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Cipla, Dr. Reddy’s: Legal Swings

Nov 19, 2001

In a big disappointment for Dr. Reddy’s the US FDA has intimated to the company that it has lost its 180 days generic marketing exclusivity for Omeprazole. It may be called that Dr. Reddy’s claimed to be first to file Para IV certification for Omeprazole 40-mg capsules and hence there were huge expectations from generic marketing exclusivity on the same. On the other hand, the US FDA has approved Andrx application to market generic Omeprazole in the US market. Andrx also gains from withdrawal of tentative approval from Dr. Reddy’s. Andrx would also receive marketing exclusivity for 40-mg capsules (which was expected for Dr. Reddy’s). It may be recalled further that Cipla has a tie-up with Andrx to supply bulk Omeprazole. Omeprazole (an anti-ulcerant product) is the largest selling pharma product in the world with US sales in excess of US$ 4 bn.

However, launch of the drug by Andrx is still a distant reality as the issue is caught in a legal tangle. Astra Zeneca the original patent holder claims that the makers of the generic version are violating patents that have not yet expired.

Given the fact that Andrx now has approval for three different Omeprazole dosages, it would turn up to a larger earning opportunity for Cipla. However, the timing of the product launch would depend on the ultimate outcome of the ongoing litigation. Markets would be closely watching the court hearing, which is expected on December 6, 2001.

While the developments have come as a disappointment for Dr. Reddy’s generic business, we maintain our earnings projections, as we had not factored in any upside from Omeprazole due to the prevailing uncertainty. On the other hand, though these developments are inch forward to a big opportunity coming in way for Cipla, it would be prudent not to factor in any upside at this point of time on a conservative basis.

Comparative Valuations
Particulars CMP Mkt.Cap P/E (x)
  (Rs) (Rs m) 2002E 2003E
Cipla 1,101 66,027 30 25
Dr. Reddy's 960 73,344 25 21

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