Dr. Reddy’s Stock Jumps To Record After Analysts Cheer Cancer Drug Settlement
Here’s what brokerages have to say about Dr. Reddy’s prospects...
Most analysts have raised their target price for Dr. Reddy’s Laboratories Ltd. after the Hyderabad-based drugmaker settled its litigation with Celgene Corp. for patents for the generic version of a prescription medicine used to treat blood cancer.
Celgene, a wholly owned subsidiary of Bristol Myers Squibb, will now provide Dr. Reddy’s the licence to sell volume-limited amounts of the Revlimid capsule in the U.S. starting March 2022, according to the Indian drugmaker’s exchange filing. The company is also licensed to sell the capsule without volume limitations starting January 2026.
That, research firms including Credit Suisse, Macquarie and Nirmal Bang in their report said, will improve earnings outlook for Dr. Reddy’s, generate significant cash flows and add to its net present value—a metric to determine the current value of all future cash flows generated.
Of the 46 analysts tracking the stock, 30 suggest a ‘buy’, 12 recommend a ‘hold’ and the rest has a ‘sell’ rating. The average of Bloomberg consensus 12-month target price implies a downside of 10.8%.
Here’s what brokerages have to say about the recent developments at Dr. Reddy’s:
Credit Suisse
- Maintains 'outperform' rating and hikes price target to Rs 5,750 from Rs 5,100 apiece
- Expects significant cash flows from Revlimid generic during FY23-26
- Strong cash flow should help strengthen presence in India and emerging markets
- Stock still has multiple catalysts going ahead
- The Revlimid generic will contribute in FY23 but near-term earnings momentum is strong
- API business to structurally benefit from supply de-risking
HSBC
- Maintains 'buy' rating, and raises price target to Rs 5,400 from Rs 4,625 apiece
- Litigation settlement paves way for generic launch of Revlimid after March 2022
- Revlimid generic will be a meaningful opportunity for Dr. Reddy's, given limited generic competition till 2025-2026
- Price target includes net present value of Rs 250 per share for Revlimid generic
Macquarie
- Maintains 'outperform' rating; price target at Rs 4,850 a share
- The settlement improves earnings visibility beyond FY22
- Revlimid generic's net present value for Dr. Reddy's works out to Rs 480-500 per share, which is not factored in the price target
- Clear runway for Dr. Reddy's post estimated launch in mid FY23
- Only dampener has been recent underperformance in domestic business due to its high acute mix
- Remains top pick in the pharma space
Emkay
- Maintains 'hold' rating; raises price target to Rs 5,325 from Rs 4,550 apiece
- Settlement terms are better than Alvogen but lag Natco's terms
- Market opportunity to remain lucrative for all settled players with limited price erosion
- Revlimid generic can add net present value of Rs 333 per share
- Settlement brings in certainty of launch
- With favourable ruling in the appeals court, the odds of launching a generic of Vascepa (to reduce the risk of heart attack, stroke) are much higher now
- Will incorporate Vascepa generic launch in estimates from FY22 onwards
- Raises FY22/23E EPS by 9% and 7%, respectively
Nirmal Bang
- Maintains 'buy' rating; hikes price target to Rs 5,656 from Rs 3,808 apiece
- Estimates net present value of Rs 400 per share for Revlimid generic
- Will incorporate Vascepa generic launch into FY22 earnings estimates
- Expects Vascepa generic market to expand on the current base
- Higher multiple is to account for greater resilience in base earnings led by an improving base business in the U.S., option value of vaccine deal with Russian direct investment fund
- Strong cash generation allows inorganic opportunities and potential upside from a scale-up in China
Motilal Oswal
- Maintains 'neutral' rating; price target of Rs 4,600
- Factors in Rs 270 per share as net present value for Revlimid generic
- Limited price erosion in the base business / robust abbreviated new drug application launches in the U.S. segment
- Improving benefits from cost rationalisation
- Well placed to deliver 21% earnings CAGR over FY20-22
- Maintains EPS estimates for FY21/22
- Remains neutral as valuations are rich
- Awaits a better entry point on the stock
Shares gained for the fourth straight day, ending with gains of 10% at a new record high of Rs 5,304.