Dr. Reddy's Laboratories' (DRL) announced settlement of Revlimid (lenalidomide) patent litigation in US with innovator Celgene (subsidiary of Bristol Myers Squibb). As per the settlement, Celgene would provide DRL with a license to sell generic Revlimid from a date after Mar'22 (post Natco's launch) with a constraint of volume market share. This license agreement would continue until Jan'26, post which DRL would be able to sell without any constraint. This development rovides certainty to launch and a material earnings accretion over FY23-FY26. We estimate DRL to generate cumulative sales and PAT of US$2.5bn and US$1.6bn respectively over this shared exclusivity period. We value this opportunity at Rs514/share for DRL considering annual market size of US$8bn and gradual market share increase to 18% in FY26. Maintain ADD.
- Settlement brings launch certainty: DRL has settled ongoing patent litigation with Celgene over Revlimid launch in US. It would now be able to launch post Natco which has a launch date in Mar'22. DRL would be bound by market share constraints as per agreement and we expect it to start with low single digit market share in the first year. This would gradually increase over the years and we expect ~18% share in final year (FY26E). Exact launch date and market share details have not been disclosed. Revlimid is indicated for treatment of multiple myeloma and myelodysplastic syndromes.
- It's a large opportunity: Revlimid generated over US$4bn sales for Celgene in first half of 2020 hence, we assume annual market size of US$8bn in US. We believe DRL would launch ~6months after Natco, that is in Oct'22. We value this opportunity at Rs514/share for DRL.
- Valuations and risks: We raise FY23 revenue/EPS estimates by 7.8/38.0% to factor in Revlimid launch. We maintain ADD rating with revised target price of Rs5,214/share (earlier: Rs4,713) based on 25xSep'22E base business EPS and Rs514/share for Revlimid. Key downside risks: Delay in launch of key products in US and regulatory hurdles.
Shares of DR.REDDY'S LABORATORIES LTD. was last trading in BSE at Rs.4826.6 as compared to the previous close of Rs. 4631.55. The total number of shares traded during the day was 307270 in over 24238 trades.
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