Despite 3% rise, best to sell Dr Reddy's on Nexium woes?

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26 Aug, 2025 12:21

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Moneycontrol Bureau Controversy-laden Dr Reddy's Labs is on buyers' radar once again after severe losses yesterday. Shares of the pharma major rose 3 percent intraday on Friday.

In a latest, the company has filed a lawsuit in a US court against AstraZeneca for material breach of a settlement agreement that had released the company from any liability in connection with generic versions of Nexium. Earlier, the swedish gaint had obtained a temporary restraining order preventing DRL from selling copies of Nexium.

So, is it best to sell DRL now?

Brokerages are still cautious on the stock as troubles do not seem to end for the Indian pharma company. Maintaining an underperform rating, Bank of America Merill Lynch says limited pipeline visibility in the US in FY16/17, potential incremental competition in some of the high-margin, limited-competition products and a high exposure of profits to Venezuela pose threat for the company.

Dr Reddy's had decided to change the colour of Nexium capsules post a temporary restraining order (TRO) from a US District Court citing trademark infringement of AstraZeneca’s purple colour drug. As per management, the switch will take up to two months, which may impact revenue from the product in the interim. "While existing stocks in the channel will be liquidated, Dr Reddy's has to write-off finished inventory lying with them. Nexium is an important product for Dr Reddy's and this recent development potentially implies downside to our numbers," BoAML says in a note.

With an annual sales of USD 60 million, Nexium is used to treat heartburns and gastric ulcers.

Credit Suisse also maintains neutral rating. It says risks to its earnings are higher competition in Valcyte and Vidaza which could impact earnings by 6 percent, Venezuela's currency devaluation in Q416 could impact earnings per share (EPS) by 4-5 percent and delay in resumption of Nexium supplies could result in lower market share and impact EPS by 1-2 percent.

"The multiple could be impacted if new approvals are affected due to requirement of third party assessment across facilties. In the worst case, there could be further 15 percent downside to the stock," it adds.

Meanwhile, the stock has lost almost 25 percent in November alone. On Thursday, the stock tanked before staging a recovery as it is caught in a probe concerning possible violation federal security laws. Lundin Law PC has announced that it is investigating claims against Dr Reddy’s Laboratories concerning possible violations of federal securities laws.

The investigation is related to allegations that certain statements issued by DRL were false and misleading concerning the company’s financial performance. On November 6, 2015, the company said that it received a warning letter from the US Food and Drug Administration over inadequate quality control procedures at three manufacturing plants in India.

At 12:33 hrs Dr Reddys Laboratories was quoting at Rs 3,344.05, up Rs 57.25, or 1.74 percent.Posted by Nasrin SultanaFollow @NasrinzStory