Ranbaxy to be hit hard by FDAs Toansa plant ban

Written by fe Bureau | New Delhi | Updated: Jan 25 2014, 09:50am hrs
With the US Food and Drug Administration (FDA) having barred Ranbaxy from using drug ingredients made at its Toansa plant to produce any medicine that would be sold in the American market, the stock took a tumble on Friday, losing as much as 20% on the BSE to close at R335.65.

Toansa, which supplies around 75% of the active pharmaceutical ingredients (APIs) used by Ranbaxy to produce finished drugs, has also been placed under an ongoing consent decree with the US Justice Department to ensure compliance with manufacturing standards and address data integrity issues. The FDA has also banned Ranbaxy from selling APIs from Toansa to other companies for making products for the US market.

This is the fourth Ranbaxy unit, after Paonta Sahib, Dewas and Mohali, to be prohibited from selling products in the US because of quality control issues. The FDAs inspection of the Toansa facility, which concluded on January 11, found that the plant workers retested drug products to produce acceptable findings after the items originally failed analytical testing.

Analysts said the ban on the API unit could impact revenue opportunities from the launch of big first-to-files in the US including anti-hypertensive drug Diovan, anti-viral Valcyte and anti-acid reflux Nexium. These three drugs together are estimated to earn around $800 million during their six-month exclusivity period.

This hurts not only prospects for new approvals expected in 2014 (eg, Nexium FTF, Diovan FTF) but also prospects for the ongoing US sale of existing drugs (Lipitor, Aricept, etc), Shinichiro Muraoka and Yukihiro Koike, analysts at Morgan Stanley Research, said. While Ranbaxy holds around a 2% market share of Lipitor in the US, it has FDA approval to sell Aricept only in December 2013.

However, the companys largest product in the US, Absorica (which holds a 17% market share), would not be affected by the ban as it is manufactured by the US-based Cipher Pharma. Some analysts are hopeful the company may be able to source APIs to feed its US facility.

But other analysts believe the sales would take a fairly big hit. Sources said that Ranbaxy is in the process of finalising a tie-up with a multinational firm to procure raw materials, though that would lower the firms potential earnings; it had earlier tied up with an MNC firm to source APIs for the generic version of Pfizers Lipitor and had shared 45% of the profits.

"We expect US quarterly sales of $125 million (base) to be hit by 35-40% for the next 3-4 quarters until the firm gets site transfers for key products." said Arvind Bothra, who tracks the pharma space at Religare Capital Markets. He added that there could be inordinate delays for Ranbaxy to get approvals for exclusivities like Diovan.

This development is clearly unacceptable and an appropriate management action will be taken upon completion of the internal investigation, Arun Sawhney, Ranbaxys chief executive officer and managing director, said in a statement. The company added that it had voluntarily and proactively suspended shipments of API from the Toansa facility to the US market when it received the inspection findings.

On January 9, the FDA had sent a Form 483 (observation letter) to Ranbaxy stating that its Toansa plant did not confirm with established equipment maintenance programs and procedures that would ensure raw materials manufactured at the plant is of standard quality and purity.

Drug controller general of India GN Singh said that the regulatory body is in talks with Ranbaxy to clarify the findings and may undertake an investigation into the company's manufacturing unit. However, Singh added that "every country has different measures and we cannot judge Ranbaxy by the standards set up by the American drug regulator.

We are taking swift action to prevent substandard quality products from reaching US consumers, Carol Bennett, acting director of the Office of Compliance in the FDAs Center for Drug Evaluation and Research, said in a statement.

The FDA is committed to ensuring that the drugs American consumers receive no matter where they are produced meet quality standards and are safe and effective.

The FDA said it is investigating potential drug shortages that may result from the ban.

"If the FDA determines that a medically necessary drug is in shortage or at risk of shortage, the FDA may modify this order to preserve patient access to drugs manufactured under controls that are sufficient to assure quality, safety and effectiveness," the US drug regulator added.

Ranbaxy must hire a third party to inspect the Toansa facility and certify to the FDA that its methods meet manufacturing standards before the ban is lifted.