Patience does pay. After a long wait, Dr Reddy's has finally received a nod from the US FDA to launch the fondaparinux sodium injection, a bioequivalent generic version of GSK's Arixtra.

This holds significant earnings potential for the Indian generic manufacturer, considering that the Arixtra brand had US sales of approximately $340 million for the 12-months ending May 2011 (according to IMS National Sales Perspectives).

Besides, Fondaparinux is a very complex product and therefore promises to be a limited competition opportunity for DRL.

Earnings potential

Dr Reddys will manufacture Fondaparinux under a licence using a patented process developed by Alchemia, an Australia-based drug discovery company, with which it already has a commercial agreement in place. Revenues, therefore, will be shared with Alchemia.

According to the agreement, Alchemia would be eligible for a minimum of 50 per cent of profits from product sales in the North America.

Its share could even increase to 60 per cent if Arixtra sales exceed a specific level at the time of commercialisation. Note that DRL also has an agreement with Alchemia for marketing rights for Europe, where the generic could be launched after 2012.

The earnings potential nonetheless is attractive. After divvying up Alchemia's pie, Fondaparinux could translate into additional earnings of about $11.5 million or profits per share of about Rs 3 for DRL in FY12. This is after assuming 30 per cent price erosion and market share respectively (on a conservative basis), what with DRL planning on a phased launch for the generic.

According to the company's release, DRL plans on initially “playing to its strengths in select wholesale and retail outlets and subsequently improve its share over time.”

So even though the competition in this space would only be limited, the phased launch would mean slower ramp up in sales for DRL.

Stock markets, however, cheered the long-pending approval (ANDA on Fondaparinux was submitted to the US FDA in March 2009), with DRL closing the day 3.2 per cent higher at Rs 1,595.

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