Dr Reddy's Labs surges 8% on approval for generic Suboxone Film launch

The stock surged 8% to Rs 2,652 on the BSE in early morning trade, quoting near to its 52-week high of Rs 2,687 touched on September 28, 2018 in intra-day deal.

Shares of Dr Reddy’s Laboratories have surged  8% to Rs 2,652 on the BSE (52-week high of Rs 2,687) after the US Court of Appeals lifted a temporary ban on the company’s generic Suboxone film.

The drug, reports suggest, is used to treat opioid use disorder. 

“The United States Court of Appeals for the Federal Circuit issued a decision in favor of Dr. Reddy's Laboratories Inc., concluding that lndivior had not shown that it is likely to succeed on the merits of its infringement case on U.S. Patent No. 9,931,305,” Dr Reddy’s Laboratories said in a release.

"This decision vacates the District Court's preliminary injunction that had prohibited Dr. Reddy's from selling its generic version of Suboxone® (buprenorphine and naloxone) sublingual film. As a result of today's ruling, Dr. Reddy's will resume its launch activities as soon as permitted," it added.

"This ruling is in line with our earlier commentary, which indicated that the ‘305 patent is weak. While the company can resume at-risk sales of gSuboxone and receive reimbursement from loss of sales in the form of penalties from Indivior, the underlying litigation for the ‘305 patent will continue in the interim. Reimbursement to Dr Reddy's could be up to $70 million," said Deepak Malik, an analyst tracking the company at Edelweiss in a co-authored report with Ankit Hatalkar and Aashita Jain.

In June, the U.S. Food and Drug Administration (USFDA) approved Dr. Reddy's Buprenorphine and Naloxone Sublingual Film, in four strengths including 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2 mg, and 12 mg/3 mg, for sale in the U.S. market.

The product was launched immediately after approval, with sales and commercialization activites halted as a result of a court-imposted temporary restraining order (TRO) against Dr. Reddy's. The TRO did not include a prohibition on commercial manufacturing of the product, the company said.

Morgan Stanley has ‘Overweight’ on the stock with 12-month target price of Rs 2,850 per share.

“Dr. Reddy’s earnings over the last year have been adversely impacted by competition in some key products and delay in approvals due to a Warning Letter. We are expecting resolution of outstanding regulatory issues and stabilization in US revenue trend with signs of earnings improvement likely to be a key catalyst for the stock,” the brokerage firm said in a report dated October 30, 2018.

“We do expect a pick-up in launches over the next few quarters (not dependent on facilities under the Warning Letter) including some complex approvals in FY20. We believe growth recovery in the US, coupled with benefit from cost optimisation efforts, should improve earnings trajectory over the medium term. Dr. Reddy’s approval and filings for complex generics underline the company’s focus on the transition to growth driven by its niche product portfolio in the US supporting medium-term growth,” it added.

At 09:29 am; Dr Reddy’s Laboratories was trading 7.5% higher at Rs 2,634 on the BSE, as compared to 0.15% decline in the S&P BSE Sensex. The trading volumes on the counter more than doubled with a combined 1.17 million equity shares changed hands on the BSE and NSE so far.