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.
What Dr Reddy's will get out of 'Fondaparinux' - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Oct 10, 2012

    What Dr Reddy's will get out of 'Fondaparinux'

    The next three years are a gold mine for Indian generic players as the opportunity in terms of drugs facing patent expiries is huge. This is especially in the US. That said, as big blockbuster drugs lose patents, competition intensifies as more and more generic companies vie for a slice of that drug. Hence, those companies focusing on niche products certainly end up having an edge. Keeping this in mind, in today's article, we have tried to analyze the impact of one such niche drug for Dr Reddy's, notably 'Fondaparinux'.

    Some facts on 'Fondaparinux'

    Alchemia is the company which has developed the generic version of Arixtra (fondaparinux). Later, this company entered into an agreement with Dr Reddy's for manufacturing and marketing of the product. This drug is in injection form and is used for the treatment of deep vein thrombosis (DVT - a condition in which patient gets blood clot in the deep vein) and pulmonary embolism (PE- blockage in main artery of lung or one of the branches by substance, PE most commonly results from DVT). It is tough for this drug to clear approval owing to its safety issues. Thus this acts a high entry barrier for other generic players wanting to enter this field.

    Under the agreement, Alchemia is eligible for atleast 50% and maximum of up to 60% of profits from product sales in the US. Both the companies have also signed agreements for various other geographies.

    What Dr.Reddy's gets out of this drug

    For Dr Reddy's, Fondaprinux contributed around 5% to its US revenues (FY12). The company had launched this product in the US in July 2011. We have briefly analyzed the performance of this product over a year.

    The company's partner Alchemia recently announced its first profits from Fondaparinux. Alchemia received profits of around US$ 1.25 m from Dr Reddy's. Based on this we have arrived at PAT margins of 1% for fondaparinux, after deducting costs pertaining to collaboration,devlopment and marketing agreement. As per Dr.reddy's management the gross margins of the product are in the range of the company's overall gross margins. Further, the net margins for FY12 should not be looked as trend for the coming quarters, as these include various historical costs.

    Table 1 - Dr Reddy's Fondaparinux Performance July '11 - June-12'
    Brand sales* of Fondaparinux (Brand Name Arixtra) - US$ m 340
    Retail market size 40%
    Retail market Size - US$ m 136
    Dr Reddy's market share 40%
    Price erosion 40%
    Revenues for Dr Reddy's - US$ m 33
    Profit shared with Alchemia - US$ m 0.1
    % profit shared with Alchemia (assumed) 50%
    Total profits - US$ m 0.3
    Profit margin of Fondaparinux 1%
    Source - Company reports
    * Sales before Generics entered the market

    Going forward, performance will be driven by:
    1. Improvement in retail market share: Out of the total brand sales of Fondaparinux, the retail market accounts for ~40% while the balance is the hospital market. Dr Reddy's has captured a share of 40% of the retail market.

    2. Upsides from the hospital market: The company is yet to penetrate this market and this will also be dependent on the progress it makes on the cost improvement front. This is because the Hospital market looks for low cost options and thus it is tough to generate healthier margins from this segment.

    3. Improving manufacturing costs: Dr Reddy's and Alchemia are working on reducing the manufacturing costs of the drug, and thus both companies have jointly invested US$ 20 m. As per Dr Reddy's management, the yields have improved considerably on the back of this investment.
    Currently there are three companies in the US selling the drug viz; GSK Plc (Innovator), Apotex (Authorized Generic - right given by the innovator to sell generics) and Dr Reddy's (First generic company to get the USFDA approval).

    In the future, both the companies are also looking to enter other geographies. Dr.Reddy's expects approval from the European geography to come in 12 months, and this will further drive the product growth.

    Our view

    We believe, this is a niche launch for Dr Reddy's, and the market share will ramp up going forward with the expansion in hospital segment. However, the margin improvement will be highly dependent on the cost productivity that the company is able to deliver.

      Bhavita Nagrani (Research Analyst) is a Chartered Financial Analyst (ICFAI) with nearly six years of experience in the field of equity research. She has a deep understanding of the global as well as the domestic Healthcare industry and keenly tracks the developments therein. When it comes to stock investing, she is a strong advocate of the bottom-up approach to stock picking and has a remarkable ability to discern nuances in the business models of companies belonging to the same industry. Bhavita is the contributor to our large cap franchise, StockSelect.



    Equitymaster requests your view! Post a comment on "What Dr Reddy's will get out of 'Fondaparinux'". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) (The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    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...

    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


    Aug 18, 2017 (Close)