What Suboxone Win Means For Dr. Reddy’s Labs

Dr. Reddy’s Laboratories Ltd. is expected to get an earnings boost after a court ruling allowed it to sell a generic of Indivior Plc’s opioid treatment drug Suboxone in the U.S., its largest market.

The U.S. Court of Appeals for the Federal Circuit, in a 2-1 ruling, set aside on Tuesday a New Jersey court’s July order that blocked Dr. Reddy’s from selling the generic in the country. The appeals court said the trial judge was wrong to “say that Indivior was likely to win its patent-infringement case”, remanding the case to the trial court.

Dr. Reddy’s, in an exchange filing, said it will resume launch activities of Suboxone as soon as permitted. “The temporary restraining order did not include a prohibition on commercial manufacturing of the product.”

Shares of India’s third-largest drugmaker by market value rose nearly 8.7 percent to Rs 2,655 apiece today, making it the top performer on the NSE Nifty 50 Index that was trading 0.5 percent lower at noon. The U.S. contributes, according to Dr. Reddy’s filings, around 38 percent of the company’s total sales. IMS estimates the market for Suboxone—one of the two key drugs used to fight addiction along with Alkermes Plc’s Vivitrol—at $1.8 billion.

The ruling comes at a time the U.S. sales of Dr. Reddy’s failed to meet estimates for the quarter ended September and one of its key plants in Duvvada, Andhra Pradesh faced observations about its manufacturing practices. It reported a revenue of $204 million against the projected $220-225 million, Credit Suisse said in a note. The U.S. sales fell 14 percent as it was unable to sell Suboxone—one of the two key drugs used to fight addiction along with Alkermes Plc’s Vivitrol.

Erez Israeli, chief operating officer of Dr. Reddy’s, had told BloombergQuint that drugs like Suboxone, Copaxone and Nuvaring will be crucial for the company’s growth in the U.S., where the Indian drugmakers are facing pricing pressure.

In fact, Dr. Reddy’s had pushed more than a month’s supply of generic Suboxone during its two days of “at-risk” launch—selling a drug despite the innovator’s patent being valid and risking a potential penalty—before the temporary restraining order was granted in July, according to Equirus. While the exact sales quantum is not known, Indivior indicated that Dr. Reddy’s may have made $25 million worth of sales in the time the window was open.

U.K.-based Indivior, in a statement after the appeals court verdict, said it will continue to vigorously pursue ongoing infringement cases against Dr. Reddy’s.

Analysts expect the ruling to boost Dr. Reddy’s earnings. “We believe this product could add Rs 14 EPS (earnings per share) for the company with three-four generic players in the market,” said Amey Chalke, pharma analyst at HDFC Securities. “If Dr. Reddy’s remains the only player to launch this product due to unavailability of final approval for others and unfavourable court settlements, then it can potentially generate Rs 60 EPS from this product.”

What Brokerages Say

HDFC Securities

• This a substantial opportunity for Dr. Reddy’s which was struggling to get quality approvals for the last three years with a key plant under warning letter, said Ameya Chalke, analyst.

Edelweiss

• Dr. Reddy’s can potentially achieve annual sales of $100 million assuming Mylan also comes as it has settled with Indivior, said analyst Deepak Malik.
• Sales can contribute approximately Rs 30 per share which is baked into estimates.
• Consensus will upgrade the estimates.
  

Equirus

• Decision is a huge win for Dr. Reddy’s, paving the way for its relaunch, wrote analyst Praful Bohra. They will still be at risk till litigation for newly-issued patents conclude.
• Imminent launch can add annualised revenue of around $90-100 million assuming the market comprises three players.
• This would mean a 10-12 percent upgrade for Dr. Reddy’s FY19 earnings.

Macquarie

• Expect gSuboxone ‘at risk’ re-launch immediately.
• The probability of a favourable verdict in the full trial on the ‘305 patent increases.
• Expect $50-60 million sales of Suboxone in FY19 and $70 million in FY20.
• Mylan’s entry could be imminent.

BofA-ML

• gSuboxone springs back to life as Dr. Reddy’s wins ruling.
• The win has a strong bearing on pending litigations.
• Competition from other firms can catch up and is a risk.
• See Rs 27 per share opportunity with three firms in fray.

Credit Suisse

• Expect immediate competition from the authorised generic and Mylan for Suboxone.
• Suboxone will be a six generic player market.
• Dr. Reddy's received approval for generic of Diprivan; expect $20-25 million sales.