The generics market in the US is currently the setting for a corporate shootout, with cut-throat competition among market players. The two Indian generics powerhouses have also been affected, but Ranbaxy has been able to protect itself far better than Dr Reddy's.

In the first quarter of FY05, Ranbaxy's net profit declined by merely 6 per cent while that of its rival declined by 75 per cent (both on standalone basis).

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Also while Ranbaxy's operating profit declined by 11 per cent to Rs 224.87 crore (Rs 2.25 billion) in the last quarter, Dr Reddy's operating profit declined by 71 per cent to Rs 41.10 crore (Rs 411 million). Ranbaxy's net sales in the last quarter grew by 9.3 per cent to Rs 904.48 crore (Rs 9.04 billion) while Dr Reddy's net sales declined by 7.5 per cent to Rs 401.25 crore (Rs 4.01 billion).

What are the reasons for Dr Reddy's underperformance? The company faced strong pricing pressure in two of its best-selling drugs in the American markets.

More significantly, the company has had no big product launch for quite some time, a problem that has led to net profits declining by 28 per cent in FY04.

Also, the company's dependence on patent challenges, which account for approximately 74 per cent of its pending US applications, is being viewed as more risky compared to its peers, as one adverse decision has the potential to change the fortunes of the company.

In short, DRL has a very aggressive strategy, and this has translated into higher risks and more volatile earnings. The company has been trying to lower risks by outlicensing molecules and having a large pipeline of Para 4 filings.

Ranbaxy, on the other hand, follows a more balanced strategy, with its patent challenges as a proportion of its pending applications lower vis-à-vis that of its rival. It has sought to combat the pricing pressure in the American generics markets by a two-fold strategy -- it is trying to move up the value chain through branded product introductions.

As a result, Ranbaxy's branded product portfolio in the key American market easily outweighs its rival with a repertoire that includes dispersible amoxillin, dispersible cefclor, isotretinoin and liquid metformin.

The results from that strategy are visible in the last quarter -- DRL's operating profit margins fell 2260 basis points to 10.24 per cent vis a vis Ranbaxy whose operating profit margins declined by 597 basis points.

Also Ranbaxy has also considerably widened the geographical spread of its exports -- its sales in the European market grew by 77 per cent in the last quarter.

Export growth in EU was assisted by its acquisition of France-based RPG Aventis whose 18 compounds are among the top 20 in terms of generic sales in that country. DRL too has been attempting to widen its geographical base for its exports especially those of its formulation business.

Ranbaxy has launched several new products recently such as ofloxacin and ciprofloxacin (both antibiotics) and its product pipeline for overseas markets is expected to improve. It had filed for 4 ANDA applications in the last quarter.