UPDATE 3-S.Africa's Adcock Ingram scraps $264 mln CMSA bid

* Has cash to make acquisitions in S.Africa, eyeing W.Africa

* Scraps deal after threat over supply agreement

* Adcock under pressure to compete with Aspen in Africa

* H1 headline EPS up 18 pct

* Adcock stock 2 pct, CMSA down 3.5 pct;

(Adds analyst comments, details)

By Tiisetso Motsoeneng

JOHANNESBURG, June 2 (Reuters) - South Africa's No.2 drug maker, Adcock Ingram (AIPJ.J), scrapped its plan to buy rival Cipla Medpro SA (CMSA) (CMPJ.J) on Tuesday after CMSA's generic drug supplier threatened to cancel a vital supply agreement.

Adcock Ingram had said in April it planned to offer 2.1 billion rand ($263.8 million) for CMSA to boost its share of the fast-growing generic medicine market and to compete more effectively with larger peer Aspen Pharmacare (APNJ.J). [ID:nL6981515]

Adcock needed a confirmation from CMSA's Indian drug supplier that the marketing tie-up it has with CMSA would continue if the deal was implemented.

However, CMSA's drug supplier, Bombay-based Cipla Limited (CIPL.BO), opposed the deal and threatened to terminate the supply agreement.

CMSA has a 20-year arrangement, signed in 2005, to sell products developed by Cipla India in South Africa. Cipla India holds no shares in CMSA.

"Adcock was looking to buy into a portfolio of drugs and a pipeline of potential drugs. The research and development benefits of that agreement with Cipla India would have been crucial," said Peter Breitenbach, a healthcare analyst at Frost & Sullivan.

Shares in CMSA fell 3.36 percent to 3.45 rand by 1006 GMT while Adcock Ingram gave up 2.18 percent to 42.70 rand, underperforming the wider All Share index, which was down 0.3 percent.

"The fact that there appeared to be some ... I'd call it almost openly hostile responses from the Indian partner with respect to the business in South Africa... has put us in an untenable position," Adcock CEO Jonathan Louw said in a phone interview.

Louw told Reuters the company was under no pressure to make acquisitions but said it had cash for purchases in South Africa and the rest of the continent.