Dr Reddy’s has struck a settlement on gRevlimid with innovator Celgene that will allow it to launch volume-limited quantities after March 2022. The settlement ahead of a pre-trial hearing lend more visibility to earnings beyond FY22 and removes a long-pending overhang for Dr Reddy’s as well as Natco. Our base case for the gRevlimid opportunity stands at Rs 180/share assuming a September 2022 launch, peak market share of 16% in FY26 and increasing competition FY25 onwards. The EPS contribution is much sharper: we model in Rs 42/79/72 for FY23/24/25E. This development also removes the overhang for Natco as Dr Reddy’s was the most formidable filer with a purportedly non-infringing ANDA.
Dr Reddy’s has entered into a settlement agreement with Bristol Myers-owned Celgene on gRevlimid. The settlement details are confidential: Dr Reddy’s will launch the generic sometime after March 2022, will receive a volume-limited licence to sell (% shares not disclosed) and can launch unlimited quantities after January 2026. Bristol Myers generates ~$7.5 billion annually from this drug. Natco’s settlement terms remain the best as it could potentially have the highest volume among generics. With Dr Reddy’s settling the matter, the threat of early competition of volume-unlimited market from FY24 recedes. gRevlimid contributes ~Rs 225 (out of Rs 850) for Natco, and we believe any risks to this have abated.
For Dr. Reddy’s, we expect the volumes to be lower than Natco’s (peak up to 33% in January 2026) but higher than Alvogen (peak share single-digit in January 2026). Our key assumption in INR180/share NPV is that Celgene will settle with other filers (Aurobindo, Cadila, Cipla, Lupin and Sun among 8–10 other filers) and that competitive intensity will increase impacting margins. Our bull case analysis reveals an NPV of INR440/share and lack of further competition—the latter will not only generate higher market share but also keep margins elevated. However, we see a limited possibility of such a scenario unfolding.
Unlike other filers, Dr. Reddy’s has not disclosed the volume it can sell. At this stage, there is no clarity on the eventual number of competitors. While we have assumed the FY26 market share at 16% and four generics till FY24 (Natco, Alvogen, Dr. Reddy’s and possibly one more), any change in these variables can impact our NPV.
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