Despite initial volume curbs, Revlimid to be a meaningful opportunity; FY21-23e EPS up 1-3%; TP raised to Rs 5,400
Our revised TP of Rs 5,400 (from Rs 4,625) includes NPV of Rs 250/share for gRevlimid (earlier none).
DRRD announced settlement of its patent litigation with Celgene, a wholly owned subsidiary of Bristol Myers Squibb for Revlimid (lenalidomide) capsules. Revlimid recorded US sales of ~$7.4 bn in 2019 and is indicated for treatment of multiple myeloma (MM), myelodysplastic syndromes (MDS) and mantel cell lymphoma. This settlement allows DRRD to start selling volume-limited quantities of gRevlimid in the US starting on a confidential date after the March 2022 date previously granted to Natco.
While the agreed-upon quantities were not disclosed, we believe the volume limit could be in the single digits, followed by a gradual increase till restrictions are lifted, similar to Celgene’s earlier deals with Natco and Alvogen. DRRD is also licensed to sell gRevlimid without volume limitations starting on 31 January 2026.
Settlement not the ideal outcome though it removes uncertainties: The ideal outcome for DRRD in patent litigation would have been if it had succeeded in proving its proposed generic does not infringe upon the polymorph patent covering Revlimid for MM. That could have potentially allowed it to launch its generic without any restrictions in 2022/23. Nonetheless, the patent settlement has paved the way for DRRD’s generic launch well ahead of the expiry of the polymorph patent in 2027.
Natco (partnered with Teva) was the first company to settle patent litigation on Revlimid in Dec 2015 which allows it to start selling the generic in March 2022 in limited volumes. This was after Natco, Alvogen and Lotus Pharma settled their litigation.
We build in NPV of Rs 250/share for gRevlimid: Apart from Natco, Alvogen/ Lotus and DRRD, there are eight other known ANDA filers on Revlimid. Patent litigation for these filers is in the early stages, and thus we expect generic competition to remain limited to three players for gRevlimid till the 2025/26 timeframe. Thus, we believe gRevlimid will be a meaningful and sustainable opportunity for DRRD despite initial restrictions on sales volume. We build in an NPV of Rs 250/share for gRevlimid in the base case scenario in our valuations (bull case NPV: Rs 500/share, bear case NPV: Rs 100/share).
Retain Buy: We increase our FY21-23 EPS estimates by 1-3% to account for gVascepa opportunity which DRRD can potentially launch in the US in the near term after a recent favourable ruling. We roll forward our valuations to Sep 2022 from June 2022. Our revised TP of Rs 5,400 (from Rs 4,625) includes NPV of Rs 250/share for gRevlimid (earlier none).