Buy Dr Reddy’s Laboratories; target of Rs 5710: ICICI Direct

ICICI Direct's research report on Dr Reddy’s Laboratories

Dr Reddy’s (DRL) has announced the settlement of its Revlimid capsules (Lenalidomide) patent litigation with Celgene [Bristol Myers Squibb (BMS)] in the US. This makes DRL the third player after Natco and Alvogen to sign a settlement agreement with the innovator for gRevlimid. Under the terms of the settlement, Celgene will provide DRL with a license to sell generic volume-limited amounts of gRevlimid capsules in the US after Natco’s launch in March 2022 subject to regulatory approval. This limited volume constraint will be applicable till January 31, 2026 post which DRL will be able to sell the drug in the US without any volume limitations whatsoever. The oncology drug, indicated for treatment of multiple myeloma, had annual US sales of US$9 billion in CY19 as per BMS report.

Outlook

We maintain BUY and arrive at a target price of Rs 5710, which includes base business value of ~Rs 5200 (26x FY22E EPS of Rs 200) + Rs 510 for NPV of gRevlimid.