One of Ranbaxy Laboratories’ crown jewels is unlikely to enjoy the same pride of place under the new owner. Sun Pharmaceutical IndustriesBSE -0.56 % may relegate the manufacturing facility at Paonta Sahib in Himachal Pradesh for supplies to markets other than the US, the most coveted for Indian generic drug makers.
The sprawling site has been blocked by the US Food and Drug Administration since 2008 following revelations of manipulation of data. It is currently being used for making popular health supplement Revital and supplies for some key non-US markets. The FDA had banned imports from three more Ranbaxy sites in India, but at least two of them are facing less serious charges than Paonta Sahib and so will likely figure higher on Sun Pharma’s priority list to seek recertification in the US.
Sun Pharma is in the process of integrating Ranbaxy, which it acquired from Japan’s Daiichi Sankyo earlier this year, and overhauling the combined global operations. These efforts cover the four disputed manufacturing units, located at Paonta Sahib, De was, Mohali and Toansa, which are undergoing a drawn-out en gagement process with the FDA.
Earlier this week, Sun Pharma surprised investors by warning of flattish revenue and profitabil ity during the 2016 financial year mainly due to costs related to re mediation efforts and expense on the Ranbaxy integration.
The stock fell 15% on the news Tuesday. A source well-versed with manufacturing issues a Ranbaxy’s sites said the new plan was to utilise the Paonta Sahib facility for supplies to the World Health Organization and markets like Europe and Australia.
The move is seen by industry veterans as a significant drift for the Paonta Sahib site from its glory years, when it was used by Ranbaxy in regulatory filings in the US for the generic versions of blockbuster drugs like Lipitor.For Indian generic drug makers t such as Sun Pharma, Dr Reddy’s Laboratories and Wockhardt, the biggest market is the US. To ex port to the US, the local manufacturing locations must comply with US regulations and several of such sites have faced FDA action or are under close scrutiny over quality concerns.
The Sun Pharma management is unlikely to put in additional efforts to prepare Paonta Sahib for the US FDA recertification at least in the near term, a key industry executive told ET.
Uday Baldota, Sun Pharma’s chief financial officer, in an emailed statement, shared a broader view of the plans ahead.”We have four facilities under consent decree (agreement to settle a dispute without admission or denial of guilt) and have decided to focus on bringing one of these facilities back into compliance. Once that facility comes back into compliance, we will devote similar resources to bring other facilities back into compliance too,” he said.
Echoing the same intentions, over a July 20 investor call, Sun Pharma Managing Director Dilip Shanghvi indicated that the company expected to resolve at least one of Ranbaxy’s banned facilities. He did not name the site he was referring to.
“Considering Dewas and Paonta Sahib have serious issues, Sun’s focus will be to resolve Mohali and Toansa,” said a July 20 note from UBS analyst Hemant Bakhru. “Paonta Sahib has not seen any movements for corrective actionpreventive action ever since 2009 when it was brought under the Application Integrity Policy by the US FDA,” an industry source said.
Sun Pharma’s decision to assign a lower priority for Paonta Sahib may have stemmed from FDA’s serious concerns related to data integrity issues and the consent decree of 2012, which may take a longer time for complete remediation, two other industry experts said.
According to them, the natural choice now is to resurrect the brand new Mohali site, which may take comparatively lesser efforts to gain FDA clearance.
The FDA had imposed an import alert on Ranbaxy’s Mohali facility in September 2013 and included it as part of the consent decree process. Industry sources said the corrections in manufacturing practices as desired by the US regulator at the Mohali unit have been completed and international consultants working on the plans may be ready to submit their report to the regulators in a few months.