Stock Watch

By Rahul Kundanani, Myiris.com

With third quarter results declared, investors are looking at changing the composition of their portfolio. There were pharma majors who have managed to give results above market expectations but at the same time there have been some disappointments.

Reddy's on a roll

India's third-largest drug maker, Dr Reddy's, listed on the NYSE, wore a new look showing improved performance during the quarter. The company posted 25 percent rise in its revenue to Rs 5.9 billion in the Q3 FY05-06 bringing down high R&D costs for both its generic and new drug programmes. Net profit increased to Rs 628 million from Rs 40 million in Q3 FY05. The net profit is inclusive of profit from the sale of company's formulations plant in Goa, which stood at Rs 388 million. Gross profit margin came down to 51 percent from 52 percent earlier due to decline in margins from North America generics and the company had an exceptional income of Rs 53 million related to DRF-2593 during the corresponding previous period. Overall, the growth was driven by increase in revenues from APIs and branded finished dosage businesses.

Revenues from APIs business increased by 48 percent to Rs 2.1 billion led by growth in key markets. Revenues from branded formulations business increased by 34 percent to Rs 2.7 billion. This increase was led by performance of key markets of India (growth of 34 percent) and Russia (growth of 35 percent). The company's investments in R&D were nine percent of the total revenues as against 15 percent in Q3 FY05. The company recognised Rs 112 million as income under the R&D partnership deal with ICICI Ventures.

Dr Reddy's has been focusing on expanding its geographical spread in the fast growing generics business and the company has successfully leveraged the partnership model in a bid to check R&D costs. Earlier, the company had acquired Roche's API business in Mexico. The company has also entered into an agreement with Argenta Discovery for joint development and commercialisation of a novel approach to the treatment of Chronic Obstructive Pulmonary Disease (COPD). The organisation has signed an agreement with Merck to sell and distribute generic versions of two of its drugs, Zocor (simvastatin) and Proscar (finasteride), once they go off patents in the US market in June this year. This move makes it the first Indian pharmacuetical company to become an ‘authorised generic’ manufacturer for a multinational.

According to a leading financial daily, Dr Reddy's has made an offer of Euro 450 million (about Rs 2,500 crore) for acquiring German generic drugs major Betapharm Arzneimittel GmbH. The company plans to introduce several new drugs after being inactive for the last three years. It will launch seven or eight new drugs in the United States and four or five in Europe by March 2007. As a result, the shares of Dr Reddy's have risen by around 36 percent in the last six months closing at Rs 1160.05 on February 3, 2006.