MUMBAI (Reuters) - Sun Pharmaceutical Industries Ltd (SUN.NS) plans to begin phasing out sales of generic drugs branded as Ranbaxy Laboratories Ltd (RANB.NS) products in the United States, after completing a $3.2 billion takeover of its loss-making rival by the year end, sources with direct knowledge of the matter said.
Ranbaxy drugs sold in the United States will be gradually rebranded as Sun Pharma treatments as part of a strategy to turn around the company being bought from Japan's Daiichi Sankyo Ltd (4568.T). The brand is likely to continue to be present in other markets, the sources said.
The sources declined to be named as they were not authorised to speak to the media on the subject.
Uday Baldota, Sun Pharma's senior vice president of finance and accounts, didn't comment directly when asked whether Sun Pharma will phase out Ranbaxy-branded products in the United States. "Overall Ranbaxy brand has a value," he said. "We will find ways of using it and preserving it."
The plan to phase out the brand from the United States will be part of a slew of changes at Ranbaxy, including an intense lobbying push with the U.S. Food and Drug Administration (FDA) to lift bans on imports from Ranbaxy's India plants over production quality concerns, the sources said.
Sun Pharma, which has been the subject of comparatively fewer regulatory actions in the past, on Monday agreed to buy Ranbaxy in an all-share deal, betting it can fix the factory quality glitches that plagued Daiichi Sankyo and got Ranbaxy's India-made drugs barred from the United States. The Securities and Exchange Board of India (SEBI) is now taking a look at the deal, after shares in Ranbaxy surged before it was announced, a senior source at the regulator said on Wednesday.
Sun Pharma concedes the road to the recovery at Ranbaxy is set to be long and challenging. The all-share acquisition will create India's biggest and the world's fifth-biggest generic drugmaker with combined sales estimated at $4.2 billion.
"(The Ranbaxy challenge) is quite big. In absolute size it is the largest challenge that we've had," Baldota said. "It will take time, it is not going to come easily, it will take a lot of effort, but hopefully we should be able to help them resolve the problem."
Some U.S. doctors are becoming concerned about the quality of generic drugs supplied by manufacturers following a flurry of recalls and FDA import bans on companies such as Ranbaxy and Wockhardt Ltd (WCKH.NS).
The broader issue of the quality of drugmaking has become a major concern in the $14 billion pharmaceutical sector in India, second only to Canada as a drug exporter to the U.S., where it supplies about 40 percent of generic and over-the-counter drugs.
In a statement issued to Reuters on Wednesday, the European Medicines Agency, the regional drug regulator, said an inspection of Ranbaxy's Dewas plant, one of the two plants from which the company voluntarily suspended shipments in February, was planned for June.
With an eye on competing with bigger global rivals such as Teva Pharmaceutical Industries Ltd (TEVA.TA) and Sandoz, the generic division of Novartis AG NOVN.VX, Sun Pharma has said making Ranbaxy's India plants FDA quality-compliant again is its top priority.
"There are definitely going to be challenges because Ranbaxy has gone through a lot of pain from the FDA side," said Mahesh Patil, a fund manager at Birla Sun Life Asset Management. "The FDA issues and getting clearances will take its own time, but on the operational side, the integration I think they should be able to do in a year's time to a large extent."
Sun Pharma, the top Indian drugmaker by market value, could invite the FDA and regulators from other major markets to visit the four India factories of Ranbaxy after improving production processes at these sites as a "confidence-building measure", one of the sources said.
Getting the FDA bans lifted from the India plants of Ranbaxy would help Sun Pharma benefit from Ranbaxy's new product pipeline, including a generic version of AstraZeneca's (AZN.L) big-selling heartburn drug Nexium, which had global sales last year of $3.87 billion and U.S. sales of $2.12 billion.
The changes to revive Ranbaxy, once the embodiment of the rapid growth in the Indian generic drugs industry, are also likely to include some management restructuring to boost oversight of plants in India, the sources said.
"Sun (Pharma) will now have to do a series of things, starting with building faith and trust with the FDA and making some changes in the management to improve oversight," one of the sources said. "It will be a series of measures to demonstrate credibly that they are on the job."
Reporting by Sumeet Chatterjee and Zeba Siddiqui; Editing by Kenneth Maxwell