Dr Reddy’s Lab Plays Well On Launch of Generic Zyprexa
DSIJ Intelligence / 08 Feb 2012
We believe that DRL is well in a position to grab the opportunity arising due to the products going off-patent. Looking at the geographical distribution of its revenues, DRL looks like one of the biggest beneficiaries of the patent expiry boom in the US. Its generics’ segment has grown by 175x in ten years time i.e. from Rs 30 crore in FY01 to Rs 5,334 crore in FY11. The contribution of the generics segment has also gone up from 3 per cent in FY01 to about 71 per cent of the total revenues in FY11.
Over the same period, the domestic pharma business has managed to grow by two-fold while its total revenues have grown by about 7.5 times. This, apart from its international operations, now contributes the largest share to its pie of income (82 per cent in FY11), thus indicating the huge growth that the company has delivered on the back of generics.
Even in the last four years when the global economy took a tumble, DRL has grown by a compound annual growth rate (CAGR) of 15 per cent in topline and by 42 per cent in the bottomline. On the bourses its share price has also given handsome returns of 119 per cent during the last three years.
DRL was the first Indian company to get a 180-day approval through the Abbreviated New Drug Applications (ANDA). Since then the company has not looked back and has kept on adding new ANDAs as well as new Drug Manufacture Files (DMFs). By FY08 the company had 122 ANDAs (13 approved) and 351 DMFs. By FY11 these numbers have grown even further i.e. 179 ANDAs and 486 DMFs.
The growth in global generics is largely driven by the high growth in its generics’ market in the US. The market share of the products launched by DRL is also seen to be increasing. Currently the North American market brings 36 per cent of revenues in its global generics’ (GG) segment. With the kind of product pipeline DRL has, we believe that this will further increase in the next two years. The North American market, though highly competitive, ensures high volume growth.
Besides, the company has already proven its solid business experience in that market. The products which are lined up are mainly ‘limited competition’ products, for many of which DRL has already received USFDA’s approval.
The off-patent Olanzapine (generic of Zyprexa) in the first three months of exclusivity has earned DRL revenues to the tune of USD 99 million. With another three months of exclusivity in balance, we feel that the topline as well as the bottomline will shoot upwards all the more. The company has also reportedly said that it is in the process of launching a few more ‘limited competition’ products in this calendar year.
One of them would be the launch of the generic version of Lipitor in May 2012. Lipitor has already become off-patent and Ranbaxy is enjoying the exclusivity of the same at the moment. Also, other patented drugs such as Geodon, Plavix, Clarinex, Seroquel and Boniva will also lose their patents this year and DRL has already received USFDA’s approvals for these products.
As the use of the generics is increasing in the US we think DRL has a good pipeline of approvals and is on the path of posting solid revenue growth. The recent quarter result clearly indicates that DRL would be a good bet for the investors. The ‘limited competition’ products will fire its revenues and earnings in the next two years and the same will drive its share price.
On the valuation front, at its CMP of Rs 1,611.75, its current PE of 30x looks at a premium to its peers, though not to pharma giant Sun Pharma (40x). With the kind of growth that is expected in DRL’s revenues and earnings, we believe a little premium is justified. We are bullish about the stock for the next two years and advise our readers to enter the counter.
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