Relaunching some of its older drugs in the US is on the cards. This would provide a fillip to the North American biz
The main reason is the swelling pipeline of drug launches in the US
Shares of Dr Reddy’s Laboratories Ltd have been convalescing. The stock rose 8.5% this past week, contrasting with the Nifty 500 index’s 1.9% gain, as investor hopes of a further US recovery heightened. Note that in end-August, the shares had fallen about 15% from their highs in May. The recent improvement in sentiment, therefore, is welcome.
The main reason is the swelling pipeline of drug launches in the US. In FY19, Dr Reddy’s launched 24 new drug applications in the US, up from 14 in FY18. The management has lined up around 30 new launches for FY20. Besides, relaunching some of its older drugs in the US is on the cards. This would provide the requisite fillip to its North American business.
“DRL has various drugs (Kuvan, Ciprodex, Remodulin), a US$15 mn-35 mn opportunity, which should help its base US sales continue growing," said analysts at Credit Suisse Securities (India) Pvt. Ltd in a note to clients.
This follows the disappointing delay in the launch of two of its high-value products, Copaxone and NuvaRing. In fact, it received a Complete Response Letter from the US Food and Drug Administration (US FDA) for NuvaRing, which means that the product is not yet ready for approval. Further, clarifications regarding the product could take over a year.
Despite the setback, though, analysts said some of the company’s other launches may counter the delay as they, too, seem to have substantial revenue potential. “The overall US pipeline for DRL is still very strong (104 pending ANDAs). Even without Copaxone and NuvaRing, DRL could hit sales of $1 billion by FY22 in the US, vs. US$865 mn in FY19," said the Credit Suisse report.
Besides, this will reduce its dependence on a few drugs in the US market, said analysts. “In addition, from the perspective of future launches, we believe that the consensus view of Dr Reddy’s growth depending on just a few products is unjustified," said analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd in a note to clients.
Note, though, that there has been a price erosion in the US generics market in most segments in FY19. Hence, even as some of the new launches have limited competition, revenue potential could be at risk if price erosion is significant.
Note further that any delay in launches or inspection by US FDA must be tracked.