FDA Slaps Import Ban On Ranbaxy's Indian Facility: Move Affects Generic Major's Revival Plans; Strides Arcolab Too Receives Warning

The U.S. Food and Drug Administration's, or FDA, banned the import of products made at generic drugmaker Ranbaxy’s (BOM: 500359) plant in the northern Indian city of Mohali, potentially hurting the generic major’s turnaround plans after a series of manufacturing lapses over the past few years.

This fear was reflected in the market when the company’s stock lost about a third of its value on Monday after the FDA imposed the ban Friday on its Mohali unit -- the company’s newest manufacturing facility in the country -- stating that the plant had not met "good manufacturing practices."

The FDA said that the alert is based on its inspection of the Mohali facility in September and December of 2012, when it identified a violation of ideal manufacturing practices at the facility “including failure to adequately investigate manufacturing problems and failure to establish adequate procedures to ensure manufacturing quality.”

The agency added that Ranbaxy will be permitted to resume manufacturing and distribution of FDA-regulated drugs at the Mohali facility after it is certified by a third-party expert that the facilities, methods, processes, and controls at the plant comply with FDA regulations.

“The FDA is committed to using the full extent of its enforcement authority to ensure that drugs made for the U.S. market meet federally mandated quality standards,” Howard Sklamberg, director of the Office of Compliance in the FDA’s Center for Drug Evaluation and Research, said in a statement. “We want American consumers to be confident that the drugs they are taking are of the highest quality, and the FDA will continue to work to prevent potentially unsafe products from entering the country.”

The company has been battling several allegations of lapses at its manufacturing facilities in the past and had agreed to pay a fine of $500 million in May after it pleaded guilty to felony charges related to drug safety in the U.S.

The current alert marks the third time, since 2008, that the FDA has banned imports of Ranbaxy’s products. The FDA had imposed import alerts at Ranbaxy facilities, including at its Indian plants in Paonta Sahib and Dewas in 2008, and both facilities are still on the FDA import alert.

The alert on the Mohali plant -- the latest addition to Ranbaxy's production facilities in the country -- is perceived as a crucial setback for the company, as it was expected to lead the Gurgaon-based company’s comeback plans. The plant currently does not manufacture any products that are exported to the U.S., but, Ranbaxy had filed for FDA approval to export several high-yielding products from the Mohali plant.

"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," Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, told Reuters.

The ban would mean the company will have to depend heavily on its New Jersey-based Ohm Laboratories facility to manufacture drugs to sell in the U.S., which is the company's largest market. According to the FDA, the ban on the facility is unlikely to cause a shortage of drugs in the U.S.

"None of the products manufactured at the Ranbaxy Mohali facility are in short supply," Erica Jefferson, a spokeswoman for the agency, said, according to Reuters.

However, analysts feel that it could delay the launch of several drugs such as the generic version of Novartis AG's (NYSE: NVS) hypertension drug Diovanse.

"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," Reuters reported, quoting HSBC.

Ranbaxy, a subsidiary of Japan’s Daiichi Sankyo, in a statement issued Tuesday, said that it has received FDA notification on the import alert.

The company said that it has made further improvements at its Mohali facility since the FDA’s last inspection in 2012, and “remains committed to addressing all concerns of the US FDA.” It added that will review the details and is “hopeful of an early resolution of these concerns.”

Ranbaxy is not the only Indian drug major found by the FDA to have violated its quality requirements. On Monday, Bangalore-based Strides Arcolab (BOM:532531) received a warning letter from the FDA about quality lapses at its facility. Earlier in the year, Mumbai-based Wockhardt had also received a warning from the FDA about lax manufacturing standards at its local facilities.

Shares of Ranbaxy Laboratories Ltd, which had dropped 30.27 percent to 318.85 rupees on Monday, following the FDA’s import alert, marginally recovered on Tuesday and were trading up about 3 percent at 328.20, in afternoon trade on the BSE Sensex. Shares of Strides Arcolab were trading down 2.66 percent at 846 rupees.