Dr. Reddy’s Laboratories (RDY) recently announced that it entered into a collaboration agreement with Valeant Pharmaceuticals International Inc. (VRX) for the US rights to Cloderm Cream, 0.1%. Per the terms of the agreement, Dr. Reddy’s will make an upfront payment to Valeant Pharma for the rights to manufacture, distribute and market Cloderm Cream in the US. Valeant Pharma is also entitled to receive royalties on future sales of the product.
Cloderm Cream, 0.1%, which is available only by prescription in a 45 and 90 gm tube, and in 30 and 75 gm pump, is used for the relief of the inflammatory and pruritic manifestations of corticosteroid-responsive dermatoses.
Last month, Dr. Reddy’s was in the news regarding the completion of the acquisition of GlaxoSmithKline plc’s (GSK) United States oral penicillin facility along with the product portfolio. The companies had first announced the deal in November 2010.
Following the acquisition, Dr. Reddy’s owns the penicillin manufacturing site in Bristol, Tennessee, US, and the US rights to the Augmentin and Amoxil brands. Glaxo retained the ex-US rights to these brands.
Our Take
We currently have a Neutral recommendation on Dr. Reddy’s, which is supported by a Zacks #3 Rank (short-term Hold rating). We believe that the addition of Cloderm Cream, 0.1%, into Dr. Reddy’s product portfolio will be a boost for the company, which aims to strengthen its presence in the dermatology market in the US.
We also believe that Dr. Reddy’s is in a strong position to benefit from the huge potential in the US generics market, as drugs representing sales of about $75 billion are slated to lose patent exclusivity in the coming years.
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