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Gets on-time Allegra OTC nod
Dr Reddy’s (DRRD) announced approval and launch of Allegra OTC in the US. Since early Mar 2011, the Allegra market has
completely switched from prescription to OTC. Teva has also obtained approval, and the product shall be marketed by
Perrigo, a large OTC player. Hence, this will be a three-player market along with the innovator, Sanofi Aventis. The approval
and launch are very much on expected lines. However, there remains uncertainty on potential sales, in our view, as the
Allegra OTC market is at an early stage of development. Further, pricing dynamics shall be different in the OTC market where
we expect a larger discount compared to the prescription business.
Based on the history of OTC switches for anti-histamine products, Perrigo expects Allegra OTC market to grow to ~US$400m
in 2011F. The OTC allergy market is estimated at US$2.4bn in 2011 with Loratidine and Cetirizine having sales of ~US$800m
and ~US$500m, respectively (Source: Perrigo). Importantly, the sales of Loratidine and Cetirizine ramped up within the first
year of launch.
Allegra is a key product for Dr Reddy’s in the US. US sales were ~US$40m in FY10 but the current annual run rate is ~US$20-
25m. For Dr Reddy’s, Allegra sales in the US suffered due to product recall in late 2009. With the early-OTC approval and
expectation of strong build out of the Allegra OTC market, we expect Dr Reddy’s to sustain the current run rate of revenues in
FY12F. The OTC approval for Allegra D24 is still pending. Given the presence of pseudoephedrine in Allegra D-24, which is a
narcotic substance, clearances from the authorities are likely to take some more time.
Valuation Methodology and Investment Risks: We value the base business at 23x one-year forward earnings, in line with the current
sector valuation, to calculate INR1,949/share for the base business. We add value of INR135/share for one-off opportunities. This gives us a
TP of INR2,084/share.Key investment risks are failure to obtain key approvals in the US, negative regulatory changes in key markets, rupee
appreciation and any substantial increase in high-risk innovation investments.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gets on-time Allegra OTC nod
Dr Reddy’s (DRRD) announced approval and launch of Allegra OTC in the US. Since early Mar 2011, the Allegra market has
completely switched from prescription to OTC. Teva has also obtained approval, and the product shall be marketed by
Perrigo, a large OTC player. Hence, this will be a three-player market along with the innovator, Sanofi Aventis. The approval
and launch are very much on expected lines. However, there remains uncertainty on potential sales, in our view, as the
Allegra OTC market is at an early stage of development. Further, pricing dynamics shall be different in the OTC market where
we expect a larger discount compared to the prescription business.
Based on the history of OTC switches for anti-histamine products, Perrigo expects Allegra OTC market to grow to ~US$400m
in 2011F. The OTC allergy market is estimated at US$2.4bn in 2011 with Loratidine and Cetirizine having sales of ~US$800m
and ~US$500m, respectively (Source: Perrigo). Importantly, the sales of Loratidine and Cetirizine ramped up within the first
year of launch.
Allegra is a key product for Dr Reddy’s in the US. US sales were ~US$40m in FY10 but the current annual run rate is ~US$20-
25m. For Dr Reddy’s, Allegra sales in the US suffered due to product recall in late 2009. With the early-OTC approval and
expectation of strong build out of the Allegra OTC market, we expect Dr Reddy’s to sustain the current run rate of revenues in
FY12F. The OTC approval for Allegra D24 is still pending. Given the presence of pseudoephedrine in Allegra D-24, which is a
narcotic substance, clearances from the authorities are likely to take some more time.
Valuation Methodology and Investment Risks: We value the base business at 23x one-year forward earnings, in line with the current
sector valuation, to calculate INR1,949/share for the base business. We add value of INR135/share for one-off opportunities. This gives us a
TP of INR2,084/share.Key investment risks are failure to obtain key approvals in the US, negative regulatory changes in key markets, rupee
appreciation and any substantial increase in high-risk innovation investments.
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