Dr Reddys market share on Metoprolol (generic Toprol- XL) has increased to 15% vs our expectation of 8-10% (market share reflected in IMS are still in single digits). Total market for Metoprolol is still large at $450 million and, therefore, a doubling of the market share is significant for Dr Reddys. Margins on Metoprolol should be high, given it is still a limited competition product.
Our interactions with Intas and Cadila suggested that Metoprolol approval for them is not a near-term event and, therefore, for at least the next six months, Dr Reddys should continue to enjoy a high market share on Metoprolol.
The company management mentioned that it still expects approval of two limited competition products in the US in 4Q13. We believe one of the products is generic Vidaza and should give Dr Reddys sustainable sales of $65 million with high margins.
The management guided that due to some significant launches in late FY14, FY15 growth in the US is likely to be stronger than in FY14. This provides comfort, given that there have been concerns that US growth for Dr Reddys could be limited to single digits in FY15.
We increase our target price for Dr Reddys from R1,900 to R2,150 as we roll forward to FY15 and also factor in the impact of new pricing policy. We value Dr Reddys at a 10% discount to peers, given higher exposure to the US and high product concentration (Lansoprazole Rx, Omperazole OTC, etc).
Our target price is based on 18x FY15E EPS adjusted for pricing policy impact. Our interactions with Aurobindo and Wockhardt provide us relief that competition to Dr Reddys US OTC franchise is not imminent. Our estimates are down by 1% as we incorporate the impact of new pricing policy.