Will Ranbaxy's shenanigans hurt Indian pharma?

Ranbaxy Laboratories may have escaped criminal proceedings for a data fraud by paying a hefty $500 million fine, but the incident itself may have wide-ranging implications for the Indian pharma industry, including delay in US Food and Drug Administration (FDA) clearances, say analysts.

“What is disturbing is the extent of frauds, shortcuts, data fudging that took place across Ranbaxy and with the knowledge of most seniors. It raises some serious questions,” IIFL said in a note.

The US FDA and the system of self compliance has come under a cloud and this will result in delays for clearances at most Indian pharma companies, the brokerage said.

“Divi’s Labs has already guided for a huge delay in FDA clearances for three of its facilities, and we have downgraded the stock to an ADD today from a BUY earlier (Bino Pathiparampil, pharma analyst, has cut fiscal 2014-15 core earnings by ~15% to reflect deferment in the guidance for FDA approval; target price cut from Rs 1,364 to Rs 1,101).

If a large company like Ranbaxy could stoop down to manipulating data in the US (more so in Brazil and South Africa, and probably even more in India), how can we be sure of the methods followed by other smaller companies?, the brokerage asked.

It also flagged the risk of innovator companies use their lobbying power to argue against generics and other countries such as Brazil, Germany and South Africa clamping down on all new clearances.

However, the Indian pharma industry sees Ranbaxy episode an isolated incident.

“First of all, it’s an old case and the Indian generic companies have evolved since. Today, generic companies from India have a respectable position in the US market and we don’t expect the Ranbaxy episode to have any impact on generic companies. It’s unfortunate that it has happened. We have not received any adverse feedback from any of the generic companies so far and we don’t see any impact of that on other companies,” P V Appaji, director general, Pharmaceuticals Export Promotion Council, told dna.

Indian companies export about $14 billion worth pharmaceuticals every year and a majority of this are US-bound. Exports to the US jumped 33% last year and are seen repeating that number this year, too. “It’s actually a one-off case. There have been regular inspections of Indian facilities by FDA officials and most of the companies are compliant with the regulations. All those companies that have not been compliant have also faced the ire of US regulators,” a senior official of a generic major said.

However, there is a feeling that the FDA would go in for further stringent inspections, but sources said the drug regulator has always been tough in dealing with Indian facilities.

“It is not just the data they seek, they also inspect facilities. Moreover, no Indian generic company has an option but to supply to advanced markets. If the regulators of those markets put in a new and stringent regime, we have no option but to align. So, we don’t see any impact of the Ranbaxy episode on any of our exports,” the official said.

However, sources maintained that any changes in FDA regulations would to a large extent depend on the requirement of drugs in the US. “For instance, during the Anthrax days, the FDA allowed even small companies to export citalopram in tonnes. No one questioned them. However, when it comes to protecting the interest of the innovators there, the regulations are stringent,” said another source with the generic pharma company.