India Pharma Ranbaxy Fights FDA Probe

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Should the FDA prove there are problems with one plant, as it alleges, then Ranbaxy would have to prove the problem is not systemwide, a process that could take months, says Ronny Gal, a pharmaceutical analyst at New York-based Sanford Bernstein (AB). "If the concerns about a specific plant are true, then Ranbaxy is going to have to convince the FDA that the same problems don't exist at all of its plants," he says. "If there is a real problem, there will be broader repercussions."

For now, Ranbaxy continues to receive new approvals from the FDA for other drugs. For instance, it has negotiated 180-day exclusivity in the U.S. for generic versions of drugs that have a market size of more than $32 billion, including AstraZeneca's (AZN) Nexium. Singh says the company is making plans for what to do with its $800 million war chest and debt-free balance sheet, hinting at acquisitions both locally and internationally. "I clearly see the industry continuing to consolidate," he says. "We are just waiting for the transaction to close.…We expect to do something in the next year."

India's Government Will Reexamine Merger Deal

As a combined entity, Ranbaxy and Daiichi Sankyo will be the 15th-largest drug manufacturer in the world, and the only company that specializes in producing both new drugs and generics (BusinessWeek.com, 6/12/08). In late July, when the merger with Daiichi Sankyo, Japan's third-largest drug manufacturer, hit procedural delays, both companies took out a full-page ad in India's leading business newspaper promising the deal was still on. An Aug. 8 open offer that promised a juicy 28% premium for another 20% of Ranbaxy's shares held by retail investors was delayed till Aug. 16 because it didn't get approval from India's stock market regulator. That offer finally closed Sept. 4, but there was no word on exactly how big a stake Daiichi was able to mop up.

In another possible complication, India's Cabinet Committee on Economic Affairs has said it will reexamine the deal because of its size, holding up final approval until the committee meets in mid-September.

Over and over again, Singh reminds investors and analysts that the FDA investigation is limited to a single plant, and once completed, should free up Ranbaxy to rake in cash from the American drug market. His reassurances have helped calm investors, with the stock price recovering from its 10% drop the day it acknowledged the investigation. "Doomsday scenarios of the U.S. business shutting down, or billions of dollars in fines, seem a little far-fetched," says Prashant Nair, a Citigroup (C) analyst who has a buy/high risk rating on the stock, basing his assessment on Ranbaxy's public posture and statements the company has made to investors.

FDA Investigation Far from Over

Ranbaxy, in a written statement to BusinessWeek, pointed out that during the investigation the FDA tested as many as 200 samples of its drugs and found them to be safe. "There are some open issues with the FDA and we are working with them to resolve the same," said Singh in a later interview.

The investigation is far from over. Most of the motions filed in the U.S. have revolved around obtaining information from Ranbaxy about the operations of the plant. In court filings, U.S. Attorney Rod Rosenstein said the investigation is also looking into the possibility that Ranbaxy introduced adulterated or misbranded products in the U.S., and committed health-care fraud by lying about how it manufactures its products. Rosenstein, through the U.S. Attorney's press office, declined comment.

The political pressure may rise, too. Two Michigan Democrats, Representatives John Dingell and Bart Stupak, have asked for an expanded investigation, writing to the FDA on July 22 that it ought to look at every drug Ranbaxy has ever sold in the U.S., while criticizing the FDA for taking so long to finish the investigation. "Unfortunately," wrote the two members of the House Energy & Commerce Committee, "the FDA's alleged lack of action to remove these suspected products from the market requires this committee to review the pre-market approval inspections of all currently marketed Ranbaxy drugs, as well as any 'for cause' inspections, to determine if [the] FDA has expended the resources required to justify leaving these suspect drugs on the market."

Srivastava reports for BusinessWeek from New Delhi.