Dr. Reddy's Posts Big Earnings Beat on Nausea Treatment Sales

Dr. Reddy's Laboratories reported FQ4 earnings of $79.5 million (3.25 billion rupees) after losing $5 million a year earlier -- almost doubling consensus forecasts of 1.76 billion rupees [Reuters]. Sales more than doubled to $361 million. India's #3 drugmaker, and the only one that is U.S.-listed, began selling its anti-nausea drug (ondansetron), a generic copy of GlaxoSmithKline's Zofran, in the U.S. in December; it has 180 days to sell the drug without generic competition. Sales of the drug (2.7 billion rupees) boosted earnings, although Credit Suisse analysts Neelkanth Mishra and Anubhav Aggarwal caution against attaching too much importance to so-called 'one-off' profits, due to their short lifespan. The twenty-year-old company copies blockbuster drugs such as Bayer's Cipro and Merck's Zocar and imports them at large discounts. The company is likely to go after Pfizer's Norvasc hypertension drug (which already has Mylan and Pfizer generics) and Glaxo's Coreg heart disease treatment when their patents expire later this year. Dr. Reddy's trades at about 14x estimated earnings, vs. 24x for #1 drugmaker Ranbaxy and 21x for #2 Cipla. Shares of its U.S. ADRs are down 11% YTD and 13.2% y/y, while its Bombay-traded shares are down 18% YTD. It is the worst performer on the exchange's 23-stock Healthcare Index. Shares lost 1.8% in Bombay trading Friday; its ADRs are up 3.3% in pre-market trading on the NYSE to $16.74.

Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: Apotex Loses Emergency Appeal, Dr. Reddy's Launches Generic Zofran • Dr. Reddy's Launches Generic Zofran • Reddy's is Ready for Aggressive Growth
Stocks/ETFs to watch: Dr. Reddy's Laboratories Ltd (RDY), GlaxoSmithKline plc (GSK), Pfizer Inc. (PFE), Merck & Co. Inc. (MRK), Mylan Laboratories Inc. (MYL). ETFs: HealthShares GI/Gender Health (HHU) [5.5% holding], iShares Dow Jones U.S. Pharmaceuticals (IHE), iPath MSCI India ETN (INP)

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