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Emkay Global
Dr Reddy’s Laboratories (Sell)
CMP: ₹2,873.7
Target: ₹2,580
Prasco has announced the authorised generic launch of gNuvaring (etonogestrel/ethinyl estradiol vaginal ring used to prevent pregnancy). Nuvaring brand’s sales currently stand at about $800 million.
This is the second generic launch for the product within a week’s time (following the launch of Amneal on December 16, 2019). The drug is one of the key expected launches for Dr Reddy’s in FY21. However, launches by competitors earlier than the company could affect the product economics.
DRRD currently has a complete response letter on the product from the USFDA, although the launch timeline is not clear. In our base case, we assume H2FY21E launch with a contribution of $60 million in FY21 (10 per cent of FY21E EBITDA). This could be at risk, if there is a further delay in the launch or launch by its other competitors in advance. Mayne and Teva are the other known filers.
Our Sell rating on the stock (target price: ₹2,580) is premised on potential delays/disappointments on key opportunities (gNuvaring/gCopaxone), which seem to be playing out. We find the current risk-reward unfavorable.
We are ‘Underweight’ on Dr Reddy’s Laboratories in EAP.
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