Accumulate Dr. Reddy's Laboratories; target of Rs 5648: Prabhudas Lilladher

Prabhudas Lilladher's research report on Dr. Reddy's Laboratories

DRRD and Endo (Par) pharma recently launched gKuvan as per their settlement agreement with the innovator BioMarin Pharmaceuticals. We believe gKuvan’s contribution to DRRD earnings will be sustainable over FY21-FY24E as there are no generic filers and pending ANDA’s. While Endo launched both Tab and PFOS (powder) form, DRRD launched only the tab form and we assume the PFOS form to be also launched soon. The US market of Kuvan is equally divided between Tab and PFOS forms. Following BioMarin’s co-pay assistance program, DRRD also offered co-pay assistance while Endo is yet to offer a similar strategy after its launch on 1st Oct CY20. However, considering the early days of launch there is still limited information on their co-pay strategy. We anticipate Kuvan to remain a three-player market and DRRD may likely capture gradually 20-40% market share with 50-80% price erosion from the branded market and may reach its peak sales up to US$45m. This leads to an EPS contribution of Rs2.0/9.90/7.30 for FY21/22/23E. With limited information on the co-pay program and strategy to gain Rx traction for gKuvan, we wait for further clarity on their strategy (profitability in co-pay program) for US and EU (market size US$80-100m) before discounting in our earnings estimates.

Outlook

We have an Accumulate rating with TP of Rs5,648 based on 24x(PE) of FY23E and Rs 262/share benefit from gRevlimid (using NPV method) over FY23-26E.

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