New Delhi, Oct 27: Dr Reddy's Laboratories seems to be following Newton's law - the higher you rise, the faster you fall. The scrip, which had risen from Rs 1125-level to its all-time high of Rs 1600 in less than a fortnight, is back to that level in less than 10 days. At its current price of Rs 1147, Dr Reddy's provides an excellent opportunity for gains in the long-term. According to marketmen, the fall in the stock is a reaction to the suits filed against the company regarding infringement of patent laws. The discouraging second-quarter profit fuelled the selling pressure.However, analysts say the second-half will be much better for Dr. Reddy's will thanks to the highly beneficial merger with Cheminor Drugs, and that should give a boost to the stock. Marketmen expect Dr.Reddy's to report a net profit of Rs 70 crore for the current fiscal. In the second-quarter of fiscal 1999-2000, the company earned a net profit of Rs 11.96 crore as against Rs 17 crore in the corresponding period last year.
On the legal suits, analysts say these kind of infringement suits are normal in any patent-protected market. An analyst with a FII brokerage says that Dr Reddy's earnings should not be affected as amlodipine and three other foumulations (Omez, Ciprolet and Enam) account for a major portion of exports to Russia. The Russian market accounted for Rs 51 crore worth of sales in fiscal 1999 (total sales stood at Rs 426 crore).
Adds another pharma analyst, ``Impact of these patent infringement cases, if any, will be diluted, as the company has filed for registrations of many new products.'' The company has been granted 6 product patents (out of 23 filed) in the US (in the areas of anti-cancer and diabetes). In the second quarter, the company launched Docetere (an anti-cancer drug) and is set to introduce 2 more anti-cancer drugs (Irinotecan and Topotecan) in the current fiscal.
The company has recently received a go-ahead for trial of its diabetes drug from Danish major Novo Nordisk. Dr Reddy's Lab received a milestone payment for its anti-diabetic molecule DRF-2593. The payment was made by Danish major Novo Nordisk as the molecule entered phase two of development. Although the company has not yet disclosed the figure, marketmen expect it to be around US $ 4-4.5 million
Dr Reddy's has adopted the practice of getting clinical development done from outside, with the counter party getting the marketing rights once the product is patented (the company would receive royalty on these sales). This has converted the company's research department into a profit centre. Dr Reddy's Research Foundation has over 210 research scientists working for it. With the research spending estimated at around Rs 23 crore for the current fiscal, research and development is likely to be a key growth driver in future.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.