Positive Outlook for the Generic Version of Depakote ER

Since 1983, Depakote ER has been a good source of revenue for drug manufacturers. The drug is mainly used in the treatment of bipolar disorder, migraines, and seizures. The brand and its generic counterparts had combined U.S. sales of approximately $194 million for the 12-month period that ended in June.

Dr. Reddy Laboratories  (NYSE: RDY  )  launched a generic version of Depakote ER known as Divalproex Sodium Extended. After the launch, the company experienced 0.5% increase in its stock price. In this article, I will discuss the impact of this new drug on the company's financial stability.

Market for the drug
Revenues for the individual manufacturers of Depakote ER have been declining over the years due to the presence of many generic versions of the drug in the market. A highly competitive market forced manufacturers to lower their prices, though the demand for the drug has risen steadily due to an increase in bipolar disorder, migraines, and seizure disorders in the U.S. As reported by Medical News Today, bipolar disorder rates in the U.S. are higher than anywhere else in the world, with around 4.4% of U.S. citizens having had bipolar disorder diagnosis at some time in their lives compared to the world average of 2.4%. If we check the records for migraines, then according to Migraine Research Foundation, nearly one in every four U.S. households has a person suffering from migraines for an overall total of about 36 million people. Per the Epilepsy Foundation, seizures affect around 2.2 million Americans. This shows a huge market for the drug, giving the manufacturers the ability to generate revenues from Depakote ER.

Additionally, the lawsuits filed against Abbot Laboratories (NYSE: ABT  ) , the original manufacturer of Depakote, give other industry players the opportunity to earn more from the drug. One case revolved around the way in which Abbott marketed Depakote for unapproved uses and paid physicians and pharmacists to prescribe Depakote off-label. According to Bloomberg, Abbott pleaded guilty and agreed to pay $1.6 billion as a result. In another lawsuit, it was claimed that the drug caused birth defects after taking it as a seizure medication during pregnancy. These events reduced the company's reliability and affected the brand image of Abbott's drug, which in turn benefited other manufacturers.

Financial performance
A major part of Dr. Reddy's portfolio consists of generic drugs. In 2013 fiscal year, 71% of the company's total revenues came from generic drugs. Generic versions lead to increased sales as they cost less than brand-name drugs. In the future, it intends to grow its pipeline of complex generics in the U.S. For the development of complex generics, the company has strong technology platforms consisting of Polymer technology, Biocatalysis technology, Chiral technology, and Mpegs.

According to the company's investor presentation in June, the company experienced a 26% year-over-year growth in revenues exceeding $2 billion in the 2013 fiscal year. The revenues increased significantly in all the regions except Europe. The earnings before interest, taxes, depreciation and amortization (EBITDA) growth was 36% year-over-year. The company's current and non-current liabilities decreased by 0.3%.

Game plans of the competitors
According to a company press release, Mylan  (NASDAQ: MYL  ) also launched the generic version of Depakote ER back in 2011. Recently, Mylan launched generic versions of two new drugs. In mid-July it launched northindrone tablets, which is the generic version of Watson Laboratories' Nor-Q.D. tablets, and fenofibric acid delayed capsules, which is the first generic version of Abbot Laboratries' Trilipix capsules. Northindrone tablets had U.S. sales of approximately $39 million for the 12 months ending on March 31, while fenofibric acid delayed capsules had sales of approximately $553.6 million for the same period and market.

Bottom line
After the launch of a new generic drug to meet an increasing demand in the U.S. market, Dr. Reddy Laboratories is expected to register strong returns in upcoming quarters. The company's financial performance is also getting stronger, assuring higher returns for investors. It also pays one of the highest dividends in the industry, encouraging more investors to invest in its stock.

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