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Dr. Reddy’s Laboratories Ltd. (RDY - Analyst Report) recently announced a collaboration agreement with Merck Serono, a division of Merck KGaA (MKGAF). The companies will co-develop and commercialize a portfolio of biosimilar compounds in oncology, primarily focused on monoclonal antibodies (MAbs).

As per the agreement, Dr. Reddy’s and Merck Serono will co-develop, market and commercialize the compounds around the globe except for a few specific countries. Dr. Reddy has been an innovator and leader in the biosimilars space with four biosimilars molecules already launched till date. The partnership with Merck Serono will expand Dr. Reddy’s presence in this sector and enable the company to participate globally.

The Agreement

As per the deal, Dr. Reddy’s will be responsible for early product development and will complete phase I studies. Depending on the success of the phase I program, Merck Serono will take over manufacturing of the compounds and initiate phase III development. Research and development costs (R&D) will be shared by the partners.

Merck Serono will commercialize compounds developed under the agreement globally, outside the US and a few areas which are co-exclusive or where Dr. Reddy’s enjoys exclusive rights. Dr. Reddy’s will be entitled to receive royalty payments from Merck Serono. In the US, both companies will co-commercialize products on a profit-sharing basis.

We note that the biosimilar market is seeing a lot of activity in the recent past. Apart from Dr. Reddy’s and Merck KGaA, companies like Hospira Inc. (HSP - Analyst Report), Amgen Inc. (AMGN - Analyst Report), and Biogen Idec Inc. (BIIB - Analyst Report) have also entered the biosimilar space through various agreements.

We currently have a Neutral recommendation on Dr. Reddy’s.

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