Under the scanner

It’s a bitter pill for Indian pharmaceutical giant Ranbaxy. It has been hauled over the coals by the United States Food and Drug Administration (FDA). The FDA has now found “serious” manufacturing deficiencies at two of Ranbaxy’s plants in India after an inspection of its facilities. Warning letters have been issued to the company, along with an import alert for the generic drugs manufactured at its Dewas and Paonta Sahib plants. That’s not all. The FDA has also banned the import of more than 30 generic drugs, including antibiotics and cholesterol medicines, from the two factories. Though FDA’s import alert conceded that there is no evidence of Ranbaxy’s medicines being harmful, it added that violations could lead to defective products.

These events have had the expected domino effect—the US President’s Emergency Plan for AIDS Relief (PEPFAR) suspended funding for HIV/AIDS drugs to Ranbaxy till the issues raised by the US FDA are resolved. Moreover, regulators in other developed countries such as Germany and Canada have also reportedly put the firm under the lens.

Ranbaxy, as expected, is on a damage control mission. In an emailed response to BT, a Ranbaxy spokes-person said: “Ranbaxy is confident that all its pharmaceutical products are safe and effective, including the HIV/AIDS drugs it supplies to Africa through various aid programs, including PEPFAR. Ranbaxy is committed to working with FDA to put these matters to rest and continue and expand its important place in providing safe and affordable medications to US and global citizens.”

The company is also trying hard to manage the regulatory environment better. Last fortnight, it hired political risk lobbying firm Giuliani Partners and former New York City Mayor Rudy Giuliani “to provide advice and review compliance issues related to the recent US FDA letters and import advisory”. Ranbaxy’s latest troubles have, naturally, not gone down well with the stock markets. Its share has been savaged on the local bourses, hitting a low of Rs 269.05 on September 26. Over the last one month, the stock has nearly halved in value. The stock market concerns do seem well founded. The financial implications of the developments are not insignificant. A recent report by CLSA Asia Pacific Markets, estimates that the US FDA ban on the 30 products will potentially have more than a 30 per cent impact on 2009 profits.

In the line of fire • US FDA finds manufacturing deficiencies at two Ranbaxy plants in India • Warning letter issued to the company • Import of 30 generic drugs to the US banned • US President’s funding for HIV drugs to Ranbaxy suspended • Regulators in Canada and Germany, too, plan scrutiny

So what is the road ahead for Ranbaxy? There will now be a thorough examination of its plants by FDA. The investigation may also be a long drawn-out process. More so, since the drug regulator has been under increasing pressure from the US Congress domestically to act tough on quality issues and crack down on drug manufacturers from lowcost destinations like India and China. In the recent past, the FDA has routinely been putting big pharma companies under the scanner for manufacturing process violations. These include Schering-Plough, Abbott and GlaxoSmithKline. Analysts say the FDA is making an example of the Indian pharma companies to drive home its point to generic drug producers. For Ranbaxy, the only way out of the imbroglio seems to be to patiently cooperate with the investigations. “These are due processes of law and there can be no short cuts,” says a pharma expert

Meanwhile, despite Ranbaxy’s recent troubles, the open offer to the public by Japanese drug maker Daiichi-Sankyo to pick up an additional 20 per cent equity in the company was oversubscribed—largely because it was made at Rs 737, which is way above the current market price of the stock. Daiichi-Sankyo’s stake in the company may go up to 67 per cent over the next few months.

So, what are the ramifications of US FDA’s run in with Ranbaxy for the Indian pharmaceutical industry? Says D.G. Shah, Secretary General of the Indian Pharmaceutical Alliance: “The inspections by regulatory bodies will become sharper and more intense, but that shouldn’t be a problem as Indian companies generally meet quality standards.” Shah points out that since the Ranbaxy news broke, there have been FDA inspections in India, which have proceeded smoothly. There is no cause, then, to press the panic button just yet.