The Dr Reddy's stock is expected to be in the bear grip for the next few trading sessions thus providing an excellent opportunity for investors to enter the counter at current levels.

The scrip is currently trading at a PE of 66 times which is attractive considering the company would soon be going in for the highly-beneficial merger with Cheminor Drugs. Moreover, Dr Reddy's growth in the future will be driven by new product launches.

Though the company has lost against US pharmaceutical giant Pfizer for patent violation in Russia, the ruling should not have any adverse impact on the company's bottom line. The Russian Federal Arbitration Tribunal had ruled in favour of Pfizer, which had accused Dr Reddy's Lab of violating the patent for its heart curing product Norvask. However, Dr Reddy's claims that its product Stamlo (amlodipine) is manufactured using a totally different production method. Dr Reddy's is planning to appeal against the Russian court's ruling in the Supreme Arbitration Tribunal of Russia.

Although this would mean lengthy proceedings and significant spendings on the suit itself which might affect the company's bottom line, the company's exports are unlikely to see any major blow. Dr Reddy's earnings should not be affected as amlodipine and three other formulations (Omez, Ciprolet and Enam) account for a major portion of exports to Russia. The Russian market accounted for Rs 51 crore worth of sales in fiscal 1999 (total sales stood at Rs 426 crore). Moreover, these kinds of infringement suits are normal in any patent-protected market. According a pharma analyst, ``Any impact of these patent infringement cases will be diluted as the company has filed for registrations of many new products.'' The company has been granted six product patents (out of 23 filed) in the US (in the areas of anti-cancer and diabetes). In the second quarter, the company launched Docetere (an anti-cancer drug) and is set to introduce two more anti-cancer drugs (Irinotecan and Topotecan) in the current fiscal.

The company has recently received a go-ahead for trial of its diabetes drug from Danish major Novo Nordisk. Dr Reddy's Lab received a milestone payment for its anti-diabetic molecule DRF-2593. The payment was made by Danish major Novo Nordisk as the molecule entered phase two of development.

Although the company has not yet disclosed the figure, marketmen expect it to be around $4-4.5 million.

Dr Reddy's has adopted the practice of getting clinical development done from outside, with the counter party getting the marketing rights once the product is patented (the company would receive royalty on these sales).

This has converted the company's research department into a profit centre. Dr Reddy's Research Foundation has over 210 research scientists working for it. With the research spending estimated at around Rs 23 crore for the current fiscal, research and development is likely to be a key growth driver in future.