X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
R&D stalwart eyes generics market - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 23, 2001

    R&D stalwart eyes generics market

    29th May 2001 was a landmark day in the history of Dr.Reddy’s Laboratories Ltd (DRL). Chairman, Dr. Anji Reddy’s, excitement knew no bounds. This was for no small reason for the company announced out-licensing of its diabetes molecule (DRF 4158) to Novartis AG, a world leader in healthcare. As per the terms of the agreement, Dr. Reddy would receive US$ 55 m in up front and milestone earnings. This is little less than double the company’s fiscal 01 earnings. As per the terms of the agreement, this milestone payment would be received prior to commercial launch of the molecule. While Novartis would have exclusive rights for worldwide development and commercialization, DRL would have co-promotion rights for India.

    Though this was not the first time that the company out licensed its research molecule, the huge milestone payment was reflective of the company’s strength in pharma R&D. DRL 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. This has earned the company, US$ 8 million till date (the total value of these deals however is not disclosed).

    And that’s not all. The company has slew of molecules in its pipeline, which are capable of giving such pleasant surprises in the times to come. The company’s R&D Pipeline is summarized in the table below.

    Dr. Reddy’s R&D Coffer
    Molecule Name Therapeutic
    segment
    Remarks
    DRF 2593 Diabetes Licensed to Novo Nordisk.
    Currently in Phase II of clinical trials
    DRF 2725 Diabetes 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
    DRF 4158 Diabetes Licensed to Novartis.
    Pre-clinical already completed.
    DRF NPPC Diabetes Pre-clinical completed.
    Exploring licensing prospects.
    DRF 1042 Cancer Phase I Clinical trial
    DRF 1644 Cancer Currently, in pre-clinical studies
    DRF ACXX Cancer Currently, in pre-clinical studies
    DRF 4848 Pain Management Pre-clinical studies
    DRF 4832 Cardiovascular Clinical trial contract given to
    Simbec Research, UK

    Coming down to the business model of the company, the revenue mix can be summarized as shown in the chart. While the branded formulations business is a cash cow for the company, the bulk drugs business apart from earning export revenues, helps in vertical integration for formulation manufacturing. The US generics business offers big growth opportunity for the company going forward.

    The company’s acquisition of Cheminor Drugs, last year helped it in making a significant presence in high margin US generic market. Cheminor was one of the few companies to have made entry into the US regulated markets way back in 1990. A very rich and mature ANDA (Abbreviated New Drug Application) filings inherited from Cheminor has helped DRL to create an enviable basket of products for the US market.

    Dr. Reddy currently has 28 ANDA filings to its credit and plans to file 11 new ANDA’s in the US in the current year. Last year was a maiden year of performance as far as generics is considered. Dr. Reddy was able to notch up maiden sales of US$ 6.5 million during its first four months of operations (December to March 2001), successfully gaining strong market share in recent launches (Famotidine and Oxaprozin). The company has forged alliances with top-tier companies (Par, Leiner Healthcare, Warrick) to ensure timely launches for its pipeline products through co-marketing and rapidly acquiring a critical mass in the US generics market.

    The potential from the US generics business is huge. To give an example revenue potential from fluoxetine, a blockbuster anti-depressant drug is estimated to notch up revenues in the range of US $ 40-50 million, provided the company is successful in getting the six month marketing exclusivity which it has applied for with US FDA. Together, all ANDA filings of the company should sustain a strong revenue momentum from the generics markets in the next 2-3 years.

    The company recently raised US$ 124 million from ADR proceeds, diluting 18% of the company's equity. It plans to use these proceeds for integrating its R&D projects and acquisitions to fuel inorganic growth. We expect that with ADR fund deployment coupled with milestone receipts from licensing of its molecules the company would be able to take a step towards self-sufficiency in its R&D work. A modest beginning has already been made with the company conducting clinical research for its cardiovascular molecule (DRF 4832) on its own.

    There are number of valuation triggers for the company at this point of time viz. windfall revenue gains from its research pipeline, US generic market earnings visibility, inorganic growth from ADR funds, further unlocking of intellectual property, strong core business fundamentals etc. However, the markets seem to have built in lot of expectations from the company. The flip side thus is that any negative news either from the US generic market or on the R&D front (failure of a molecule) could lead to a fall in valuations. Again, any delay in deployment of ADR funds, could impact its capital return ratios negatively in the near term.

     

     

    Equitymaster requests your view! Post a comment on "R&D stalwart eyes generics market". Click here!

      
     

    More Views on News

    Dr Reddy's: US Pressure Continues to Haunt (Quarterly Results Update - Detailed)

    Aug 8, 2017

    Profits plunge due to higher raw material costs.

    Dr Reddy's: Major Business Segments Come Under Pressure (Quarterly Results Update - Detailed)

    Sep 12, 2016

    Dr Reddy's has announced the results for first quarter of FY17 (1QFY17). The company has reported decline in the sales by 13.9% YoY while net profits declined by 79.8 % YoY.

    Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Aug 14, 2017

    A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.

    Lupin: Bigger Challenges or Bigger Margin of Safety? (Quarterly Results Update - Detailed)

    Aug 14, 2017

    GST impact coupled with price erosion in US leads to lower profits for the quarter.

    Biocon: Lower Licensing Income Leads to Muted Growth for the Quarter (Quarterly Results Update - Detailed)

    Jun 23, 2017

    Net Profit lower due to exceptional items in the previous year.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    DR. REDDYS LAB SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK DR. REDDYS LAB

    • Track your investment in DR. REDDYS LAB with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    DR. REDDYS LAB 5-YR ANALYSIS

    Detailed Financial Information With Charts

    COMPARE DR. REDDYS LAB WITH

    MARKET STATS