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Dr Reddys Laboratories (updated - 08 Jan 2010)
The Dr Reddy’s stock surged about 4 per cent since the start of the week on announcements of encouraging Phase III trials of an anti-diabetic drug and tie-up for manufacturing obesity management drug, Orlistat. On Monday, Dr Reddy’s and its research partner, Rheoscience (a subsidiary of Nordic Bioscience A/S), announced that the initial trials of phase III stage of its anti-diabetic compound, Balaglitazone is effective in reduction of HbA1C.

The announcement is significant given that this is the first Indian molecule to reach this stage, and also due to the huge market size. However, it is early to take a call on what the gains will be for Dr Reddy’s. The HbA1c test is carried out to test blood sugar levels. The results (of test carried out on 409 patients) indicate that while Dr Reddy’s compound is better tolerated than competing drug Pioglitazone, both drugs are as effective.

The announcement is significant given that this is the first Indian molecule to reach this stage, and also due to the huge market size. However, it is early to take a call on what the gains will be for Dr Reddy’s. The HbA1c test is carried out to test blood sugar levels. The results (of test carried out on 409 patients) indicate that while Dr Reddy’s compound is better tolerated than competing drug Pioglitazone, both drugs are as effective.

The company will have to prove the superiority of its molecule over Pioglitazone, a $3 billion drug launched a decade ago in trials, if it is to have a chance of commercial launch which is estimated to be at least two years from now.

The data will now be submitted to the European and US regulatory authorities and the company will take a call on the next set of trials. Since further trials will involve a larger number of patients and hence higher costs, it is not surprising that Dr Reddy’s is looking out for a third research partner to share the cost and take the molecule to the last stage.

Dr Reddys Laboratories (updated - 12 Jan 2010)
The share price of Dr Reddy’s Laboratories continues its northward movement, outperforming the markets and hitting all-time highs, completely immune to the vagaries of the market place. Unaffected by the volatile climate, the share price has been on the rise since March 31, gaining 35 per cent from the Rs 1,135level to the highs of Rs 1,500-levels. The shift from aspecific therapeutic areabased approach to a massmarket strategy seems to be paying.

Incrementally, it has been found that therapeutic specific products are being prescribed by generalists, say analysts at Nomura. The company is filling in the gaps in the current product portfolio and that is reflected in 62 launches in financial year 2010, from 36 launches in the previous year. Traction was also provided by the US markets. Financial results showing sustained revival in the domestic formulation business further catalysed the upside. The horror of Beta Pharma, its European arm, which dented last year’s results, seems to be over with one-ime write offs.

DRL is aggressive towards domestic growth. In the March quarter,it grew its domestic business by 26 per cent to Rs 550 crore. It plans launches of new branded formulations and further additions to its field force that had already reached 3,000 in the last quarter, more than double from the previous year. Operating margins in excess of 20 percent are expected to be maintained by the company. Due to absence of revenue from any exclusive product, the generic business reported a decline of 45 per cent in the March quarter. However, the generic business opportunity will be attractive, as blockbuster drugs worth $25-30 billion go off-patent every year over the next three years. The company has already indicated a likelihood of return on capital employed at 25 per cent and this is a significant number. Its enterprise value is 3.2 times its 200910 sales and this is considered attractive by analysts, as Sun Pharma has the same multiple at 7.9 times and Piramal’s sale to Abbot happened at almost nine times.

The mass market approach has seen the company launch aslew of products and also get revenue traction
source - business standard

What’s more important is that unless the molecule clears all tests successfully, it will not result in monetary gains for the stakeholders. Also for Dr Reddy’s, a lot is expected from this molecule as the company’s other four new chemical entities (NCEs) are still in the first phase of clinical trials.

The second announcement of Dr Reddy’s is a tie-up with Indian biotechnology company Transgene Biotek to manufacture and market Orlistat, an obesity management drug. The market size for obesity management drugs accounts for $2 billion worldwide with pancreatic lipase inhibitors such as Orlistat contributing to about half of this.

Dr Reddy’s product could be one of the first generic in the category (the patent expired over six months ago) to be marketed in the US. The drug is currently sold in the US market by GlaxoSmithkline Pharma (GSK) and Roche Pharma.

Analysts say, the company’s sales for 2009-10 are likely to cross the Rs 7,000 crore mark helped by strong North American sales, including the one-off exclusivity on Sumatriptan, alliance with GSK to sell generics in emerging markets and FDA approval for over the counter drug, Omeprazole.

However, pricing pressures in the German market and the lack of product-specific triggers in the US is an area of concern. At Rs 1,185, the stock is trading 21 times its 2010-11 estimated earnings per share of Rs 57, leaving little scope for further gains.
source - business standard

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