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Dr Reddy’s stock slipped 4 per cent today to ₹4,142.15 on news of an additional competitor in generic Suboxone film (treats opioid addiction); a limited competition product marketed in the US. Dr Reddy’s got the product approval in June 2018 with an immediate launch of the product, but immediately halted on further legal battle and the relaunch was secured only by February 2019.
The company made good returns on the short initial launch window itself, which could explain negative investor reaction today due to the emergence of new competition. The original innovator had annual sales of $1.86 billion before generics entry in 2018. Assuming a 90 per cent erosion and four-player market, the product should have made around $35 million for a generic player.
Along with Dr Reddy’s, Mylan and Alvogen marketing the product in the US, Aveva Drug Delivery (owned by Apotex) has also got the approval now. Suboxone, turning from a three-player generic market to a four player one, can have a more than proportional impact on pricing. Also, Apotex, with its established presence in the generics market, can bring tough competition especially on pricing.
The US market
But the latest generic entry, three years after the last generic can be considered belated in the highly-competitive US market. This may be owing to product development barriers for this product which involves a differentiated delivery in the form of a sublingual film. Even otherwise, Dr Reddy’s, with recently-cleared US FDA plants in Duvvada, can deliver a steady stream of similar limited competition products in the US. Vascepa, Ertapenem injections and generic Kuvan and normal launch calendar of 20-25 launches per year can cover any erosion in Suboxone film markets.
Dr Reddy’s and all other players can expect Revlimid launch in the coming year to support US revenues. Dr Reddy’s also has Sputnik light version in the works to address the booster opportunity in India and a bio-similar launch with its partner Fresenius Kabi in Europe and the US. Considering the pipeline in the US and optimised portfolio in India readying for growth, the fundamentals remain intact and the stock appears to have overcorrected on today’s news.
We earlier recommended an ‘accumulate’ rating on the stock and we continue with the same recommendation for Dr Reddy’s, which is now trading at 17 times FY24 earnings.
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