Ipca halts U.S. shipments from Ratlam plant after FDA finds violations

By Zeba Siddiqui

MUMBAI (Reuters) - Ipca Laboratories Ltd has voluntarily halted shipments to the United States from one of its drug ingredient manufacturing plants after the U.S. Food and Drug Administration found violations of standard production practices at the site.

The FDA issued the company a so-called "Form 483", in which the agency outlined half a dozen violations including data integrity issues at the company's Ratlam plant in Madhya Pradesh, Ipca said on Thursday. The Form 483 was issued after an FDA inspection earlier this month.

The observations mostly relate to the company's laboratory practices and staff training, and may lead to more severe warnings or even an import ban if not addressed properly, Ajit Kumar Jain, Ipca's joint managing director, said on a call with brokerage analysts.

"Two of those concerns were very critical, and we are working on addressing them," Jain said, without giving details.

Over the past year, large Indian drugmakers such as Ranbaxy Laboratories Ltd and Wockhardt Ltd have been hit by a spate of regulatory sanctions due to concerns about production processes at their local plants.

The sanctions have hurt the reputation of India as a supplier of safe, affordable drugs. India is second only to Canada as a drug exporter to the United States where it supplies about 40 percent of generic and over-the-counter drugs.

The shipment halt from Ipca's Ratlam plant will also hit its U.S. exports from Silvassa and Indore plants, where it makes drugs using ingredients from the Ratlam plant, the company said in a statement.

Silvassa and Indore are Mumbai-headquartered Ipca's only two FDA-approved plants for making finished generic drugs destined for the United States.

The shipment halt will shave off about 1.5 billion rupees ($24.98 million) in sales over the next six months, Jain said. That is roughly 5 percent of its sales in the fiscal year ended in March.

Jain said the company expects to address the FDA concerns in about four to six months.

Some analysts are not convinced.

"The key issue is with data integrity, which is taken very seriously by the FDA, so I would not rule out the possibility of the company taking much longer than six months to resolve the issue," said Religare Capital Markets analyst Arvind Bothra.

Previously, data integrity issues found at Indian drug and ingredient makers have revolved around deleting electronic data, hiding data on failed tests, fabricating records and re-testing failed samples until satisfactory results are obtained.

CORRECTIVE ACTIONS

Shares of Ipca, which has a market capitalisation of about $1.8 billion, ended down 13.25 percent at 726.80 rupees on Thursday. The Nifty ended 0.45 percent higher.

Ipca is working on automating its laboratories to minimise manual intervention, and will respond to FDA's concerns within 15 days, Jain said. It has hired U.S.-based Lachman Consultants to help resolve the issues at an annual cost of $1 million.

The total cost of remediation, however, could be much higher as Ipca may also have to spend on upgrading its other Indian facilities, Nirmal Bang Institutional Equities analyst Praful Bohra said.

Ipca exports to various global markets including the United States, Canada, Europe and Australia. Exports made up about 63 percent of the company's sales in the financial year ended on March 31, according to information on its website.

The U.S. agency's sanctions have cut the pace of India's drug exports. Drug exports grew 2.6 percent in the 2013/14 fiscal year that ended in March. Two years ago, the rate was 23 percent.

($1 = 60.0500 rupees)

(Editing by Sumeet Chatterjee and Ryan Woo)