Ranbaxy may pay $1 billion to settle with US FDA

Shares in Ranbaxy Laboratories fell more than 6% on Thursday on news that India’s largest generic drug maker is negotiating with US authorities and could pay a fine of more that $1 billion as the Gurgaon-based company seeks an early removal of an embargo that stops the company from producing drugs at two of its plants.

On Wednesday, Fortune magazine, quoting people familiar with development, said the “Federal prosecutors have been negotiating a criminal and civil settlement with the company (Ranbaxy) that could lead to fines and payments exceeding $1 billion”.

Experts believe this news of Ranbaxy settling a case with US Food and Drug Administration (FDA) is significant as the company is closer than ever to know if it can launch its generic version of cholesterol lowering drug Lipitor from its facility in Paonta Sahib in Himachal Pradesh, which in 2008, was found by US authorities of lacking in “good manufacturing facilities.”

“Ranbaxy initially filed an application for its generic version of Lipitor from Paonta Sahib, which still cannot exports drugs to the US. So, an early resolution is more than necessary for the company,” an analyst at a Mumbai-based foreign brokerage told DNA.

Ranbaxy expects to launch Lipitor on November 30, following which the company will be the sole-producer of the generic drug in the US for the next six months. Goldman Sachs analysts bill the launch of Lipitor as the “largest generic drug launch” ever with over $9.5 billion in sales in the last calendar year.

Investor sentiment was further dampened after Goldman Sachs in a note on Thursday said, “We believe the settlement amount of $1 billion (as quoted in the article) is disproportionate to the profitability of Ranbaxy’s ANDA (abbreviated new drug application) pipeline over the next 3 years and a $1 billion settlement amount could negatively impact its financials.”

A senior company executive, who did not wish to be identified as he is not authorised to speak to the media, accepted that Ranbaxy is trying to resolve the ongoing issue with FDA, but termed the $1 billion fine as “exaggerated.”

“We cannot comment on speculation. However, Ranbaxy continues to cooperate with the US FDA and is making positive efforts to resolve the issue,” a spokesperson told DNA Money.
Ranbaxy scrip tanked 6.03% to close the day at `426.40 on Bombay Stock Exchange even as the BSE-30 Index, or Sensex, declined 258.78, or 1.40%, to end at 18210.58.

It was in July 2008 that the US Department of Justice (DoJ) first flagged Ranbaxy’s record of compliance when the DoJ alleged Ranbaxy fabricated bio-equivalence and stability data to support applications with regulators to sell generic drugs in the country.
In September that year, FDA banned imports of more than 30 medicines, including simvastatin, the top-selling generic cholesterol-lowering drug, produced by Ranbaxy at its Dewas plant in Madhya Pradesh and Paonta Sahib facility.

Even as the regulator banned the drug productions on account of “good manufacturing practice” lacking at the facilities, Ranbaxy in September that year enlisted the support of Rudy Giuliani, the former New York mayor, to help it address concerns raised by FDA. The ban remains in place even as Ranbaxy denies any wrongdoing.

An email seeking comments from Daiichi Sankyo — Japan’s third-largest pharmaceutical company bought a 63% stake in Ranbaxy Laboratories in a $4.6 billion cash deal in June 2008 — went unanswered. An email sent to FDA officials too remained unanswered.