Dr Reddy's Labs gave the market reason to devalue the scrip further after it announced that it was dropping three compounds from its research pipeline.

No sooner trading commenced Thursday, the scrip of the domestic pharma major slipped 1.68% to Rs 893. It registered volumes of 7,440 shares on BSE by 10:10 IST.

Dr Reddy's Labs has already come off 11% from Rs 1003 on 15 January 2003 to its current level.

The company has announced that it is dropping three new compounds (DRF 4848, DRF 3188 and DRF NPPC) from its research pipeline. The same were undergoing or had completed pre-clinical development or animal trials. The company did not provide any explanation for this downsizing move.

Analysts feel the real cause for the scrip's fall, however, is that the company has no fresh trigger in the near term, as no launch of any new molecule is seen till December 2003. The only talking point in the DRL stable as of now is the launch of its modified version of Norvasc. The company was expected to launch amlodipine maleate (modified version of Norvasc), a blockbuster hypertension drug in August 2003, but the company has delayed the launch to December 2003.

Amlodipine maleate differs chemically from the amlodipine besylate form of Pfizer's anti-angina and hypertension blockbuster, which had sales of $2.5 billion in 2001.

The mareket is also disappointed by the company's third quarter ended 31 December 2002 performance. DRL reported a 5% fall in sales to Rs 374.45 crore (Rs 3.74 billion) and a 42% drop in profit after tax to Rs 93.16 crore. A poll of analysts conducted by capitalmarket.com had forecast that the company would post a 34.5% to 42% fall in net profit, in the range of Rs 93.60 crore to Rs 106 crore (Rs 1.06 billion). The poll had forecast sales of Rs 441 crore (Rs 4.41 billion) to Rs 530 crore (Rs 5.3 billion).

The fall in sales for the quarter under review was primarily on account of a 32% drop to Rs 78.55 crore in generic sales. This, in turn, was the result of the company's exclusivity in sales of fluoxetine ending in the quarter under review.

Active pharmaceutical ingredients and intermediaries sales grew by 11% to Rs 168.51 crore (Rs 1.68 billion), while formulations sales climbed 11% to Rs 171.95 crore (Rs 1.71 billion) over the corresponding previous quarter. The reduction in sales is also attributed to the absence of drug discovery in the quarter ended 31 December 2002 as against Rs 10.81 crore earned in the corresponding previous quarter.

The provision for tax increased by 25% to Rs 11.11 crore. Further, the company also had to provide for deferred tax of Rs 3.49 crore in the quarter as against a credit of Rs 10.82 crore in the corresponding previous quarter. Together, the provision for current and deferred tax was Rs 14.60 crore in the quarter ended 31 December 2002 as against a credit of Rs 1.91 crore in the corresponding previous quarter. The resultant net profit after tax was Rs 93.16 crore in the quarter, which was 42% lower than the corresponding previous quarter.

Revenues show decent growth if one-time items are excluded. Excluding the revenues from Fluoxetine exclusivity of Rs 117.70 crore (Rs 1.17 billion) and the one-time R & D license fee income in the quarter ended 31 December 2001, revenues registered a growth of 33% over the corresponding previous quarter.

As on 30 September 2002, the promoters' holding in DRL was at 26.5%, while that of the public, domestic and foreign institutions was 15.5%, 11.3% and 46.4%, respectively.

BSE Code: 500124