A third Ranbaxy Laboratories Ltdplant in India has been hit by a US import ban over quality concerns, dealing a blow to the company's turnaround plans and threatening to hurt new launches and sales of medicines to its largest market.
With the latest FDA action, all three Ranbaxy plants in India that are dedicated to the US market, which accounts for more than 40 per cent of its sales, have now been barred from shipping to the United States, a company source told Reuters.
The ruling triggered the worst single-day fall in Ranbaxy's stock, wiping off a third of its market value or $1 billion on Monday, and brokerage downgrades on worries of prolonged delays to high-yielding product launches in the United States.
The US Food and Drug Administration imposed an import alert on the Mohali factory in northern India on Friday, saying the plant owned by India's biggest drugmaker by sales had not met "good manufacturing practices".
The FDA said it has evaluated the drug products that are manufactured at the Mohali facility and determined that it is unlikely the action will cause drug shortages in the US
"None of the products manufactured at the Ranbaxy Mohali facility are in short supply," Erica Jefferson, a spokeswoman for the agency, said.
Two of Ranbaxy's other plants, at Dewas and Paonta Sahib, were hit with the same import alerts in 2008, and are still barred from making shipments to the United States. The company has a total of eight plant locations across India.
The FDA said it inspected Ranbaxy's Mohali facility in September and December 2012 and identified "significant" quality control violations, including a failure to adequately investigate manufacturing problems and failure to establish adequate procedures to ensure manufacturing quality.
Under the decree, Ranbaxy is prohibited from making FDA-regulated drugs at the Mohali facility and introducing them into the United States until its methods, facilities and controls are in compliance with good manufacturing standards.
The company is required to hire a third-party expert to inspect the facility and certify to the FDA that the company is once again in compliance.
Ranbaxy will now have to rely on its wholly owned unit in the United States, Ohm Laboratories Inc, to supply medicine to the world's largest economy, said the source, who declined to be named due to the sensitivity of the issue.
Ranbaxy, in which Japan's Daiichi Sankyo Co owns a 63.5 per cent stake, said it had not received any communication from the FDA on the import ban on the Mohali factory.
"We are seeking information from the USFDA in this regard," the company said in a statement issued to the stock exchanges.
Daiichi Sankyo and the FDA office in New Delhi could not be reached for comment.
A spokesman at the FDA's Washington headquarters said the agency has been in touch with the company.
India is the biggest overseas source of drugs for the United States and is home to more than 150 FDA-approved plants, including facilities run by global players. Pharmaceutical exports from India to the United States rose nearly 32 per cent last year to $4.23 billion.
The ban on its Mohali factory comes after the company pleaded guilty in May to US felony charges related to drug safety and agreed to a record $500 million in fines. After falling more than 40 per cent in the months afterwards, the share price had started to inch back up.
But its shares plummeted again on Monday, sinking as much as 32.6 per cent. The stock ended down 30.3 per cent at Rs. 318.50 in the main Mumbai market that fell 0.2 per cent. It has lost more than half its value from its highest level in 2008.
"It is a big risk for them in the long term. Ranbaxy was moving up on hopes of launches from this facility but those expectations are dashed now," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
Brokerages including HSBC, Edelweiss and India's Anand Rathi Research downgraded Ranbaxy, saying regulatory issues would continue to hurt the company's turnaround plans.
HSBC said Ranbaxy had started shipping generic Lipitor, the widely used cholesterol-lowering medicine, from its Mohali plant in April last year but six months later it recalled some of the batches due to the potential presence of glass particles.
After that Ranbaxy had to stop exporting Lipitor from its Mohali plant, the brokerage said.
"Given there are no sales from Mohali, the import alert has no financial impact ... However, hopes for approvals for new products from Mohali have been dashed. We understand Ranbaxy had been working with the USFDA on approval of Diovan from Mohali."
The company has been awaiting the US drug regulator's final nod for its generic versions of Novartis AG's hypertension drug Diovan.
The FDA action may delay the launch of other new products by Ranbaxy including a generic version of Roche's anti-viral Valcyte and AstraZeneca Plc's blockbuster heartburn and ulcer pill Nexium in the United States, analysts said.
Warning letter for Strides Arcolab
India's drugmakers have come under closer scrutiny this year as the FDA, the guardian of the world's most important pharmaceuticals market, has increased its presence in the country, reflecting India's growing importance as a supplier to the United States.
India produces nearly 40 per cent of generic drugs and over-the-counter products and 10 per cent of finished dosages used in the United States. In March, India allowed the FDA to add seven inspectors, which will bring its staff in India to 19, a move that should ultimately bolster the quality of, and confidence in, Indian-made drugs
The FDA's stepped-up presence should also accelerate what some in the domestic industry hope is a more rigorous attitude towards compliance in a country whose cheap generics have made it the low-cost pharmacy to the world.
Another Indian drugmaker, Strides Arcolab Ltd, said on Monday a plant of its unit Agila Specialties Private Limited had also received a warning letter from the FDA after an inspection in June.
Mylan Inc in February agreed to buy Agila for $1.6 billion to expand its presence in the fast-growing injectable drugs market, and it was not immediately clear if the FDA action would have any bearing on the deal.
Strides said it was working with the FDA to resolve concerns cited in the warning letter in the "shortest possible time". Company officials were not available to comment on the impact on the Mylan deal.