Ranbaxy profits fall on R&D costs

Ranbaxy is having to commit more to research and development

Ranbaxy, one of India's leading drug companies, has blamed higher research and development costs for a surprise 11% fall in fourth quarter profits.

The New Delhi-based firm said net profit for the October-to-December 2004 period was 1.57bn rupees ($36m; £19m), down from 1.76bn rupees in 2003.

Ranbaxy said that sales rose 24% to 14.24bn rupees in that period, but spending on R&D doubled.

The generic drugs maker added that it had faced pricing pressure in the US.

'Painful process'

Analysts were generally disappointed with Ranbaxy's results, having - on average - expected quarterly profits of some 2.14bn rupees.

Ranbaxy, one of the main suppliers of generic drugs in the US, saw its shares fall 5.56% or 59.65 rupees on the Bombay Stock Exchange following the release of its results.

"Ranbaxy has significantly increased its R&D spend," said B&K Securities analyst Rohit Bhat.

"It is a cost it has to incur to build up the company, but it will be a painful process for investors."

Seeking approvals

One reason why Ranbaxy is having to commit more time and money to R&D is the recent change in Indian patent law that now makes it harder for such firms to produce generic versions of popular drugs.

Up until now, Ranbaxy could get around western patents if it was able to manufacture the drugs differently. But now, as in the West, it is the finished drug rather than the manufacturing process which is patent-protected in India.

Looking towards the whole of 2005, Ranbaxy chief executive Brian Tempest forecast percentage sales growth in the mid-teens, before increasing further into 2006 and 2007.

Mr Tempest warned however that the cost of launching a copy of Pfizer's popular anti-cholesterol drug Lipitor would weigh on Ranbaxy's 2005 profits.

Ranbaxy has also submitted three Aids treatment products to the US Food and Drugs Administration (FDA) for approval.

The company's total sales for 2004 were 53.33bn rupees.