Not working on Remdesivir generic; eyeing HCQ opportunity: Mr G V Prasad, Chief Executive Officer (CEO) and Co-Chairman of Dr Reddy’s Labs (DRL)

Update on the Indian Equity Market:

On Friday, NIFTY ended up 273 pts (+3.05%) above 9200 level as Reserve Bank announced a slew of liquidity-boosting measures to support the economy during the coronavirus crisis. The RBI further eased bad-loan rules, froze dividend payments by lenders and pushed banks to lend more by cutting the reverse repo rate by 25 basis points.

Among the sectoral indices, PVTBANK (7.4%), BANK (6.6%) and FIN SERVICE (5.5%) were among the top gainers while FMCG (-1.1%) and PHARMA (-0.5%) were the losers. AXISBANK (13.9%), EICHERMOT (+9.9%) and ICICIBANK (+9.7%) were the top gainers. NESTLEIND (-2.9%), HUL (-2%) and INFRATEL (-1.9%) were the top losers.

Not working on Remdesivir generic; eyeing HCQ opportunity: Mr G V Prasad, Chief Executive Officer (CEO) and Co-Chairman of Dr Reddy’s Labs (DRL) edited excerpts of an interview dated 16th April 2020:

DRL shares have risen over the past few days on speculation about the company being in the early stages of developing a generic version of anti-viral Remdesivir, owned by Gilead. The stock has risen around 32% over the last month and is at a 52-week high. Remdesivir is an experimental anti-viral drug being studied for Ebola, and in some cases, used on a compassionate ground against COVID-19.

DRL had no rights to work on a generic version of Remdesivir as Gilead still owned the patent. Prasad also said his company was not in talks with Gilead for contract manufacturing of Remdesivir, or for any licensing agreement.

DRL was looking at opportunities in other drugs which are being explored for treating COVID-19. Anti-malarial drug hydroxychloroquine or HCQS is one such. DRL is currently selling it in the US through a local partner. So far, DRL had not been selling it in India, but could look at it if there is strong demand. Besides the HCQS the company sells in the US, there is no COVID-19 drug that DRL is associated with.

DRL was facing a shortage of the active pharmaceutical ingredients (APIs) for HCQS, since its supplier is in Europe. But for the industry in general, supply was not an issue.

The other drug which is being explored as a cure for COVID-19 is ivermectin which is currently used for treating head lice. Exploring this drug as a cure for COVID-19 is at early stages with human trials not having commenced.

DRL continued to explore all non-patented drugs. Mr Prasad is of the view that for finding a cure to COVID-19, one needs to reposition existing drugs first, followed by vaccines and try novel drugs only as the last resort.

Drug repositioning is a drug development strategy predicated on the reuse of existing licensed drugs for new medical indications. According to Mr Prasad, repositioning existing drugs already might have a higher chance of success and novel drugs won’t be an immediate solution. The novel drugs being tested for COVID-19 include Gilead’s Remdesivir and Fujifilm’s influenza antiviral drug Avigan.

On manufacturing, DRL US sites and factories were functioning normally, and the staff at the offices were working from home. In India, there were some logistics issues in the initial days of the lockdown, but those have been overcome and the factories are now operating at “good” capacity.

He said the pace of approvals for its US drugs were progressing at a ‘normal’ rate. Similarly, Mr Prasad said too much should not be read into the recent spate of Establishment Inspection Reports received by multiple Indian facilities over the past few days. The EIRs received according to Mr Prasad were for the facilities which had ‘reasonably good’ inspections. For the industry as a whole, the quality of systems and level of compliance have matured resulting in these successful inspections.

On the fundamentals of the business, Mr Prasad said due to the recent disruptions, his company was slightly late in responding to the queries issued by the USFDA on their two key drugs in the US pipeline — contraceptive drug Nuvaring generic and multiple sclerosis drug Copaxone generic. They are in the process of finishing some work in order to reply to the queries on these two drugs within a few weeks. There is a renewed focus on India, Prasad said. This would not be acquisitions alone but through pipeline development and marketing as well.

Consensus Estimate: (Source: market screener, investing.com websites)

The closing price of Dr Reddy’s was ₹ 3,940/- as of 17-April-20. It traded at 34.4x/ 27x/ 23.2x the consensus EPS estimate of ₹ 112/ 143/ 167 for FY20E/ FY21E/ FY22E respectively.
Consensus target price of ₹ 3442/- implies a PE multiple of 20.6x on FY22E EPS of ₹ 167/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”