Dr. Reddy’s To Seal Japanese Deal In June 2012

According to the recent media reports, the high flying Dr Reddy’s Labs is expected to sign a definitive agreement with Japanese company Fujifilm by the end of June 2012.

We believe that Japan will be a key market for DRL, as it currently remains untapped by the large Indian pharma companies. The Japanese government is seen promoting generic medicines in the country, which present a good growth opportunity for the generic majors. We believe that DRL would emerge as a beneficiary in next few years.

The Japanese pharma market is estimated to be about USD 97 billion (Rs 4.8 lakh crore). According to a news report in DNA, the generic drug penetration is about 25% as compared to 70% in the USA. As the Japanese government is looking forward to increasing generics in their pharma market, these companies would see a huge opportunity in the Japanese markets.

DRL’s agreement with Fujifilm will be operational after 2-3 years. Under the agreement, DRL is to set up a manufacturing facility in Japan, which would start manufacturing the drugs. At the moment, the information such as capital expenditure and type of products to be launched is not available, though there is some information that the bulk drugs would be what that company would be targeting.

Recently, Lupin has also strengthened its presence in the market by acquiring the Japanese firm I’rom Pharmaceuticals through its 100% subsidiary Kyowa Pharmaceuticals. Its sales in Japan grew by 43% in the Dec 2011 quarter, which we believe is very good growth considering that Japan is also a regulated market. With such an opportunity, we are bullish on DRL in the future.

In the past two days, the stock has shown positive movement. We have already recommended DRL in our magazine, and would like to advise the investors to buy the stock on every dip.