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Dr. Reddy's Launches Generic Propecia

Zacks Equity Research

Dr. Reddy's Laboratories Ltd. (RDY) recently announced that it has launched its generic version of Merck & Co., Inc.’s (MRK) Propecia (finasteride) 1 mg. The company will enjoy 180-days of marketing exclusivity in the US.

Propecia is approved for the treatment of male pattern hair loss. According to IMS Health, Propecia generated US revenues of approximately $136 million for the 12 months ending October 31, 2012.

At the end of the last quarter, Dr. Reddy’s had 63 ANDAs pending approval with the FDA, of which 33 are Para IV filings and 7 are first-to-file.

Dr. Reddy’s Global Generics segment revenues jumped 25% to $380 million in the last quarter. Generics revenue soared in North America (up 47%), driven by limited competition.

Revenues were also boosted by products from Shreveport facility and the ramp-up in the antibiotics portfolio. Generics revenues also increased in Russia and other CIS (Commonwealth of Independent States) markets (up 14%), India (up 12%) and the rest of the world/RoW (up 50%). However, generic revenues declined 16% in Europe due to disappointing performance in Germany.

Our Recommendation

We are pleased with Dr. Reddy’s geographic reach and product depth. Dr. Reddy’s also has a robust generic product pipeline. However, the company’s performance in Europe due to the continued economic weakness remains a concern.

During the period of 2017-2018, most of the large branded drugs are due to lose patent exclusivity and so we have little visibility on the growth prospects of generic companies like Dr. Reddy’s beyond that timeframe.

In view of these challenges, we see limited upside from current levels and maintain a Neutral recommendation on Dr. Reddy’s. The stock carries a Zacks #3 Rank (Hold) in the short run.

Mylan Inc. (MYL), another generic player, currently holds a Zacks #2 Rank (Buy).

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