Israel-based Taro Pharmaceutical, which is battling against a hostile takeover bid by Sun Pharmaceutical Industries [Get Quote], has been pulled up by the US drug regulator for maintaining poor manufacturing standards at its main production facilities in Canada.

If Taro fails to address the issues raised by the US Food and Drug Administration, it may face ban on many of its products in the US market, made from the facility at Ontorio, Canada.

This unit produces two-third of Taro's global production and sells products in the US, Canada and other geographies, according to information available on the website of Taro- Canada. Taro recently said it estimated net sales of $341.9 million in 2008. Taro also has manufacturing units in the US, UK, Ireland and Israel.

"We are quite concerned about this development," said a Sun Pharma spokesperson. Sun Pharma is currently the largest shareholder in Taro with above 36 per cent stake. The company is in discussions with the Taro management to resolve the differences over takeover, as per the directive of Israeli Supreme court.

Taro has not published audited financials since 2005 and consequently no annual report is available for over three years. Hence, assessing the impact of such events for outsiders and shareholders would be very difficult. Taro management has not come out with any objective assessment of the impact on business, he added.

Interestingly, Caraco Pharmaceuticals, the US subsidiary of Sun Pharma, had received a similar warning letter in October last year for deviating from cGMP norms at its facility in Detroit. India's largest drug maker Ranbaxy Laboratories [Get Quote] was banned to sell about 30 drugs, after the US regulator detected issues at two of its facilities in India.

In a warning letter to Taro chairman Barrie Levitt, the US FDA said a five-day inspection during July last year at Taro's facility in Brampton, near Ontario, revealed significant deviations from Current Good Manufacturing Practices regulations in the manufacture of non-sterile cream and ointment finished drug products.

The deviations are mainly in quality assurance systems, keeping of records, storage conditions and rectification of quality issues in a timely manner.

The FDA has given 30 days for Taro to respond to the letter. Applications listing the Canadian facility as a manufacturing location of finished dosage forms may not be approved, unless the issues are resolved, said the FDA letter, issued last week.

The 58-year old Israeli company entered in the North American market in 1984 by purchasing a small over-the-counter drug manufacturing facility in Brampton and expanded with multiple units at the same location over the years. The unit employs about 200 of its 600 production and quality control employees, said sources.

The Canadian unit makes some of its main brands such as Dermovate, HydroVal, Ketoderm, Lyderm, Tiamol and over the counter creams and ointments like Dermalac and Lustra. 

"This is the first such warning letter received by Taro or its affiliates. The company is committed to working with the FDA to resolve all issues expeditiously," Taro said in a statement. Corrective actions began immediately following the inspection last year and are still underway, including the retention of quality control consultants, it added.