UBS :: Dr. Reddy's Labs - Fondaparinux approved, finally

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UBS Investment Research
Dr. Reddy's Labs
F ondaparinux approved, finally
􀂄 Event: Fondaparinux (Fonda) approved by the US FDA
Dr Reddy’s and its technology partner Alchemia finally got USFDA approval for
all strengths of Arixtra (fondaparinux) generic. Alchemia will receive 50%-60% of
the net profits from the US sales of the product. While this product is off-patent
there are currently no generics available which underscore the high complexity of
the product. We don’t expect another generic for next 2-3 years.
􀂄 Impact: Already in our estimates but further upside is possible
We maintain our current estimates for the co. We estimate revenues of
US$42mn/US$72mn for FY12/13 respectively from Fonda. Fonda contributes Rs
5.7/Rs 9.8 or 6%/10% of our FY12/13 EPS estimate for Dr Reddy’s. We believe if
the co. is able to execute successfully and there is no authorised generic, there
could be further upside to our FY13 market share of 60% for Dr Reddy’s.
􀂄 Action: Maintain Buy, Remain 8%-9% ahead of consensus
We maintain our Buy on the stock as we remain 8%/9% ahead of consensus for
FY12E/13E respectively. We continue to see strong near-term earnings momentum
following recent approvals of Lotrel (higher strengths) and Fonda and further ramp
up in limited competition products like Lansoprazole and Tacrolimus.
􀂄 Valuation: Maintain Buy, PT Rs 1,900
We derive our PT from a DCF-based methodology and explicitly forecast long
term valuation drivers using UBS’s VCAM tool. We assume a WACC of 11%.