Nomura Sees This As A Catalyst For Dr. Reddy’s Despite The Risk
Dr. Reddy’s Laboratories Ltd. led the rally in drugmakers in the last five days with a 17 percent jump. Still, Nomura says the market may not have factored in a key bullish trigger for the stock.
There’s a chance that India’s fifth-largest drugmaker by sales could launch a generic of London-listed Indivior Plc’s opioid addiction drug Suboxone, according to the Japanese brokerage. The company had filed a generic drug application in the U.S., its largest market. And it may come out with its copycat version this month itself despite the risk of being sued by the innovator as the patent is valid until 2023, Nomura said.
There’s a 40 percent probability of an “at-risk” launch, Saion Mukherjee, pharma analyst at Nomura, wrote in the report. “A favourable district court verdict [for Alvogen against Indivior], delayed assertion of new patents, and two of the three patents being an extension of old patents supports an “at-risk” launch decision by Dr. Reddy’s.”
U.S. President Donald Trump has declared opioid epidemic a public health crisis that, according to his Council of Economic Advisers, costs the country $504-billion a year. Suboxone is one of the two key drugs used to fight addiction along with Alkermes Plc’s Vivitrol. Credit Suisse estimates the market for Suboxone to be worth $1.7 billion. A launch may come as a relief for Dr. Reddy’s even as Indian drugmakers face pricing pressure due to competition in the U.S.—their largest market.
Nomura has ‘Buy’ rating on the stock with a 12-month target price of Rs 2,704, implying a potential upside of near 20 percent from current market price.
Yet, only an early launch of Suboxone’s generic will be a catalyst for Dr. Reddy’s, according to Nomura. That’s because Israel’s Teva Pharmaceutical’s Ltd. has a 180-day exclusivity period for the drug.
The other risk Dr. Reddy faces is an injunction from courts against a generic launch. Nomura said Indivior’s share price is near its all-time high and the market may not have factored in a launch by another company in the near term.
There is much to lose for Dr. Reddy’s if it decides to wait out the “at risk” period, Nomura said citing two reasons.
- It’s an opportunity lost as the value drops once other filers get approval to launch the drug.
- The other factor is that Indivior has settled patent litigation with Endo International Plc and Mylan N.V.
Credit Suisse, in a separate note, estimates a successful launch of Suboxone’s generic could account for more than 10 percent of Dr. Reddy’s profit in the ongoing financial year through March 2019. BloombergQuint awaits Dr. Reddy’s response to emailed queries on the possibility of a launch and its impact.
If Endo, Mylan or any other authorised generic drugmaker is allowed to enter the market before the patent expires, it will be a missed opportunity for Dr. Reddy’s, Nomura said. A delay in final approval for Dr. Reddy’s application risks market shifting to Sublocade, once a month injectable dosage compared to a daily sublingual tablet of Suboxone, it said.
Moreover, the U.S. District Court of Delaware found that Alvogen’s application to make Suboxone didn’t infringe Indivior’s patent, according to its filing. Nomura said that means being alone in the market for an extended period is less likely.