Mumbai, Jan. 27: The US Department of Justice has virtually hurled the book at Ranbaxy Industries as it filed a consent decree in the district court of Maryland as a first step towards resolving a four-year long investigation by the US Food and Drug Administration (FDA) that uncovered serious irregularities at the drug maker's plants in India and the US.
The consent decree was filed at the request of the FDA.
Investigations by the US drug regulator showed that Ranbaxy had falsified drug tests and data, failed to keep proper records to certify that the drugs had been made properly at its plants and did not investigate evidence that showed that the drugs did not meet specifications.
Last month, Ranbaxy had signed a consent decree with the FDA in which the drug maker agreed to rectify its conduct and clean up its act without admitting its guilt.
It also announced then that it intended to make a provision of $500 million to "resolve all potential civil and criminal liabilities" arising from the four-year-long investigation by the US regulator.
A consent decree is a document that consists of an agreement between parties following which there is a withdrawal of a criminal charge or an end to litigation.
If Ranbaxy was hoping to get off lightly after signing the consent decree and creating a fund to pay out penalties, it wasn't to be.
The US Department of Justice has set extremely tough terms under the consent decree that have the potential to gouge more out of the company in the form of lost business opportunities, with analysts estimating the total impact at over $700 million.
The consent decree sets out stiff terms and conditions that Ranbaxy must comply with before three plants in India and one in the US are allowed to start making drugs for the US markets.
"This action against Ranbaxy is groundbreaking in its international reach ' it requires the company to make fundamental changes to its plants in both the US and India," said Tony West, assistant attorney- general for the Justice Department's civil division. "Our commitment to ensuring that the drugs the American people rely on are safe, effective and manufactured according to the FDA's standards extends beyond our borders."
The ferocity of the clampdown on Ranbaxy sent its stock plunging 7 per cent on the BSE today and brokerages piled on the misery with a raft of downgrades.
The dispute with the US FDA dates back to 2008 when the regulator barred exports of around 30 drugs from two Indian facilities of Ranbaxy to the US citing deviation from good manufacturing practices.
Marketmen said the negative reaction to the development came as it was felt that Ranbaxy might at best have to pay up to $500 million.
"Nobody had anticipated such tough conditions. In such consent decree cases, the resolution is not quick and sometimes it can drag on for years," an analyst added.
Under the terms of the consent decree, Ranbaxy will not be able to sell drugs (in the US) made from its four facilities until these units meet the US manufacturing and quality standards. These are Paonta Sahib, Batamandi, Dewas facilities in India and Gloversville in the US. Moreover, Ranbaxy will have to take a number of actions at these plants to ensure that such violations do not occur again.
It will also have to hire an outside expert to conduct a detailed internal review at the affected facilities and to audit applications containing data from those facilities.
In a press statement, the DoJ said Ranbaxy would have to withdraw any applications found to contain false data, set up a separate office of data reliability within and hire an outside auditor to audit the affected facilities in the future.
What worried the market most was that Ranbaxy will give up its 180-day marketing exclusivity for three pending generic drug applications, thus losing potential sale revenues. Moreover, the company will do the same for other applications if it did not meet certain requirements by specified dates.
Although Ranbaxy did not disclose the identities of the three generic drugs, Sushant Dalmia at PINC Research said they could be generic versions of Provigil, Diovan and Valcyte that had potential sales of around $186 million. Dalmia today downgraded the stock to a "sell".
The consent decree also contains liquidated damages provisions. Ranbaxy will have to pay $15,000 in liquidated damages for each day it violates the law or the decree at the facilities covered by the decree and an additional $15,000 for each overall violation of the law and the decree.
The decree also states that if Ranbaxy distributes any drug from the facilities covered by the decree, it shall shall pay liquidated damages equal to two times the retail value of such drug, not to exceed $10 million dollars in any one calendar year.
The decree also permits FDA to order additional Ranbaxy facilities to be covered by the decree if the agency discovers through an inspection that the facility is not operating in compliance with the law or has serious data integrity issues.
Ranbaxy tried to put on a brave face after the latest setback.
"Today's announcement is the next step in the process of finalising our agreement with the FDA to resolve this legacy issue," said Arun Sawhney, Ranbaxy CEO and managing director.
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