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US business to record strong growth on Zyprexa launch
We believe the US remains the most dominating growth theme for Dr Reddy's. As per
IMS, Dr Reddy’s recorded y-y Rx growth in the high teens over October and November
2011. Zyprexa and Zyprexa ODT were the key launches for Dr Reddy’s during the
quarter. Dr Reddy’s launched Zyprexa in partnership with Teva. The IMS data suggests
Teva has captured 40-45% market share during the weeks following the launch in late
October 2011. In Zyprexa ODT, Dr Reddy’s currently has ~32% market share (week
ending 9 December 2011, according to IMS data). We are factoring in INR1.63bn in
sales from Zyprexa and Zyprexa ODT for the quarter, assuming three months of sales. In
addition, there likely was a sequential ramp-up in the Bristol facility during the quarter.
We don’t expect any material ramp-up in Arixtra during the quarter. We note that DRRD
has also gained significant market share in generic Levaquin and had 30-35% market
share in the months of Oct and Nov 2011. Overall, we are factoring in base business (ex
Zyprexa) ramp-up of USD8mn q-q. Overall, we project the North America business to
record 75% y-y growth.
Expect some revival in domestic market growth rate on lower base
We estimate domestic market growth at 12% y-y during the quarter. The company has
lost out on growth in the recent past on reallocation of sales force to rural areas, resulting
in lower focus on metros. We understand the issue is currently being addressed. We
believe lower sales growth in 2HFY11 presents a favourable base effect. In 1HFY11, y-y
growth was 20.8% compared to 9.7% for 2HFY11.
Russia growth expected lower on tight liquidity conditions
Tightening liquidity conditions have adversely impacted sales in the Russia/CIS region
during the quarter, in our view. The company has consciously reduced billings to
maintain receivable quality. We factor in revenue growth of 16% in Russia compared to
>20% recorded in the recent past.
Zyprexa exclusivity to improve margins
We expect gross profit margin to expand to 56.2% from 53.8% q-q, primarily due to
Zyprexa launch. Ex Zyprexa, our estimates build in margins at levels similar as last
quarter. We do expect some sequential increase in R&D costs. We have also factored in
INR 160mn in forex gains, in line with the quantum of gains reported in the previous
quarter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
US business to record strong growth on Zyprexa launch
We believe the US remains the most dominating growth theme for Dr Reddy's. As per
IMS, Dr Reddy’s recorded y-y Rx growth in the high teens over October and November
2011. Zyprexa and Zyprexa ODT were the key launches for Dr Reddy’s during the
quarter. Dr Reddy’s launched Zyprexa in partnership with Teva. The IMS data suggests
Teva has captured 40-45% market share during the weeks following the launch in late
October 2011. In Zyprexa ODT, Dr Reddy’s currently has ~32% market share (week
ending 9 December 2011, according to IMS data). We are factoring in INR1.63bn in
sales from Zyprexa and Zyprexa ODT for the quarter, assuming three months of sales. In
addition, there likely was a sequential ramp-up in the Bristol facility during the quarter.
We don’t expect any material ramp-up in Arixtra during the quarter. We note that DRRD
has also gained significant market share in generic Levaquin and had 30-35% market
share in the months of Oct and Nov 2011. Overall, we are factoring in base business (ex
Zyprexa) ramp-up of USD8mn q-q. Overall, we project the North America business to
record 75% y-y growth.
Expect some revival in domestic market growth rate on lower base
We estimate domestic market growth at 12% y-y during the quarter. The company has
lost out on growth in the recent past on reallocation of sales force to rural areas, resulting
in lower focus on metros. We understand the issue is currently being addressed. We
believe lower sales growth in 2HFY11 presents a favourable base effect. In 1HFY11, y-y
growth was 20.8% compared to 9.7% for 2HFY11.
Russia growth expected lower on tight liquidity conditions
Tightening liquidity conditions have adversely impacted sales in the Russia/CIS region
during the quarter, in our view. The company has consciously reduced billings to
maintain receivable quality. We factor in revenue growth of 16% in Russia compared to
>20% recorded in the recent past.
Zyprexa exclusivity to improve margins
We expect gross profit margin to expand to 56.2% from 53.8% q-q, primarily due to
Zyprexa launch. Ex Zyprexa, our estimates build in margins at levels similar as last
quarter. We do expect some sequential increase in R&D costs. We have also factored in
INR 160mn in forex gains, in line with the quantum of gains reported in the previous
quarter.
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