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.
The major implications from this action of the US FDA is that other regulatory authorities like UK?s MHRA, Australian TGA, South African MCC will also review the approvals granted to the Indian pharma companies and may subject Indian facilities to more frequent and surprise inspections. Moreover, the US FDA, which has granted approval to over 100 manufacturing facilities in India ,may set up a dedicated inspection team for India.
There was a hue and cry in the US on import of sub-standard and contaminated products like toys, leather articles and other consumer products from China leading to an imposition of ban on these products. This was led by the consumer movement in the US. It has to be seen how the US consumers react to these developments as RLL is already facing sub-standard quality issues for its generic products in the US.
In this entire RLL-US FDA issue, the Indian FDA has not made any comments or expressed their view point. There is every possibility that some of the drugs manufactured at Dewas or Paonta Sahib have been sold in the domestic market. The Indian FDA will have to ascertain that the drugs supplied by RLL in the domestic market are safe for Indian consumers.
The US FDA action on RLL has affected the credibility of other Indian pharma companies exporting their products to the US market. If the manufacturing facilities of the largest Indian generic manufacturer RLL are not up to the mark, the other smaller pharma companies will also be viewed with suspicion and their exports may also get affected.
It is now a challenge for RLL management to put these two facilities in order and rectify all the issues raised by the US FDA on a war footing . This will not only save its credibility but also the credibility of the entire Indian pharma industry.
The author is head of research, pharma & mid-caps, Prabhudas Lilladher (P) Ltd. These are his personal views
