In India a Little Lab Work and Lots of Lawyers

Ranbaxy, a maker of generic drugs, must win lawsuits to grow

When Ranbaxy Laboratories Ltd. started a renewed push into the U.S. market for generic drugs, it expected that its lawyers might be busy. But execs at the Indian pharmaceutical company never envisioned the fierce response they have gotten from Western rivals seeking to protect their turf. Since 2000, Ranbaxy has been involved in 14 patent-infringement lawsuits in the U.S., double the number in the previous four years. "It's much more complicated than we thought," says Ranbaxy's chief executive, D.S. Brar.

Lawsuits are a normal part of business in the drug industry, where generic makers are increasingly challenging the giants. But to Ranbaxy, winning these suits is vital to its growth. A dominant player in India and one of the most closely followed issues on the Bombay Stock Exchange, the company must expand into the huge markets of the West if it's to keep up its momentum and hit Brar's target of getting half of its sales from America by next year, up from 39% today. Brar's strategy is to profit from the low cost of his skilled workforce in India and build on the company's expertise in making generics for Indian consumers.

That means Ranbaxy's lawyers will likely stay plenty busy, even challenging patents with many years to go. Such challenges can lead to big payoffs. In 2001, for instance, Ranbaxy challenged the patent for Ceftin, a GlaxoSmith- Kline PLC antibiotic for respiratory infections that wasn't due to expire until this year. Ranbaxy won the right to sell the generic, and today it claims a 92% market share in the U.S. for generic Ceftin, with sales in excess of $120 million so far.

That success is inspiring the company to challenge more patents. Many, it contends, are little more than dubious efforts by brand-name companies looking to prevent competition from generics. For instance, Cephalon Inc., a pharmaceutical company in West Chester, Pa., sells Provigil, a drug for narcolepsy. While the patent for the formula has expired, Cephalon also has a "composition of matter" patent until 2014 on the particle size of the drug's active ingredient. Ranbaxy contends it can legally make a generic version using a slightly larger particle. These patents "can be beaten," says Dipak Chattaraj, President of Ranbaxy's U.S. operation, based in Princeton, N.J. Not surprisingly, Cephalon is suing Ranbaxy. "We believe it will be difficult, if not impossible, for anyone to engineer around" the patent, says Frank Baldino Jr., Cephalon's chairman and CEO.

Ranbaxy is no stranger to controversy. Like most Indian drugmakers, it earned the ire of Big Pharma by copying patented Western drugs and selling them at home. But with India toughening its intellectual property rights protection, Ranbaxy is now following U.S. regulations. It may get help from an unexpected quarter: Washington. In mid-June, the Bush Administration announced new rules designed to help makers of generics get drugs to market faster, and Congress is mulling measures to limit big companies' ability to stave off generic competition. "The ground has shifted" in favor of the generics makers, says Steven Lieberman, a partner at the Washington law firm Rothwell, Figg, Ernst & Manbeck who handles drug cases.

The changing regulatory climate and Ranbaxy's more aggressive posture have given its stock price a shot in the arm. Investors have bid Ranbaxy's shares up 30% in the past six months, vs. a 6% rise for the Bombay stock index. Brokerage firm UBS expects Ranbaxy's profits this year to jump 17%, to $147 million, while sales climb 24%, to $1 billion.

Yet Ranbaxy lacks its own blockbuster drug and spends just 6% of its sales on R&D, compared with 19% at Eli Lilly & Co. and 17% at Novartis. And its legal strategy is risky. "You may spend a lot of money on lawyers' fees -- and there might be nothing to show for it at the end of the day," says Prashant Vaishampayan, an analyst with UBS in Bombay. But with so much at stake, don't expect Ranbaxy to call off its lawyers any time soon.

By Bruce Einhorn and Manjeet Kripalani in New Delhi, with John Carey in Washington

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