Ranbaxy Labs has grown to become the largest and most prestigious pharmaceutical company of India with commendable international presence today. The company has operations in several developed and developing countries with almost 70 per cent of its sales in overseas markets. In terms of its turnover and profitability, the company has been performing well making the promoters and other shareholders also quite happy. The size of the company, however, is still not comparable to world pharma giants like Pfizer, GSK, Merck and a dozen others with several billions dollars in sales and profits. To grow and reach that kind of size, the pharma companies have to invest heavily into research for finding new molecules and also continuously build brands. By copying patented drugs under the cover of Indian Patent Act for the domestic market and exporting generics may only help for some time. Ranbaxy and Dr. Reddy's have realized this after establishing themselves as major suppliers of generics to the US market. Both the companies are heavily into new molecular research for the last five years or more with no worthwhile results so far. Ranbaxy is the largest spender in new drug research in India today and it cannot withdraw from this path that easily. In the current year, Ranbaxy's R&D expenditure went up sharply by Rs 137 crore during the first nine months to Rs 346 crore as against Rs 209 crore reported in the same period of the previous year. The company's R&D expenditure thus shows a 65.5 per cent rise during the current year so far. What is happening on account of this steady rise in research spending is a corresponding fall in the net profits of the company as its exports have become less profitable. Growing competition in generics in the US pharmaceutical market is posing a major threat to the company's profitability now and also in the immediate future. The company's net profit for the nine months period ended September 2005 declined quite sharply by 71.9 per cent to Rs 133.43 crore from Rs 474.80 crore achieved in the same period of the previous year. Its sales improved only by 0.2 per cent to Rs 2606 crore in the nine months period of current year from Rs 2600 crore registered in the previous year. To top it all, the exports also came down to Rs 1729 crore during Jan-Sept period from Rs 1757 crore reported in the same period of previous year. This critical fall in export growth from the second quarter of the current year along with rising legal expenses in patent litigation is hitting the company hard. It is, undoubtedly, a bad phase for a company which had an excellent track record for several years. Now the competition in the generics is going to be stiff in the US market and at the same time regulators are laying stringent approval norms for drugs. In short, the financial performance of the company is bound to be quite bad in the years to come with R&D expenditure steadily climbing up with no major breakthrough molecules in pipeline. There is only one tough option left for the company in these difficult times. Push up sales both overseas and domestic to sustain its burgeoning R&D expenditure.