Wednesday, March 14, 2012

>DR REDDY'S LAB: Launches ziprasidone in the US; Post-Geodon pipeline is not “one-off”

OW: Generic Geodon launched in US

  Dr Reddy’s announces launch of ziprasidone oral capsules in the US, a FTF opportunity with potential USD65-70m sales
  US pipeline includes non “one-off” opportunities in Lipitor, Plavix, Seroquel, Actos and more going forward
  Reiterate OW and INR1,950 TP; an Asia Super Ten stock

Dr Reddy’s launches ziprasidone in the US: Dr Reddy’s announced over the weekend that it has launched its generic version of Pfizer’s antipsychotic drug Geodon. The launch is post ‘031 patent expiration on 2 March. While this was largely expected, some elements had earlier suggested that a possible grant of paediatric extension on the ‘031 patent could push the generic launch to September 2012. However, we believe the early FDA warning to Pfizer on paediatric trials covering Geodon could have impacted paediatric patent extension. The base patent of Geodon had earlier got one five-year term extension to March 2012 from March 2007.

Dr Reddy’s is shared first-to-file (FTF): Overall brand sales in the US for all strengths for the most recent 12 months ending December 2011 were cUSD1.34bn according to IMS. We believe Dr Reddy’s enters with three more players, including Lupin, Sandoz and AG (authorized generic), though only Dr Reddy’s has announced the final approval so far. Assuming 25% market share with c60% price erosion during the first six months we forecast sales of cUSD65-70m for Dr Reddy’s. We expect commoditization of the product post exclusivity given there are more than 15 active DMFs on this molecule.

Post-Geodon pipeline is not “one-off”: With the gZyprexa launch not long ago (October 2011), gGeodon should materially add to US revenues near term. We expect US sales to increase qoq for the next 2-3 quarters given strong launches ahead. Contrary to the above two launches, upcoming launches of gLipitor, gPlavix and gSeroquel will be not FTF launches and will sit in the base sales for a significant period of time. As per our current estimates we forecast US sales to peak in FY13 at cUSD900m.

Reiterate OW, preferred pick in universe, an Asia Super Ten stock: The timely gGeodon launch adds comfort to the US growth story for Dr Reddy’s. We expect fondaparinux to ramp up slowly and add to base sales materially in the US over FY13-15. We value the stock at 20x Sep-13 EPS of INR96 and add INR20 for para-IV value. Key risk is higher price erosion in upcoming big launches and slower ramp-up in market share. Slower recovery in the domestic formulations business poses additional risk.