Dr Reddy’s Lab shares hit record high!

• Drugmaker Dr Reddy’s Lab shares gained by more than 13% intra-day to hit a fresh record high of ₹5,497 this afternoon. Dr Reddy's Lab shares have rallied by nearly 20% in this week alone, riding on the back of positive developments in the company 
• Dr Reddy’s Lab announced that it has settled patent litigation with US-based Celgene for Revlimid (lenalidomide) capsules, used to treat various kinds of cancer. Celgene's cancer drug Revlimid had brought in $2.9 billion revenue in June-quarter sales. 
• Celgene has agreed to provide Dr Reddy’s with a license to sell volume-limited amounts of generic lenalidomide capsules (used for treating cancer) in the US beginning on a confidential date after March 2022, subject to regulatory approval. 
• This could potentially give Dr Reddy’s additional sales of about $300 million in FY23-FY24, according to analyst estimates.

Co-operation with Russia’s Sovereign Wealth Fund

• Dr Reddy’s Lab and Russia’s Direct Investment Fund ( a Sovereign Wealth Fund) have agreed to cooperate on clinical trials and distribution of a potential Covid-19 drug, Sputnik V vaccine in India.
• “Dr Reddy’s said that it will distribute 10 crore doses of ‘Russia’s Sputnik V Covid-19 vaccine’ in India after conducting final-stage human trials and receiving regulatory clearances”
• Deliveries could potentially begin in late 2020 subject to completion of successful trials and registration of the vaccine by regulatory authorities in India. 

INDmoney Analysis

While the pandemic has hurt the businesses of most industries, it has presented a unique opportunity to drug manufacturers. Given a strong product portfolio of more than 200 generic drugs, and a robust US pipeline, Dr Reddy’s Lab is well-placed to remain an outperformer in the space. Given nature and extent to which India is hurt due to the pandemic, this new deal with Russia’s Sovereign Wealth Fund will further help the company to strengthen its position.  

Dr Reddy’s Lab has been rapidly expanding its business in India as well as a few other international markets. In Q1FY21, DRL’s profits dropped 13% to 595 crore, mainly due to a drop in India sales. It had reported a rise in sales across in almost all other markets. The deal with Celgene is expected to provide DRL significant cash flows from Revlimid generic during FY23-26, providing a boost to its earnings visibility.

Consensus recommendation: Buy (Based on views of 38 analysts from external institutions)