The US court lifted the preliminary injunction and cleared the sale of gAllegra D24 which prima facie seems positive for DRL. However, we believe that with sanofi getting USFDA approval for switching of Allegra family of products from prescriptions to OTC, the potential upsides for DRL could be reduced.

Prima facie, lifting of PI for selling DRL's gAllegra© D24 seems positive...
􀀟 Dr. Reddy's (DRL) today announced that on 28 January 2011, the US District Court of New Jersey filed a Stipulation and Order lifting an earlier motion for preliminary injunction (PI) and clearing the sale of DRL's generic (g) Allegra© D24, which was approved by the FDA on 16 March 2010. This would have meant re-launch of gAllegra by DRL in US markets with immediate effect.

...however, switching of Allegra prescriptions to OTC by sanofi...
􀀟 However, in order to delay generic competition, sanofi-aventis and its US consumer healthcare division, Chattem Inc., announced on 27 January 2011 that the USFDA has approved the Allegra (fexofenadine HCl) family of allergy medication products as over-thecounter (OTC). The Allegra family of products will be available in the US without a prescription starting March 2011 in drug, grocery, mass merchandiser and club stores nationwide and, hence, would have much wider coverage.

...reduces the potential upside for DRL's generic OTC, in our view
􀀟 As sanofi has got USFDA approvals to shift all Allegra prescriptions (including D-24) to OTC, this would delay the launch of generic Allegra D-24 by DRL by 3-6 months, in our view. DRL would now have to seek USFDA approval for generic OTC Allegra D-24 and repackage this product for OTC markets.

􀀟 In the meantime, DRL's existing prescription (Rx) product of generic Allegra D-24 would be available for sale. The upsides for this, in our view, would be subject to the inventory filling it might have done in the distribution channel during its earlier launch of the product, which at a later stage it had withdrawn post sanofi's preliminary injunction.

􀀟 Our channel checks suggest that OTC drug prices are 20-25% lower than prescription (Rx) drug.

􀀟 Also, DRL generic OTC would be 20-25% cheaper than sanofi's Allegra D-24 in branded OTC format.

􀀟 We believe DRL would also have to make additional efforts in increasing OTC field force to compete and gain reasonable market share given Chattem's (Sanofi's consumer healthcare division in US) superior sales and marketing channels in the US.

􀀟 We have built in Rs 2.4bn (US$53m) spread over FY11- FY14F (assumming a 30% price erosion and 30% market share) in our forecasts as core earnings.

US$40m bond given by sanofi is subject to further litigation
􀀟 In addition, plaintiffs sanofi-aventis and Albany Molecular Research (AMR) have been required to post as security with the Court, an amount of US$40m towards the possibility that the injunction has been wrongfully granted by the US District Court of New Jersey. Having been excluded from launching the generic product since the June 2010 hearing, DRL intends to pursue an award of this security. However, the US$40m bond given by sanofi will be payable only if the appeals court rules in DRL's favour as we believe sanofi will appeal to a higher court.