R038;D weighs down Ranbaxy

Top drug manufacturer Ranbaxy Laboratories lost steam in the last quarter of 2004 over margin pressure in key markets and rising research an...

Top drug manufacturer Ranbaxy Laboratories lost steam in the last quarter of 2004 over margin pressure in key markets and rising research and development R038;D costs, but is still gearing up for an expected gold rush in new product development and international generics market.

The company posted a net profit of Rs 743 crore for the year ended December 31, 2004, 2.1 per cent below last year8217;s profits. Fourth quarter net profits dipped 10.9 per cent, compared to the same period last year, at Rs 156.5 crore. However, the Rs 1,400 crore-plus turnover company has also posted a quarterly sales rise 8212; by 24 per cent year-on-year in the fourth quarter as well as a yearly global sales growth of 21 per cent to 1.17 billion. Ranbaxy8217;s consolidated sales grew 18 per cent over the last fiscal, to touch Rs 5,333.3 crore.

Managing Director and CEO Brian W Tempest said on Tuesday that Ranbaxy doubled its expenditure on research and development R038;D to 26 million in December 2004 alone, which was reflecting as lower profits, but the impact would be short-lived.

The company was last in the news for filing three anti-AIDS drugs before the USFDA, after which it had been slotted by analysts for positive growth, especially after the product patent regime came in on Jan. 1.

But analysts said on Tuesday that the results are not too encouraging. 8216;8216;The company is facing margin pressures in the key US market. Its R038;D expenditure has also gone up to 7-8 per cent of sales. The negative trend is expected to continue in the next two quarters. The only positive news though is that some of its products are gaining market shares,8217;8217; said a Mumbai-based pharma analyst.

However, Tempest said he was unworried by the R038;D costs. 8216;8216;Our continued focus on product development will see us through a plateau, which will hit the domestic generics drug market in late 2006,8217;8217; he said.

The company is banking on growth in exports, which already account for a majority of its sales. 8216;8216;Exports and an even stronger focus on R038;D will push drive sales after 2005,8217;8217; said Tempest. He added that 2005 will account for most of Ranbaxy8217;s growth till 2007, by when it targets sales worth 2 bn. Global sales at Ranbaxy crossed 1 billion early in 2004.

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Ranbaxy8217;s three anti-AIDS drugs are pending approval under an expedited emergency AIDS relief plan of the US government. Late last year, the biggest Indian pharma company faced failure of R038;D molecules in advanced stages of development, as did rival Dr Reddy8217;s Laboratories.

Over 2005, Tempest said the company would tackle research-driven areas in the generics and patented space that 8216;8216;no one else is looking at.8217;8217; He said the strategy would hold the company in good stead even as mid-caps and international rivals cut costs to stay competitive.

The company will spend 100 million on capital expenditure for manufacturing in 2005, and has forecast sales growth in the mid-teens. 8216;8216;Ranbaxy8217;s third research centre will be operational in Noida from Q2, 2005 and our state-of-the-art manufacturing facility in Brazil will also be operational soon,8217;8217; said Tempest, adding that the firm will target Europe, Brazil, China and Russia for expansion abroad.

Ranbaxy8217;s shares fell more than 5 per cent to Rs 1,012.5 at the Bombay Stock Exchange on Tuesday after the results announcement.