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Nath Balakrishnan

DR Reddy's will probably regard 2003-04 as one of the more challenging years in recent times. The possibility of the company launching a version of Pfizer's blockbuster anti-hypertensive Norvasc in the US market occupied centrestage for the best part of the fiscal and news of Dr Reddy's being unsuccessful in its litigation did come as a huge disappointment to the market.

Further, the year also saw some of Dr Reddy's flagship generics in the US market such as fluoxetine and tizanidine come under price competition.

These developments have been offset by a rather robust growth witnessed in the European market, which has reported a doubling in revenues at about Rs 280 crore, driven largely by the rampiril bulk and omeprazole capsules. The year has also seen Dr Reddy's post a growth of 10 per cent in the domestic formulations market, in spite of having undertaken a brand rationalisation exercise.

Dr Reddys' high-risk, high-return strategy to prise open the US market has obviously come at a price. The write-off in the latest quarter towards litigation expenses in the case of AmVaz (Dr Reddy's version of Norvasc) is a case in point. Going forward, should Dr Reddy decide to aggressively challenge patents held by MNC outfits, one could expect these costs, apart from selling and general administration expenses, to remain firm.

In the US market, one could expect to see Dr Reddy's use its recent acquisition, Trigenesis, as a vehicle to make inroads into the dermatological space.

On the patent challenge side, the next target for Dr Reddy's would be on Eli Lilly's Zyprexa. However, as has been seen in the case of Norvasc, such challenges could prove to be protracted and might also go against the challenger, as innovator companies fiercely protect their turf.

Against this backdrop, investors would be better off tracking developments closely and watch out for potentially positive news flow before they consider buying into the stock.

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