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      Ranbaxy Q3 net down 91 pct, price pressure persists

      Posted AtReuters India

      India's top drug maker, Ranbaxy Laboratories Ltd., reported on Friday its quarterly net profit plunged a worse-than-expected 91 percent as costs rose and competition heated up in the key U.S. generic market.

      Ranbaxy shares dropped 3.1 percent to 389.6 rupees, its lowest for more than two years, in a rising Mumbai stock market.

      Ranbaxy had already warned its performance this year would be hurt by generic drug price erosion as too many players flood the U.S. market. Its investment in preparation for the launch of generic Lipitor was also expected to pinch earnings.

      Ranbaxy, which has challenged Pfizer Inc.'s patents for Lipitor, the world's top selling drug, said July-September net profit fell to 184 million rupees ($4 million) from 2 billion a year earlier. Revenue fell 3 percent to 13.04 billion rupees.

      "The results are much below expectations and show the business is under extreme competitive pressure," said Shahina Mukadam, analyst with IDBI Capital Markets.

      A Reuters poll of 10 brokerages had forecast a net profit of 1.3 billion rupees on revenue of 13.6 billion.

      "The weakness in the U.S. marketplace that we have seen has continued to the third quarter and, if anything, has accelerated," Chief Executive Brian Tempest told reporters in a conference call after the results.

      "It had an impact not only on sales but also on profit," he said. "Our research and development has grown about 79 percent and that has also had an impact on the quarter."

      Tempest said prescription volumes were rising but pricing pressure was a problem he expected to continue for the rest of this year and into next year.

      He reiterated a forecast of lower earnings per share for 2005 than 2004 and said sales growth would be in low-single digits.

      The growing generic bandwagon has hurt innovator companies as well. Pfizer reported a 52 percent drop in third-quarter profit on Thursday, partly due to generic competition.


      Ranbaxy is gaining a reputation as one of the most aggressive challengers to patents held by big pharmaceutical companies.

      Earlier this month, a British court prevented Ranbaxy from launching a generic version of Lipitor and Ranbaxy intends to appeal the decision. But a more crucial U.S. decision on Lipitor patents is expected to be pronounced by the end of 2005.

      AstraZeneca Plc said this week that Ranbaxy had also challenged the U.S. patent on its top-selling drug Nexium, a hearburn and anti-ulcerant pill.

      Ranbaxy's litigation costs are expected to touch $30 million in 2005 and officials said they expected a similar amount to be spent in 2006 as well.

      Tempest said Ranbaxy had some 50 products awaiting U.S. Food and Drug Administration approval at any given time.

      Despite the difficult market, he said Ranbaxy would not cut back its R&D activity as generic opportunities open up overseas.

      "We are continuing to invest in the future and that can be seen in terms of expansion of R&D and can also be seen in terms of expansion of litigation costs, which are all driven by increasing product opportunities," he said.

      Besides the early Indian movers into the U.S. market such as Ranbaxy, Dr. Reddy's Laboratories Ltd., Cipla and Sun Pharmaceutical Industries Ltd., others such as Lupin Ltd., Wockhardt Ltd. and Orchid Chemicals & Pharmaceuticals Ltd. are eyeing up the lucrative markets where generics are popular.

      Tempest said 2006 would be better than 2005 as the company had a stronger pipeline of drugs for launch, including a few where it was the first to file for marketing permission and therefore would have exclusive marketing rights for a few months.

      Ranbaxy has started licensing talks with Swiss drug maker Roche for antiviral drug Tamiflu, as Roche prepares to increase production to prepare for a possible bird flu pandemic.

      Tempest said Ranbaxy had already developed the chemistry to make the active pharmaceutical ingredient for Tamiflu.

      Ranbaxy shares lost 7 percent in July-September, underperforming a 11 percent rise in the local sector index.

      October 21, 2005


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