raco Pharmaceutical Laboratories Changes Distribution Agreements with Sun Pharma (CPD)

Caraco Pharmaceutical Laboratories, Ltd. CPD announced that the two distribution agreements with Sun Pharmaceutical Industries Limited (Sun) have been extended until January 28, 2012 but will each terminate following these extensions. The marketing agreement, which was originally set to expire in January 2010, was extended for a 1 year renewal last year and is being extended for an additional 1 year term. The Distribution and Sale Agreement, entered into in January 2008, had a three year term. This agreement renewed for an additional one year term when neither party opted to cancel. Caraco and the Independent Committee of Caraco's Board of Directors approached Sun and attempted to negotiate long term renewals for each agreement; however, Sun exercised its right to end the agreements, citing margin constraints due to competitive pricing pressures. Accordingly, Sun has informed Caraco of its intention to transfer the sales and distribution of Sun products from Caraco to Sun and/or its wholly-owned affiliates to enhance its ability to compete. In order to minimize disruption for customers, Caraco and Sun will work towards a smooth transition of the sales and distribution of Sun products to Sun and/or its wholly-owned affiliates when the contracts terminate in January, 2012. During the second quarter and first six months of Fiscal 2011, net sales of these products accounted for $89.7 million and 92% of net sales and $216.8 million and 95.2% of net sales, respectively. For the Fiscal Year ended March 31, 2010, net sales of products under these agreements accounted for $211.4 million and 90% of net sales. There is no assurance that net sales will continue at these levels during the remainder of the terms of the agreements. Caraco believes the cessation of its distribution of Sun products following the expiration of the distribution agreements will have a material adverse effect on our operations.