India's Ranbaxy Falls; Suspends Shipments from 2 Plants

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February 25, 2014 3:12 PM EST

Shares of Ranbaxy Laboratories fell as much as 2.7 percent after the drug maker said on Tuesday it has suspended shipments of pharmaceutical ingredients produced at its Toansa and Dewas plants.

Reuters
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"This voluntary decision was taken as a precautionary measure and out of abundant caution to better allow the company to assess and review the processes and controls. The company will resume shipments after reassuring them about the processes and controls at these facilities," Ranbaxy said in an exchange filing. 

Ranbaxy Laboratories Ltd (RANB.NS) has been hit by more regulatory scrutiny sparked by a U.S. ban on the bulk of its drugs, in a backlash that could bump up compliance costs and erode profitability among someIndian makers of generic drugs. 

India's biggest drugmaker by revenue, like rival Wockhardt Ltd (WCKH.NS), has had factories stopped from sending drugs and ingredients to its biggest market because the U.S. Food and Drug Administration (FDA) said the plants fell short of "good manufacturing practices".

A ban at an Indian plant last month could force Ranbaxy's U.S. factory to buy expensive ingredients from elsewhere, whereas a ban at another Indian plant in September could delay U.S. sales of drugs under development, rendering market share vulnerable.

Ranbaxy shares ended the day nearly 6 percent higher for the steepest one-day gain in more than two months, compared with a benchmark index .BSESN which rose 0.2 percent.

"Impact on sales and margins will be felt from the March quarter onwards due to higher compliance costs and loss in market share," said Surajit Pal, a sector analyst with brokerage Prabhudas Lilladher.

Compliance costs, such as legal costs and the cost of hiring third-party consultants, could rise if more health regulators take action.

Regulators from other countries including second-biggest market India have sought clarification on last month's ban, Ranbaxy said on Wednesday. The ban, which follows similar action on two plants in 2008 and another in September, means Ranbaxy can no longer export to the U.S. from India.

"I don't think the worst is over for the company. There are many risks and one of them could come from regulatory action from other countries, Europe or India," said Pal.

GENERIC SCRUTINY

Indian drugmakers, which include Lupin Ltd (LUPN.NS) and Glenmark Pharmaceuticals Ltd (GLEN.NS), are among the world's biggest producers of generic drugs, or cheaper copies of drugs whose patents have expired.

Demand for generics is rising in the U.S. where the government is pushing reform to reduce health-care costs, and with the increased demand has come greater regulatory scrutiny.

The FDA last month inspected Ranbaxy's Toansa plant in the Punjab which supplies ingredient's to Ranbaxy-owned Ohm Laboratories Inc in New Jersey - now Ranbaxy's only permitted maker of drugs for U.S. sale.

(Photo: Reuters / )
Teva, Ranbaxy Settle Claims in U.S. Over Collusion
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