Dr Reddy's Russian woes take a new turn - Views on News from Equitymaster

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Dr Reddy's Russian woes take a new turn

Nov 15, 1999

The introduction of product patents in India may be still sometime away but other countries such as Russia are paying more heed to the World Trade Organisation rulings. Pfizer, it has been reported, has successfully sued Dr Reddy's for selling a heart ailment product, which is similar to its own product in Russia. The Indian company has claimed that the product has been manufactured by an entirely different process. Dr Reddy's is one of the fastest growing companies in the pharmaceutical sector having a 1.4% market share in domestic formulations. The company has developed from being a purely bulk drug based company to a formulation-based company. The company is one of the leading spenders on R&D (5% of FY99 sales) in India.

Indian companies have over the years developed skills in reverse engineering, which permits them to copy and legally sell (India permits only process patents) such products in various markets. However, with the latest ruling in Russia, other Indian companies selling reverse engineered products may find themselves in the soup. In effect, the compliance date for the WTO guidelines seems to have been brought forward in the Russian markets.

For Dr Reddy's the problem is one of few already existing with regards to its Russian operations. Earlier, the company lost heavily on account of the melt down in the Russian economy. The company's poor performance in the second quarter of the current year has been attributed to problems pertaining to the Russian operations. With the company having lost its rights to sell its heart ailment product, revenues will further deteriorate. It is now likely that the company's Russian operations will put downward pressure on revenue and bottomline growth in the coming quarters.

Market View:
Analysts are increasingly getting convinced of the seriousness of the R&D efforts of the company. They are recommending a 'BUY' as they expect the R&D efforts to yield returns for the company in the future.

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