MOSL: DR REDDY’S LABS (Neutral)-Receives approval for gSuboxone; impact already priced in

Dr Reddy’s Labs: Receives approval for gSuboxone; impact already priced in

(DRRD IN, Mkt Cap USD5.7b, CMP INR2351, TP INR2275, 3% Downside, Neutral)

• Reddy’s Labs (DRRD) today received final approval from the USFDA to launch Buprenorphine and Naloxone Sublingual Film, a generic version of Suboxone, in the the US market. Although the product is covered by seven patents until 2023, DRRD has got favorable ruling from the district court for four main patents. Indivior has challenged this ruling in the higher court and the decision is still pending. DRRD is doing an ‘at risk’ launch of gSuboxone based on the comfort it has on the patent litigation. The drug is indicated for the treatment of opioid addiction.
• Competitive dynamics of gSuboxone: Apart from DRRD, Mylan has received approval for gSuboxone. However, Mylan settled the patent dispute with Indivior (innovator) in Sep-17 – terms of the settlement were not disclosed. It is still unclear whether or not Mylan will launch the product immediately. Apart from DRRD and Mylan, three more players (Alvogen, Par Pharma and Teva) are in the race to launch gSuboxone. Par has settled the case with Indivior and can sell the product from 1st January 2023 or earlier under certain circumstances. In March 2018, the court ruled that Alvogen’s version of gSuboxone does not infringe three patents (‘514, ‘150 and ‘497); however, the company is yet to receive USFDA approval. Innovator had guided earlier that it will launch an authorized generic post the entry of a generic competitor.
• Suboxone launch – a key growth driver: According to IMS, secondary sales for Suboxone stood at ~USD1.86b for MAT April-18 in the US (primary sales: ~USD750-775m). Indivior’s market share in Opioid Use Disorder (OUD) stood at ~54% at end-March 2018. Our base-case assumption is that at least two more players will enter the market soon. Based on that, we expect top-line contribution of ~USD60-65m on a 12-month basis (EPS contribution of ~INR14-15/share). However, if no other generic player enters the market for at least the next six months, then DRRD can generate revenue of greater than USD100m on an annualized basis.