Ranbaxy suffers fresh US regulatory setback

All India facilities supplying to the US stand barred after FDA action on Toansa unit; stock crashes; 'disappointed' company promises appropriate action

D rug maker Ranbaxy has suffered another jolt as the US regulator has barred the import of active pharmaceutical ingredients (APIs) manufactured at the company’s facility in Toansa, Punjab. Inspecting authorities had found “significant” violations of good manufacturing practices at the facility. This is the company’s fourth Indian factory to face a ban by the US Food and Drug Administration (US FDA), posing a threat to its revenue growth in the world’s largest pharmaceutical market.

Ranbaxy’s gross margins are likely to take a hit of 3-4 per cent as it will have to outsource all pharma ingredients at a premium. The company’s US revenue contribution is likely to slump to 30 per cent from around 44 per cent in 2012. The US has so far been the largest contributor to Ranbaxy’s consolidated revenues. However, in the past few years, Ranbaxy has faced an increasing number of enforcements from the US regulator. Currently, Ranbaxy is supplying medicines in the US market only from its New Jersey-based Ohm Laboratories, last expanded in 2007.

The regulator has now extended the ongoing consent decree with Ranbaxy’s three formulation facilities in India to include the Toansa unit. “The Toansa facility is now subject to certain terms of a consent decree of permanent injunction entered against Ranbaxy in January 2012,” the US FDA said in a statement, notifying that the API facility is “prohibited from manufacturing and distributing” for FDA-regulated drug products. The move is seen as a major setback for Ranbaxy which is already distressed with all its India-based formulation manufacturing facilities — at Paonta Sahib (Himachal Pradesh), Dewas (Madhya Pradesh) and Mohali (Punjab) — banned from supplying any products to the US.    

The Ranbaxy scrip took a beating on the Street on Friday following the news of the import alert and consent decree. On the BSE, shares of the company fell 19.54 per cent to close at Rs 335.65 apiece.

The Toansa unit is crucial to the company as it caters to nearly 70 per cent of the company’s API requirement. APIs are the primary raw material used in manufacturing a medicine formulation. They account for a major chunk of the production cost incurred by any pharmaceutical company. Hence, the US import alert on Ranbaxy’s main API unit would mean a major hit on its cost of manufacturing. The regulator has prohibited the company from using Toansa-manufactured APIs in its own products as well as from supplying them to any other company for products to be sold in the US.

FRESH WOES

Key observations made by US FDA after inspecting Ranbaxy’s Toansa API factory during Jan 5 -11 , 2014

• Analytical results found to be failing specifications
• Acceptable results obtained through retesting; failing or otherwise suspected results are not reported
• Practice of over-writing electronic raw data files
• Samples of API found under a stack of blank paper at the bottom of a drawer labelled “Blank Paper”
• Lack of controls to prevent unauthorised access (FDA authorities found that raw data files could be deleted and all evidence of testing removed)
• Analysts found signing and back-dating of working documents
• No written procedures established to describe practices
• Significant build-up of melting ice found in a refrigerator where working standard sample containers were found to be stored
• Lack of documentation
• Samples not analysed according to established laboratory test method procedures
• Appropriate controls not established over computerised systems
• Partially completed ‘employee certification’ forms, used to comply with the consent decree with the USFDA, were found
• Found numerous sticky notes with violations
• Laboratory samples not adequately controlled to prevent mix-ups
• Adequate laboratory facilities not maintained
• Incomplete maintenance of records for equipment
• Analytical instruments not calibrated, qualified, or maintained appropriately

Apart from captive consumption, Ranbaxy earns revenue from its API business. According to its annual report, the company’s API business clocked sales of $137 million during 2012.

 

Apologising to stakeholders, Ranbaxy CEO and Managing Director Arun Sawhney said, “This development is clearly unacceptable and appropriate management action will be taken upon completion of an internal investigation.” The company said it was “disappointed with the recent FDA action”.

Besides the impact on sales, the company will have to incur a cost on account of the consent decree. Under the decree, Ranbaxy is required to hire a third-party expert to thoroughly inspect the Toansa facility. “The remediation cost is a huge burden on the company’s accounts,” said a sector analyst. According to him, such decrees typically take two-three years or even longer if the violations are serious. Ranbaxy’s Paonta Sahib and Dewas facilities have been under a consent decree since 2012 and continue to be barred from supplying to the US. The decree was extended to the Mohali facility last year.

The Toansa API facility was inspected by FDA officials earlier this month and a subsequent Form 483 was issued to the company, highlighting violations. The FDA in its statement noted staff at the Toansa facility were found to have re-tested raw materials and other ingredients after the items failed analytical testing “in order to produce acceptable findings” and did not report or investigate the failures.

Ranbaxy’s Toansa factory, founded in 1986, is one of the oldest API facilities in the country.

The ban is the latest in a series of measures taken by the FDA against Ranbaxy. Last year, the company had paid a penalty of $500 million to US authorities as it pleaded guilty of fraudulent activities.