Ranbaxy hit by FDA product ban at 4th Indian plant

WASHINGTON/MUMBAI Fri Jan 24, 2014 5:06pm IST

A man rides a motorcycle in front of the office of Ranbaxy Laboratories at Gurgaon, on the outskirts of New Delhi, June 13, 2013. REUTERS/Adnan Abidi/Files

A man rides a motorcycle in front of the office of Ranbaxy Laboratories at Gurgaon, on the outskirts of New Delhi, June 13, 2013.

Credit: Reuters/Adnan Abidi/Files

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WASHINGTON/MUMBAI (Reuters) - Drugmaker Ranbaxy Laboratories Ltd(RANB.NS) faces long delays and high costs in launching big-selling generic drugs in the United States after products from a fourth plant were banned from entering its main market due to manufacturing violations.

The U.S. Food and Drug Administration's sanction is the latest in a series of regulatory rebukes for India's largest drugmaker by revenue since Japan's Daiichi Sankyo Co Ltd (4568.T) took control of the company in 2008, and deals a further blow to the $12 billion Indian drug industry.

The FDA said Ranbaxy is prohibited from making and selling pharmaceutical ingredients from its facility in Toansa in Punjab, "to prevent substandard quality products from reaching U.S. consumers."

The FDA ban on Ranbaxy's Toansa plant followed an inspection completed on January 11.

The U.S. regulator had previously barred products from the company's facilities in Paonta Sahib, Dewas and Mohali in India as part of a 2012 consent decree designed to ensure compliance with good manufacturing practices.

Indian drugmakers are among the world's biggest producers of cheap generic medicines. Demand for generics is on the rise as the United States battles rising health-care costs and as more big-selling branded drugs go off-patent in western markets.

But the rise in demand for generic drugs has led to closer regulatory scrutiny and sanctions imposed on top drugmakers including Ranbaxy and Wockhardt Ltd (WCKH.NS), which has been hit by import bans from both the FDA in the United States and Britain's drug regulator.

The latest ban will hit Ranbaxy's U.S. business, its largest export market, bringing in roughly 40 percent of total sales, by cutting the supply of raw ingredients for making drugs at its Ohm Laboratories plant in New Jersey, analysts said.

"I don't think anything is possible in the next one year at least," said Surajit Pal, a sector analyst with brokerage Prabhudas Lilladher, referring to new launches and a possible turnaround in operations.

He said the company could report operating loss from the March quarter as regulatory and other costs rise and new launches get delayed.

Ohm is the only Ranbaxy facility that makes generics for the U.S. market after shipments from its three FDA-approved plants in India were banned by the U.S. regulator over quality concerns. Ohm gets nearly three-quarters of its ingredients from the Toansa plant, according to some brokerage estimates.

Ranbaxy has been planning to launch couple of high-yielding generic drugs in the United States, including a version of Novartis AG's (NOVN.VX) hypertension drug Diovan, with ingredients from Toansa, a source with direct knowledge of the matter said.

Ranbaxy shares fell as much as 19.43 percent on Friday to their lowest level in nearly four months. The stock is headed for it worst fall since September 16 last year when a third company plant was hit by the FDA import ban.

Shares in Daiichi Sankyo, which paid $4.2 billion for control of Ranbaxy in 2008, ended down 6.4 percent.

LAUNCH DELAY

Ranbaxy may have to outsource the ingredients for making generic drugs, resulting in higher costs and delays and hurting its profit margins, analysts said.

The FDA action could also delay the launch of a generic version of AstraZeneca Plc's (AZN.L) blockbuster heartburn and ulcer pill Nexium in the United States, they said.

Ranbaxy said it was disappointed with the FDA's action and that it had voluntarily suspended shipments of products from the Toansa facility to the U.S. market when it received the inspection findings.

"This development is clearly unacceptable and an appropriate management action will be taken upon completion of the internal investigation," Chief Executive Arun Sawhney said in a statement.

The company did not immediately respond to a request for comments on the financial impact of the FDA's decision.

Daiichi Sankyo said in a statement that it was "confirming the situation with Ranbaxy" and would issue a statement when it had more details.

EXTREMELY NEGATIVE

Ranbaxy has been a major supplier of drugs, especially generics, to the United States and this latest enforcement action means most Ranbaxy products are now banned there.

Ranbaxy's other major markets are India, its No.2 sales generator, as well as Europe and Africa. Indian drugmakers' plants that do not ship to the United States are not regulated or inspected by the FDA.

"Almost like the worst-case scenario for Ranbaxy building up in the U.S. and extremely negative for the company in the long term as well," Mumbai brokerage Emkay Global said in a client note.

The FDA's action follows an inspection that identified "significant" violations of sound manufacturing practices.

Staff at the Toansa facility were found to have re-tested raw materials and other ingredients after the items failed analytical testing "in order to produce acceptable findings," and did not report or investigate the failures, the FDA said.

The agency said the Toansa facility was now subject to certain terms of a consent decree entered against Ranbaxy in 2012. Under that agreement, Ranbaxy is prohibited from exporting active pharmaceutical ingredients made at the facility to the United States, including for drugs made at its Ohm facility.

(Additional reporting by Chang-Ran Kim in TOKYO, Abhishek Vishnoi in MUMBAI; Editing by Chris Reese, Matt Driskill and Tony Munroe)

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