We expect injectable launches to be a key medium-term growth driver for Dr Reddys in the US generics business.
Pipeline efforts in injectables indicate the focus on complex generics and oncology provide visibility on building a sustainable US portfolio. The recent acquisition of OctoPlus will accelerate efforts in long acting injectables/lipid-based formulations.
We expect these efforts to be key drivers for margin expansion in the generics segment. Retain buy with an increased target price at R2,400 due to EPS increase of 4% and 6% in FY14 and FY15 estimated EPS,respectively.
The injectable portfolio for Dr Reddys has been gaining traction in the US with the recent launches of Zometa/Reclast and ramp-up in Fondaparinux. The segment still remains relatively small at $60-65 million in sales for FY13 (9-10% of US core sales) from a sales standpoint.
However,we believe the contribution from injectable is likely to increase in the near-term (to more than $100 million in FY14) with expected launches of generic Vidaza and Dacogen. Sumatriptan auto-injector can also be an interesting launch in the near-term. The incremental launches in injectables are likely to be limited competition,which will aid the recovery in generic gross margin.