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The US FDA has recently issued warning letters and import alerts for 30 generic drugs of Ranbaxy Labs (RLL), manufactured at its Dewas and Paonta Sahib facilities. The major implications from this action to RLL and other India pharma companies can be summarised as follows:

RLL derives around 27% of its revenues from the US market and currently markets over 130 products in that market. The import alert is for 7 API and 30 formulations manufactured at the above mentioned facilities. These products contribute 5-8% of the overall sales of RLL. Since this is an import alert and not a ban of RLL products, the company may continue to export these products from India but the same may face thorough scrutiny in the US. Moreover, RLL has stated that it can manufacture 3 of these formulations in their US facilities. However, the cost will be higher than the products exported from India. The biggest challenge for RLL is to rectify the issues raised by the US FDA in the shortest possible time and satisfy the authorities.

The US FDA has stated that these actions are preventive and RLL drugs are safe to use. The US FDA has also advised the US patients to continue use and has not directed any re-call of the 30 generic products. Hence, there is no major quality issue with RLL products. But the other importing countries may look at RLL products with suspicion. This may have a detrimental effect on RLL exports to other countries.

The US FDA warning and import alert are unlikely to affect the RLL-Daiichi Sankyo (DIS) deal as the details of the US FDA investigations were known to DIS at the time of acquisition. Also, both RLL and DIS have said that the deal is in place. So, the minority shareholders, who have tendered their shares in the open offer, are not likely to get affected.

RLL has hired the former New York Mayor Rudolph Giuliani and his firm Giuliani Partners to advice and review the compliance issues related to the US FDA’s action. Giuliani can use his good contacts in New York and with US

FDA for resolving the issues raised by US FDA.