'Ranbaxy drug pull-out in US shows progress in relations with US FDA'

Ranbaxy Laboratories Ltd’s decision to pull off 27 drugs from the US, the world’s largest pharmaceutical market, signals the company’s improving relations with the US drug regulator, according to analysts. That perhaps is the reason why the investor community is not too perturbed by the development.

The decision will have a limited financial impact on the company, one analyst said. Also, the fact that Ranbaxy itself requested for the withdrawal of approval of these drugs as part of the consent decree it signed with the regulator helped the company emphasise again that it was serious about resolving issues with the US Food and Drugs Administration (FDA) and that it had plans to launch new products there in future.

“The company has determined certain products with negligible commercial impact should be withdrawn to enable the organisation to focus resources on other applications that are of greater importance and value to the US business and health care system,” Ranbaxy said on Wednesday.

According to Praful Bohra, a senior analyst at brokerage firm Nirmal Bang, withdrawal of these products has more to do with the consent decree. “The fact that under the decree, the company has decided to pull off drugs, which are no longer commercially viable, shows that progress is happening,” he said.

The sentiment is also reflected in shares of the company, which touched a 52-week high today at Rs 554.10 on BSE before closing at 547.10, 2.36 per cent higher than its previous close. The benchmark Sensex ended trade flat at 17,850.22 points today.

In 2008, FDA had banned 30 drugs produced by Ranbaxy from its three key India facilities — Dewas (Madhya Pradesh), Paonta Sahib (Himachal Pradesh) and Bata Mandi (Himachal Pradesh) — alleging serious violations of its manufacturing norms and data-reporting practices. The regulator had also put on hold new product approvals from these facilities.

After a protracted struggle, Ranbaxy signed a consent decree with FDA and US Department of Justice (DoJ) in January this year, agreeing to improve practices and take corrective steps. The company also set aside $500 million (Rs 2,760 crore) to settle any potential liability from investigation by the DoJ.

Currently, the company was not allowed to sell these 27 drugs, which are part of the 30 banned in 2008, in the US. Hence, the financial impact of the withdrawal on Ranbaxy’s current revenue is seen as negligible.

Also, the market for these 27 products has now been exhausted as various other players have entered since 2008, while Ranbaxy was absent, points another sector analyst.

“Since this withdrawal is part of the implementation of the consent decree and the products were commercially unviable, the financial impact is negligible,” says Nitin Agarwal of IDFC Securities.

Besides, the optimism is also triggered by expectations of Ranbaxy launching generic versions of at least two other blockbuster drugs – Diovan and Valcyte – this year, apart from generic Actos which it launched recently.

However, there are also some voices of caution as it might be too early to give a clean chit to the company.

“Resolution is a step-by-step process. So, it is still difficult to say by when the company will completely resolve issues with FDA. Though it looks like a step in the direction, there is a lot more that the company needs to do. First, it should get the Dewas and Paonta Sahib plants approved,” Agarwal said.

Earlier this year, Ranbaxy had also forfeited marketing exclusivity for three of its drugs without disclosing their identity.