It is hard to calculate the upside in Dr Reddy’s Laboratories’ share price owing to various factors, said international brokerage Morgan Stanely on Tuesday despite the Indian pharma major expected to benefit strongly from regulatory approvals for the emergency use of Sputnik V’s COVID-19 vaccination in the country.

In fact, Dr Reddy’s Labs share price responded positively, rising almost 5 percent on Monday as the DGCA’s announcement came and settling at Rs 5,098 at the close. On Tuesday, however, the stock price fell sharply with Dr Reddy’s settling at Rs 4,799, following a nearly 4 percent correction.

Morgan Stanley has maintained an ‘equal-weight’ stance on the stock and said in a report that there is still confusion about where Dr Reddy’s stock will end up based on its pricing and marketing opportunities. It cited government caps at prices and low production capacity as two major risk factors.

On production, Dr Reddy’s capacity of 12.5 crore doses a year including export rights is in stark contrast with the production of Covishield by Serum Institute of India, which is producing 7 crore doses of the vaccine each month, with production ramping up to 11 crore doses per month, the report stated.

Furthermore, it will take at least a few weeks to a few months for Dr Reddy’s to start making the vaccine in any significant quantity, according to the Morgan Stanley analysis.

By current estimates, India could already have administered nearly 2.5 crore doses by then.

“Dr Reddy’s economics for its 12.5 crore per annum dose could be weak if its supplies are channelised through the government, before on-demand or retail sales are allowed,” the report noted.

While the SEC’s positive recommendation gets the Sputnik V vaccine closer to commercialisation in India, Dr Reddy’s limited flexibility on supplies, pricing, margins, and sales channels could imply weak economics.

Sputnik V has shown an efficacy rate of 91.6 percent in clinical trials and has an advantage over mRNA vaccines because it only needs to be kept at 2-8 degrees Celsius. This will allow the vaccine to be distributed to poor infrastructure areas, unlike many other vaccines that need sophisticated storage and delivery systems. RDIF will sell the Sputnik vaccine at $10 a dose internationally. In comparison, the pricing for Covishield in India is set at $2 a dose, for government purchase.

The roll-out of Russia's COVID-19 vaccine, Sputnik V, will begin at the end of April or early May. The vaccine will be priced lower for India, Russia's RDIF is working out solutions with the government, its CEO Kirill Dmitriev, told CNBC-TV18 in an interview.

India became the 60th country to approve emergency use authorisation (EUA) of Sputnik V on Monday. RDIF is looking to produce over 850 million doses per year, making India the main production hub for the vaccine.

The vaccine, meant for people aged 18 and above, can be stored at 2-8 degrees for two months.

The Sputnik V vaccine is the third vaccine to be cleared for emergency use in the country after Serum Institute’s Covishield and Bharat Biotech’s Covaxin. Both of these were approved in January 2021.

First Published:Apr 13, 2021 7:09 PM IST