Credit Suisse is wary about high product concentration at Dr Reddy ’s Labs playing out, which could impact its earnings per share (EPS) for FY18 and market share. It has maintained an underperform rating on the stock.
The brokerage house is citing risks to DRL’s product portfolio, with other pharma companies receiving approval for these products as well.
Intas received an approval Decitabine, a drug currently generating USD 80-100 million sales for DRL. “We and consensus were not building competition in Decitabine and it could impact FY18 EPS for Dr Reddy’s by up to 5 percent, assuming incremental price erosion of 20 percent and DRL loses about 10% market share,” the research firm said in its report.
Currently, DRL has two-third market share of Decitabine market and is a high margin product for DRL, with margins likely at 3X corporate average. Decitabine should be 15-20 percent of DRL’s FY18 EPS, the brokerage added.
Credit Suisse is reiterating the same risk to the second-largest product, Toprol too. It believes that with Cadila getting a clearance of warning letter it could enter this market along with Sirolimus. This could further impact FY18 EPS by 5 percent, the research firm added.
Going forward, dependence on facility clearance increases for DRL with case loss of Aloxi 505 (b) and Gleevec launch being dependent on warning letter clearance at Vizag formulation plant.