Dr Reddy’s Gains On USFDA Approval For Azacitidine Injection

Dr Reddy’s Laboratories (DRL) has received approval for the Azacitidine Injection from the United States Food and Drugs Administration (USFDA). This drug is mainly indicated for patients suffering from Myelodysplastic Syndrome (MDS).

Our findings and conversation with the investor relations team of Dr Reddy’s revealed that there is only one company in the US market, i.e. Celegene Corporation, which has the brand ‘Vidaza’ for the same formulation. This drug has already gone off patent.

DRL’s application for the ANDA came in after the drug went off patent, hence it does not have First-To-File (FTF) status for this drug. However, it can enjoy a healthy market share in the US since there is only one competitor for this drug there. According to IMS (Intercontinental Marketing services) data, Vizada recorded sales of USD 378.5 million in the past 12 months ending July 2013.

As per our estimates, if the company garners about 30% of the market share and sees about 30% price erosion, it can still generate revenues of about Rs 500 crore. This would account for about 6% of the consolidated revenues generated by the company in FY13. In FY13, its EBITDA margins stood at about 20%. In view of this, we estimate an EBITDA of about Rs 100 crore and net profit about Rs 60 crore from this drug, assuming that it does not meet with incremental competition. This would add Rs 3.50 to the earnings per share of the company, leading to an upside of about 3%-4% in the stock price.

Post the approval, the shares of DRL have already moved up by 4%. This means that the stock has already discounted the gains. Nevertheless, the stock remains fairly valued at its CMP. Considering the company’s product pipeline and its expertise in the business, one should buy this stock on dips.