Caraco expects a negative impact on operations.

Sun Pharmaceutical Industries will end distribution agreements with Caraco Pharmaceutical Laboratories for two products in about a year, citing margin constraints due to competitive pricing pressures. Starting January 28, 2012, these two drugs, which accounted for 90% of Sun’s total net sales in fiscal 2010, will be sold by Sun and its wholly owned affiliates.

Caraco believes the cessation of its distribution of Sun products following the expiration of the distribution agreements will have a material adverse effect on its operations. Detroit-based Caraco develops, manufactures, markets, and distributes generic pharmaceuticals to the nation’s largest wholesalers, distributors, drugstore chains, and managed-care providers.

The marketing deal, which was originally set to expire this January, was extended by one year last year and is being extended for an additional one-year term. The distribution and sale agreement entered into in January 2008 had a three-year term and renewed for one additional year when neither party opted to cancel.

Caraco and its board of directors attempted to negotiate long-term renewals for each agreement with Sun. However, Sun exercised its right to end the agreements.

During the first six months of fiscal 2011, one of these products accounted for $89.7 million, or 92% of total net sales, and the other made $216.8 million, or 95.2% of total net sales, respectively. For fiscal year 2010, ending March 31, net sales of both products accounted for $211.4 million, or 90% of total net sales for fiscal 2010.

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