Wednesday, February 08, 2006

India on Drugs: RDY

Business Week looks under the hood of generic drug powerhouse Dr. Reddy Labs (RDY):

In an otherwise lackluster pharma market, stocks like Dr. Reddy's Labs are surging. With a slather of patents set to expire, their prospects look good
Generic-drug stocks have been making brand-name gains. One notable example: Dr. Reddy's, an outfit based in Hyderabad, India, with generic and brand-name pharmaceutical businesses, hit a 52-week high of $27.65 on Feb. 1. That represents a sizzling 85% leap from its 12-month low of $14.91 on May 3.

Dr. Reddy's has annual revenues of about $470 million, paced by sales of generics like fluconazole, an antifungal agent. Dr. Reddy's stock performance owes, no doubt, to the company's improved year-over-year revenues for each of the last three quarters. But that may be only one part of the story.

The generic is also involved in diversification efforts that could buoy it against larger competitors...the company still has the potential to compete well in North America and has filed 51 generic-drug applications with the U.S. Food and Drug Administration.

What we found most interesting was this: Reddy is being bankrolled by the private equity arm of our number one play on the Indian banking sector, Iccici Bank (IBN):
...ICICI will cover development and legal costs associated with commercializing most of the company's generic drugs in the U.S. and will receive royalty payments on approved drugs. The agreement enables Dr. Reddy's to develop new product lines while minimizing the risks.
Things could get really hot for Reddy if it can gain market share from the plethora of other generic drug companies looking to eat at the $16 billion dollars worth of drugs that come patent this year, more than twice the figure for last year.

In short, India's still as hot as a pistol, Big Pharma's in trouble, and Reddy is hitting all cylinders -- looks like a good equation to us.

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