Dr. Reddy's Laboratories Ltd. plans to grow significantly in the U.S. private-label OTC drug market, with an eye toward chipping away at Perrigo Co. PLC’s lead in the segment.

The Indian firm predicts that by the end of its next fiscal year in March 2013 its U.S. OTC business will achieve annualized sales of about $200 million, an increase of more than 50% over its current quarterly run rate.

Analysts with Kotak Institutional Equities said they expect Dr. Reddy’s to generate U.S. OTC sales of about $170 million for the firm’s fiscal 2013, which would be a 27.8% jump over its projected $133 million tally for fiscal 2012.

Dr. Reddy’s, headquartered in Hyderabad with a U.S. office in Bridgewater, N.J., Feb. 3 reported fiscal 2012 third-quarter worldwide sales of $522 million, up 45.8% from a year ago. Net profit rose 86.5% to $97 million in the October-December period.

Developed Market Advantages

Analysts see upside for Dr. Reddy’s in both developing markets and the established markets of North America and Europe, thanks to its penchant for streamlined manufacturing.

“We expect numerous small generic manufacturers will be crushed by the dominant large-scale competitors” such as Teva Pharmaceutical Industries Ltd., and Allergan PLC, said Morningstar analysts. “But we think Dr. Reddy’s low-cost advantage will keep it in the game and make it a serious threat,” they added.

In North America, Dr. Reddy’s third-quarter revenue more than doubled to $242 million from $110 million. The company cited strong volume increases of products including its OTC omeprazole magnesium 20 mg, equivalent to Prilosec OTC, among the contributors to the leap in revenue.

Dr. Reddy’s launched its omeprazole product in late 2009 after a delay from patent litigation, ceding a sizable head-start to Perrigo ([A#05170510013_b]).

The Indian firm does have a first-to-market advantage with the private-label version of Allegra-D 24 Hour (fexofenadine 180 mg/pseudoephedrine 240 mg), which it introduced in August Also see "In Brief" - Pink Sheet, 5 September, 2011.. However, the Kotak analysts said the product contributed “insignificantly” to third-quarter sales.

Prevacid Petition An Unknown Quantity

Dr. Reddy’s is poised to launch lansoprazole 15 mg after Novartis Consumer Health Inc. loses exclusivity for Prevacid 24HR in May. UBS analysts expect the proton pump inhibitor to be among Dr. Reddy’s key revenue drivers in fiscal 2013.

Perrigo already attempted to slow the progress of competing lansoprazole products. In a citizen petition to FDA, Perrigo requests the agency refuse to accept any abbreviated new drug application for generic Prevacid 24HR that uses bioequivalence data from prescription lansoprazole Also see "Perrigo Seeks To Slow Rivals’ Private-Label Prevacid Launches" - Pink Sheet, 5 December, 2011..

Though Dr. Reddy’s appears the petition’s likely target, Perrigo CEO Joseph Papa acknowledged only that his firm believes “some people have attempted to get approval based on the Rx product and not the OTC product,” during a Feb. 7 analyst call.

In an email, a Dr. Reddy’s spokesman said the firm “is of the opinion that the citizen petition will not have an impact on the status of our filing.”

Dr. Reddy’s Projects 50% Growth In U.S. OTC Business

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