Indian pharma firms swallow bitter pill in US, Europe

Last week, Lupin, Matrix Laboratories and Unichem Laboratories' UK subsidiary Niche Generics figured in the list of companies under investigation by the European Commission for "knowingly delaying" the generic launch of a cardiovascular drug, Perindopril, by teaming with the innovator of the drug, Laboratories Servier. The European Commission said it would probe anti-trust violations against these manufacturers.

A fortnight before that, the share prices of Sun Pharmaceutical, India's largest drug maker in terms of market capitalisation, crashed 12 per cent after the US authorities raided three manufacturing facilities and stopped production at its US subsidiary, Caraco Pharmaceuticals, for violation of current good manufacturing practices. The move came as a big shock for Sun Pharma, since the US drug watchdog's action will shave a minimum 10 per cent off its revenues in 2009-10.

Neither Sun Pharma nor Caraco knows when they can restart production, since the process it involves legal procedures and rectifying the defects cited by the Food and Drug Administration.

"It is difficult to give a timeline for when we can resolve the issues. Once we have completed our assessment, we may consider giving a revised sales growth guidance for 2009-10," a Sun Pharma spokesperson said.

If last year was the annus horribilis for India's largest drug company, Ranbaxy Laboratories, 2009 was worse for many other Indian pharmaceutical companies. Apart from Lupin, Matrix, Unichem and Sun, others such as Wockhardt, Glenmark and Granules India (see table) also faced the regulatory heat in the US and the UK during this year. That's bad news, since the US and Europe account for half of the Rs 47,000 crore exports by Indian pharma companies.

In 2008, the FDA had banned 29 Ranbaxy drugs for manufacturing problems at two of its plants in India and for manipulating the data submitted to the regulator. The US accounts for almost one-fourth of Ranbaxy's revenues and the banned drugs accounted for 15 per cent of the US business. The FDA is currently reviewing Ranbaxy's corrective action plan, submitted in May this year, and the company will soon discuss the way forward with regulators.

So, why are Indian drug companies on the run in the US and the UK? Pharma companies are wary of commenting on the issue, barring offering the proforma "we are cooperating with the regulator" answers. Sujay Shetty, associate director, PricewaterhouseCoopers, said the US regulator was under pressure as a result of concerns in that country on the quality of drugs and active pharmaceutical ingredients coming from countries such as India and China. This might have caused the regulator to enforce the rules strictly, especially after the "heparin incident," he said.

Over 60 patients died in the US between November 2007 and February 2008 allegedly because of the side effects of blood thinner drug, heparin sodium, sold by leading injectable drug makers in the US like Baxter. Investigations revealed the drug's ingredients were adulterated and supplied by two leading Chinese companies.

Indian pharma firms swallow bitter regulatory pill in US, Europe

Almost 35 per cent of the generic drugs and half the active pharmaceutical ingredients sold in the US originate from India. India has close to 100 US FDA-approved drug manufacturing facilities, the largest outside the US. Indian companies account for almost half of the drug master files or applications to supply active drug ingredients for the US drug market.

Dominic Hollamby, global head-Healthcare Group of Rothschild, said the rules were the same for all players and there was no separate rule for any particular company or country.  "If your restaurant's kitchen causes food poisoning customers will not come again anyway," he said.

Whatever the reason, the actions are hurting Indian companies badly. The US is the world's largest drug market with estimated sales of over $270 billion, including $68 billion in generics or "copy-cat" drugs, for which the Indian companies are fighting for a share.

Industry experts said the strict regulatory benchmarks forced Indian companies to spend more money on setting up the required manufacturing and regulatory systems, quality assurances, standard operating procedures and data management. The spending may vary from a few thousands of dollars to millions of dollars, depending on the degree of violation.

"Our spending on training staff for various audits for the EU and FDA is many times than that was four or five years ago. It is very difficult to get away without any adverse observations," said a company executive.

The FDA inspects almost all facilities more than once in a year and all new drug registrations require a successful FDA audit of the plant. Its observations will be noted in a report card and if the defects are not rectified during the next audit, the FDA may issue a warning letter, expressing its unhappiness over the standards the company maintained. If the company fails to respond within the deadline, the regulator will take drastic action, which is what happened in the case of companies such as Caraco and Ranbaxy.

Terrance Coughlin, CEO at Glenmark Generics, US, said the generic opportunity will increase, since many drugs go off-patent in the next five to seven years. "As the percentage of generic drugs continued to increase, the FDA continues to tighten the regulations and thereby increase the cost of compliance. These stricter regulations, however, are applied to one and all, whether it is a big pharma company or a smaller organisation".

Few in the Indian pharma fraternity, however, would agree with that.