MUMBAI: The damage to India's largest drug major, RanbaxyBSE -0.80 % , translates well beyond the $500 million — which was confirmed as total penalty on May 13 — for its regulatory wrongdoings in the US. Overall , the "notional" loss to the company is estimated to be around $1,000 million over the five-year period, analysts say. That's not all. The reputation and goodwill it enjoyed in the US market has also taken a huge beating, which will take some time to rebuild.
Besides the $500 million settlement, it also had to share the spoils on exclusivity gained on sales of blockbuster Lipitor with another drug company, Teva, of around $300 million. And, since its FDA woes began in 2008, the company lost potential US revenues of around $200 million , experts say.
Says Ranjit Kapadia, senior VP, Centrum Broking, "The damage to Ranbaxy on account of its issues with the FDA was the $500-million settlement , and an estimated $300 million it shared with Teva as Lipitor revenues. Further , the company also suffered losses since its two plants were closed, and potential launches were also affected ." The good news is that the company's US revenues, after dipping post 2008 for a couple of years, have now starting recovering .
Also, the recent resolution of the issue with the US Department of Justice (DoJ) will bring more certainty to its operations and is expected to help grow the US business significantly over the years.
On May 13, Daiichi-controlled Ranbaxy settled the long-pending US suit by pleading guilty to "felony charges" related to manufacture of certain drugs made at its two domestic facilities, and agreed to pay $500 million — the largest settlement made with a generic company over drug safety, till date. In December 2011, the company had set aside $500 million to resolve the liabilities related to the US investigations.
The issues go back to 2008, when the US FDA banned the company from selling 30-odd drugs in US after it found manufacturing deficiencies at its two facilities — Paonta Sahib (Himachal Pradesh) and Dewas ( Madhya Pradesh). A year later, the FDA charged the company of falsifying data and test results in drug applications, and halted reviews of drugs made at the Paonta Sahib plant.
The US action impacted revenues arising not only from those 30 drugs, but all other potential launches from those two facilities with their closure. Sales in US dipped sharply, from $390 million (2007) to $334 million in 2009 (see chart).
Significantly, the biggest overhang of the FDA probe was on Ranbaxy's launch of blockbuster cholesterol-lowering medicine, generic Lipitor , in November 2011. Though the company was able to monetize its first-to-file exclusive rights on the blockbuster, it had to share around $300 revenue with Teva since the FDA issue was not resolved. The agreement with Teva was done as a standby in case the company did not get the approval to launch the drug. The company mopped up around $600 million from Lipitor sales over the six-month period.