* Oct-Dec net loss at 1.59 bln rupees vs 4.92 bln rupees
* Profit helped by ramped-up sales of acne drugs in U.S.
* Earnings to be pressured in quarters ahead after U.S. ban
* Company contacted by regulators from other countries
By Sumeet Chatterjee
MUMBAI, Feb 5 Ranbaxy Laboratories Ltd
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 some Indian
makers of generic drugs.
India's biggest drugmaker by revenue, like rival Wockhardt
Ltd, 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
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
Any earnings impact could be felt from the March quarter,
analysts say. In October-December, the company reported a net
loss of 1.59 billion rupees ($25.39 million) compared with a
year earlier when product recall costs forced the loss to 4.92
Revenue grew 7 percent to 28.59 billion rupees thanks to
increased U.S. sales of acne drug Absorica, Ranbaxy,
majority-owned by Japan's Daiichi Sankyo Co Ltd, said
on Wednesday. Overall U.S. sales made up 36 percent of the
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 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
Compliance costs, such as legal costs and the cost of hiring
third-party consultants, could rise if more health regulators
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.
Indian drugmakers, which include Lupin Ltd and
Glenmark Pharmaceuticals Ltd, 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 state of northern India 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.
The regulator said it found samples at risk of being mixed
up and that test results had been overwritten until desirable
outcomes were achieved. It also saw flies in sample preparation
rooms and a pool of water in a refrigerator used to store sample
Ranbaxy had been planning to use ingredients from the
factory to start U.S. sales of a version of Novartis AG's
hypertension drug Diovan, a person at the company, who
declined to be identified, told Reuters last month.
The company declined to comment on the FDA findings, saying
it was working with the regulator to resolve any concerns. It
made a Toansa-related provision of 2.57 billion rupees in its
Ranbaxy will have to make up the ingredient shortfall from
elsewhere. Chief Executive Arun Sawhney, in a call to analysts
after the earnings release, said the company already buys in
Ranbaxy's business was less than 15 percent dependent on
Toansa ingredients in 2013, Sawhney said, without responding to
queries regarding other sources.
"While we continue to assess the overall business impact on
all aspects in our value chain, our direct sales impact because
of the Toansa facility issue will be limited," Sawhney said.
It is likely to take over a year for the four Ranbaxy
factories to conform to FDA standards, said former company
director Dinesh Thakur who first alerted authorities to quality
"What we know publicly is that the company has spent a lot
of money upgrading its facilities, which is a part of the
solution," said Thakur.
"The bigger issue is changing the culture of the company,
which will take inspired leadership, not just external