mg capsules), which is used in treatment of Rosacea, a chronic skin condition characterised by facial redness. With these Dr Reddy's has gained approval for two of its four NDAs pending approval. The company had guided for sales of $ 50-70 million near term for each of its NDA assets.
There are two additional NDAs that the next few months and can be commercialised in FY 17, according to Nomura report. These are Xeglyze lotion for treatment of lice infestation in children and DFD-01, a spray platform for treatment of psoriasis. Each of these products have prospects of gaining sales of more than $ 50 million.
These approvals also viewed as a significant positive news for the company after the last year's set back due to the US FDA warning letter involving three of its manufacturing facilities. Revenues and margin growth for Indian drug majors are largely determined by the sales and the new launches in the US market.
Zembrace Symtouch, which is expected to be launched in the near-term, addresses a $ 400 million Sumatriptan market and a $220 million Sumatriptan injection market in the US. The approval also puts the company in a better positioning in this particular area as the product comes with a better side-effect profile with similar efficacy and greater convenience, according to the report. Zembrace Symtouch is a low strength formulation with a 3 mg dose, and is expected to be more effective and also relatively safe. This is the first NDA approval for Dr Reddy's in the neurology specialty.
Zonavod competes with Oracea, which has a $ 300 million market. Unlike Oracea, Zenavod has no meal restrictions, it says. However, giving the ongoing litigation, final approval for Zenavod is expected only after the expiry of the 30-month stay in December 2017.
Galderma, which makes Oracea, has sued Dr Reddy's on various orange book listed patents that expire between April 2022 and December 2027. That lawsuit that was brought within 45 days of the notice letter, triggering a 30-month stay on the final approval. Since Dr Reddy's notified Galderma on June 22, 2015, the 30-month stay is expected to end in December, 2017.
Commenting on the financial impact, the Nomura analysts said it will be limited in the near term. Most of the products will also require promotion, and sales will likely increase only gradually. However, the approvals raise the prospects of business loss reducing over time. Given the high R&D investments, the proprietary product business EBIT loss has increased to 20% of consolidated EBIT, they added.
