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Dr. Reddy's Laboratories Ltd. (RDY - Analyst Report) and Fujifilm Holdings Corporation (FUJIY - Analyst Report) recently announced their decision to end their joint venture (JV). Fujifilm is realigning its long-term growth strategy, leading to the termination of the joint venture.

In Jul 2011, Dr. Reddy's and Fujifilm had signed a Memorandum of Understanding (MoU), and thereafter the two firms entered into an exclusive partnership for developing, manufacturing and promoting generic drugs in Japan.

In this joint venture, Fujifilm owned a 51% share while Dr. Reddy’s owned the remaining 49%. The alliance had aimed to bring together Fujifilm’s advanced quality control technologies from its photo film business and Dr. Reddy’s expertise in cost competitive production technologies.

Dr. Reddy's remains committed to enter the Japanese market. Japan, the second largest pharmaceutical market globally, is roughly worth $97 billion, according to IMS Health. The generics market, estimated to be worth $11.6 billion, has seen low penetration with only 23% of Japanese prescription drug sales by volume being generics as compared with 70% in the US. This shows huge market potential for generic drugs in Japan.

Meanwhile, the end of the joint venture does not rule out future collaborations. The two companies may join forces in the future for other pharmaceutical businesses like API (active pharmaceutical ingredient) development and manufacturing, contract research and development and manufacturing, and the development and marketing of super-generics.

Dr. Reddy’s has a strong presence in the generics market. In fiscal 2013, Dr. Reddy’s Global Generics segment posted revenues of $1.5 billion, up 17.5%. Strong sales in North America and the emerging markets were primarily responsible for the growth displayed by the Global Generics division. Global Generics segment revenues comprised 71% of total revenues in fiscal 2013.

Dr. Reddy’s expects both its branded and non-branded generic markets to grow in the future. During fiscal 2013, Dr. Reddy’s filed 18 abbreviated new drug applications (ANDAs) with the US Food and Drug Administration (FDA). The company has 65 ANDAs pending approval with the FDA, of which 38 are Para IV filings and 8 are first-to-file.

Dr. Reddy’s carries a Zacks Rank #3 (Hold). Other generic players also carry a Zacks Rank #3. Currently, companies in the biopharma space like Santarus, Inc. and Jazz Pharmaceuticals plc (JAZZ - Analyst Report) look attractive with a Zacks Rank #1 (Strong Buy).

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