Dr Reddy's last day on Sensex; stock rallies 20% in 8 sessions

Dr Reddy's will no longer be a part of Sensex stocks Monday onwards as constitution of the 30-share index sees a change with effect from Monday. Following Dr Reddy's exclusion, the weightage of the healthcare stocks on Sensex will hit an eighth month low. 

These changes are coming in at a time when pharma stocks have make a comeback on the revival path. Dr Reddy's share price gained as much as 20 per cent in the last 8 sessions, thanks to a renewed optimism on the sector. Nifty Pharma index itself gained 14 per cent during the same period. 

In Friday's trade, Nifty Pharma was the top sectoral gainer, led by gains in Dr Reddy's. 

Friday's gains in Dr Reddy's were triggered by USFDA approval to a key drug of the company. The pharma major received final approval from the US health regulator for generic version of Suboxone, prescribed for opioid addiction.

"The product approved by the US Food and Drug Administration (USFDA) is a therapeutic equivalent generic version of Suboxone (buprenorphine and naloxone) sublingual film," Dr Reddy's Laboratories said in a BSE filing.

The company, which is launching the product in the US, said approval has been granted in the strengths of 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2 mg, and 12 mg/3 mg.

"Buprenorphine helps suppress withdrawal symptoms caused by discontinuation of opioid drugs, and naloxone reverses and blocks the effect of opioids. This combination of medications is used as part of a complete treatment program including prescription monitoring, counselling, and psychosocial support," Dr Reddy's Laboratories said.

The Suboxone brand had US sales of approximately $1.86 billion for the twelve months ending in April 2018, DRL said citing IMS Health data.

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However, HDFC Securities remains cautious on the stock maintaining neutral rating with a target price of Rs 2,340 (18x FY20E + 10x on non-core earnings).

"Dr Reddy's is likely to complete remediation activities by June-July for both Srikakulam and Duvvada plants. Hence, it is unlikely that we will see lucrative approvals coming in from these two plants in FY19, leading to further erosion in the US base business," said the brokerage.

"The niche filings like gNuvaring, gSuboxone and gCopaxone are also facing challenges on various fronts, so we are building in these launches in our 4QFY19/FY20 estimates," it added.