Another Ranbaxy FDA-Approved Facility Receives Warning Letter as Firm Divests from Chinese Joint Venture

FDA Warns Ranbaxy's Ohm Labs

Indian generic major Ranbaxy has announced the Gloversville unit of subsidiary Ohm Laboratories in the United States has received a warning letter from the U.S. FDA for non-compliance with current Good Manufacturing Practices (cGMP) norms. The letter, dated 21 December 2009, is the result of on-site inspections conducted between July and August of the same year.

The Gloversville, New York, facility is Ohm Labs' liquid-dosage-form manufacturing facility, with the other two FDA-approved Ohm lab production sites not reporting any deviations.

The Indian firm has guaranteed stakeholders that it is co-operating with the FDA to correct the issue in a timely manner. Ranbaxy announcement regarding the matter can be found here.

As Chinese Joint Venture Brought to an End

Ranbaxy has also announced that it has exited its Chinese joint venture—Ranbaxy Guangzhou China Ltd (RGCL)—with Guangzhou Baiyunshan Pharmaceutical (China ) and Hong Kong New Chemic (Hong Kong). The Indian firm will transfer its entire stake in the joint venture to the Chinese state-owned Hunan-based drug firm, HNG Chembio Pharmacy.

The development is reportedly part of Ranbaxy's strategy to develop a new business model for China, which will result in the marketing of value-added drugs and improved cost synergies.

The Ranbaxy announcement to end its Chinese joint venture can be viewed here.

Outlook and Implications

The aforementioned Ohm Labs facility is possibly the least significant of the three production sites, with the unit contributing to less than 10% of the firm's U.S. sales and 5% of overall sales. Apart from certain over-the-counter (OTC) products, the facility's most significant product is the allergy drug, cetirizine. Cetirizine's U.S. sales reportedly contribute 500 million rupees (US$10 million) annually to Ranbaxy's revenues. Furthermore, the facility does not produce Ranbaxy's recent U.S. launches, including generic valganciclovir. Therefore, the direct financial impact is slight. Having said that, it should be noted that the latest warning letter is Ranbaxy's third in the last 15 months, thus not boding well for the company's image or the quality of drugs sold by the firm. As a result, stakeholder confidence has faltered, resulting in a dipping stock price. The generic firm is yet to recover from the bans on its previously FDA-approved facilities in India—Paonta Sahib and Dewas—and needs all the help it can get to mitigate falling sales in the country. While it is addressing the warning letter on these two facilities, it has also been slow in getting back to its feet by transferring production of key drugs to its Ohm facilities. It is therefore vital for the firm not to be slapped with any more warning letters or bans. The only silver lining is that the Gloversville unit is still operation and Ranbaxy can avoid further action by expediently correcting its GMP issues.

Meanwhile, the Indian firm's exit from the Chinese joint venture is no surprise, with media reports suggesting that the firm was looking to divest a few of its Asian facilities in order to rationalise costs. The indicated Chinese joint venture has been active from 1993, when it got off to a bumpy start. The joint venture reportedly made profits for the first time only in 2006. With sales of US$13.5 million, RGCL contributed significantly less than 1% of the firm's overall topline. Therefore, the divestment in the short term is not expected to adversely affect revenues. Meanwhile, its new business model for the country will include the firm marketing parent Daiichi Sankyo's drugs in the significantly less competitive innovative Chinese pharma market.

In line with its cost-rationalisation strategies and plans to milk synergies with Daiichi, Ranbaxy has exited from the Vietnamese pharma market and ended its Japanese joint venture with Nippon Chemiphar (see India: 2 November 2009: Ranbaxy Exits Vietnam Pharma Market and India - Japan: 8 December 2009: Ranbaxy and Nippon Chemiphar Confirm End of Japanese Joint Venture).