(RDY) Dr. Reddy’s Laboratories Earns FDA Approval for Generic

Dr. Reddy’s Laboratories (RDY) delivered yet another positive momentum within a week, as the US Food and Drug Administration (FDA) approved fondaparinux sodium injection, the company’s bioequivalent generic version of Arixtra. The drug is currently marketed by GlaxoSmithKline plc (GSK) for preventing deep vein thrombosis (DVT) in adults who are undergoing hip fracture, hip replacement, or knee replacement surgery.

Dr. Reddy’s received final approval from the FDA for the 2.5 mg/ 0.5 mL, 5.0 mg/ 0.4 mL, 7.5 mg/ 0.6 mL and 10 mg/ 0.8 mL doses of fondaparinux sodium injection.

Dr. Reddy’s will be manufacturing the generic version under license using a patented process that is developed by Australia based Alchemia Limited. The current approval comes close on the heels of the US launch of the generic version of Novartis AG’s (NVS) blood pressure drug, Lotrel.

Moreover, last month, Dr Reddy’s had announced the launch of its generic version of Johnson & Johnson’s (JNJ) antibiotic drug, Levaquin, in the US. Additionally in June 2011, the company announced the launch of three other generic products in the US. Dr Reddy’s launched the generic versions of Pfizer Inc.’s (PFE) anti-depressant, Effexor XR, Eisai Co. Ltd.’s Alzheimer’s treatment, Aricept, and Novartis’ breast cancer treatment, Femara.

We believe that these launches will bring in additional revenues for Dr. Reddy’s Global Generics segment, which recorded sales of $1.2 billion in fiscal 2011 (ended March 31, 2011), reflecting a year-over-year increase of 10%.

However, we note that while generics revenues increased 18% in North America, 19% in Russia and other CIS (Commonwealth of Independent States) markets, and 15% in India, the generic revenues slid 13% in Europe in fiscal 2011. In the European market, Germany was worst hit, with a 25% drop (due to a decline in the Euro currency), partly mitigated by the rest of Europe experiencing a 27% rise.

Further, during fiscal 2011, Dr. Reddy’s had launched 135 new generic products, filed 107 new product registrations, and 56 drug master files (DMF) globally. At the end of fiscal 2011, total ANDAs awaiting FDA approval were 75, of which 37 were paragraph IV filings and 10 were first-to-file.

Our Take

We currently have a Neutral recommendation on Dr. Reddy’s. The company carries a Zacks #3 Rank (Hold rating) in the short run. We believe Dr. Reddy’s is in a strong position to benefit from the huge opportunity that the US generics market has to offer, as drugs with sales of about $75 billion are slated to lose patent exclusivity in the coming years.

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