Going Soft

The Compass

Dr Reddy's Laboratories' investments in research are paying off with three more new molecules coming off its research pipeline, taking the total to six. The company is now seeking to license these molecules for clinical trials which brings in to focus the possibility of milestone payments. If and when these materialise, these funds _ apart from meeting future research _ should also help it in its quest for acquisitions. It will also shore up bottomline growth by extraordinary income flows.

The company has three new molecules _ an anti-cancer compound, a cox II inhibitor (anti-pain), and a third for metabolic disorders. In the past two years, DRL has been receiving milestone payments from Novo Nordisk for its first molecule for diabetes type II after it went into clinical trials. DRL expects to negotiate with foreign majors interested in the cox II inhibitor in the next two or three months.

Considering the thrust given by DRL on R&D, it looks that the revenues from milestone payments will contribute significantly in the future. However, DRL's main contribution for the short term will come from the bulks and formulations business. The domestic formulation business has been the main driver for its earnings growth in the past two years.

However, declining realisations for bulk drugs have affected its performance in the recent past. It has been looking for acquisitions of brands and companies and had recently acquired American Remedies by buying out its promoters. Anothe