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Sep 16, 2013 at 07:48pm IST

US FDA bans imports from Ranbaxy's Mohali plant

Mumbai: The US Food and Drug Administration has issued an import alert against drugs manufactured at Ranbaxy's Mohali plant in Punjab over quality concerns. This means Ranbaxy will not be able to ship drugs manufactured at the plant to the US until the ban is lifted.

This is the third alert against Ranbaxy. Warnings have been earlier issued against its plants in Paonta and Dewas. Ranbaxy, however, said it has not received any such warning.

The ban can be seen as a blow to the company's turnaround plans and threatening to hurt new launches and sales of medicines to its largest market.

The ruling triggered the worst single day fall in Ranbaxy's stock on Monday, wiping off a third of its market value or $1 billion, and brokerage downgrades on worries of prolonged delays to high-yielding product launches in the United States.

The US FDA said the plant owned by India's biggest drugmaker by sales had not met "good manufacturing practices". The FDA usually issues such alerts banning shipments to the United States after inspectors raise concerns about quality of the medicines produced at facilities.

With the latest FDA action, all three India plants of the company 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 said.

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 sensitivity of the issue.

Ranbaxy, in which Japan's Daiichi Sankyo Co (4568.T) owns 63.5 per cent stake, said it had not received any communication from the FDA on the import ban against 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.

India is the biggest overseas source of drugs to the United States and is home to over 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.

'Big Risk'

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 ban on its Mohali factory comes after the company pleaded guilty in May to the 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 percent. 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 this 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 U.S. drug regulator's final nod for its generic versions of Novartis AG's (NOVN.VX) hypertension drug Diovan.

The FDA action may delay the launch of other new products by Ranbaxy including a generic version of Roche's (ROG.VX) anti-viral Valcyte and AstraZeneca Plc's (AZN.L) blockbuster heartburn and ulcer pill Nexium in the United States, analysts said.

Warning letter for strides

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 to bolster quality and confidence in Indian-made drugs.

India produces nearly 40 per cent of generic drugs and over-the-counter products and 10 per cent of finished dosages in the United States. In March, India allowed the FDA to add seven inspectors, which will bring its staff in India to 19.

Increased on-the-ground oversight reflects India's growing importance as a supplier to the United States, and should ultimately bolster quality 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 (STAR.NS) 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 (MYL.O) 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.

Strides shares fell as much as 6.7 per cent. It recouped some of its losses later to end down 3.9 per cent.

(With additional information from Reuters)