Dr. Reddy’s and Merck Serono (Biopharmaceutical division of Merck KGA) have entered into a partnership to co-develop a portfolio of biosimilar compounds in oncology, primarily focused on monoclonal antibodies (MABs). The partnership covers co-development, manufacturing and commercialization of the biosimilars across markets.
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Deal is structured to share R&D costs
As per the agreement, DRRD will lead early product and Phase-I development, post which Merck Serono will lead Phase-III development and undertake manufacturing of the product. Both will share the R&D costs. Merck Serono will undertake commercialization globally (outside US with exception of select emerging markets which will be co-exclusive or exclusive to DRRD). For markets outside US, DRRD will receive royalty payments upon commercialization, while in US the partners will co-commercialize the products on a profit-sharing basis.
Synergies which Merck Serono brings on table
Merck Serono has established expertise in the manufacturing and development of biologics. Its current product pipeline has 16 branded biologics with focus on therapies including Oncology, Fertility, endocrinology, Cardio Metabolic care and Neurodegenerative disease. We highlight that partnership with DRRD is the first step for Merck to enter into biosimilars area and it (Merck) has already established a biopharmaceutical facility along with other biologics facility in Switzerland. This would enable DRRD to capitalize on its biosimilars pipeline and launch in various emerging markets and developed markets, with sharing of R&D costs while participating in the upsides upon commercialization.
Edelweiss view: Positive development; Reiterate ‘HOLD’
We view this development as positive one, however it is a long term collaboration with no immediate financial impact on business. We reiterate our ‘HOLD/SP’ rating on the stock and expect earnings momentum to decelerate from 29% earnings CAGR over FY11‐13E to 10 % over FY13‐15E. Lower traction in earnings is largely driven by fewer launches in the US and contraction in core operating margins.
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