Dr. Reddy’s has announced out-licensing of its diabetes molecule (DRF 4158) to Novartis. As per the terms of the agreement, Dr. Reddy would receive US$ 55 m in up front and milestone earnings. This is almost more than double its expected earnings for FY01. This milestone payment would be received prior to commercial launch of the molecule. While Novartis would have exclusive rights for worldwide development and commercialization, Dr. Reddy would have co-promotion rights for India.
The company has been licensing its molecules to multinational companies for further development after conducting pre clinical studies, as part of its strategy to finance huge clinical trial costs. The company has already licensed two molecules (DRF-2725 and DRF 2593) in the anti-diabetes area to Novo Nordisk, a world leader in diabetic segment. The out-licensing has already earned the company, US$ 8 m till date. The huge milestone payment for the third molecule of US$ 55 m (Rs 2.6 bn approx.) is reflective of the company’s strength in pharma R&D. This is the largest ever milestone payment received by any pharma company in India.
Dr. Reddy’s strong research pipeline can be summarized as under.
Dr. Reddy’s R&D Coffer
Licensed to Novo Nordisk. Currently in Phase II of clinical trials
Licensed to Novo Nordisk. Currently in Phase II of clinical trial in several regulated markets including US and Europe. Worldwide launch expected in 2004-05
Licensed to Novartis. Pre-clinical already completed.
Clinical trial contract given to Simbec Research, UK
Further, proceeds from recently completed ADR are expected to be utilized for R&D activities. This would further strength the company’s pipeline. The company is expected to announce its consolidated results (with Cheminor drugs) on May 31, 2001. We expect the company to post an EPS of Rs 34.8, on a consolidated basis. Apart from the current windfall income and other positive news flow expected from its research pipeline, clear visibility of earnings from the US generic market is likely to create a positive impact on the stock price. At Rs 1,400, the stock trades at 40.2 and 33 times FY01 and FY02 expected earnings respectively (without taking into account extraordinary incomes like gains from US generic market and milestone payments).
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