US FDA issues import alert for key Ranbaxy products

The US FDA has issued two warning letters to Ranbaxy Laboratories and an import alert for generic drugs produced by the company's Dewas and Paonta Sahib plants in India. The warning letters identify the Agency's concerns about deviations from US cGMP requirements, while the import alert covers more than 30 different generic drug products produced in multiple dosage forms at these two locations.

While the FDA noted that it was confident that other manufacturers could meet market demands, and no product recall had been issued, the Wall Street Journal has reported that some drug stores are looking for alternative suppliers and were nervous that if they did switch they would be liable for cost increases due to contract provisions. Meanwhile, other countries have started to look at bans. In New Zealand, for example, the Health Ministry's drug regulatory arm has said that it was checking with regulators abroad to see if audits since then had given it a clean bill of health, though like the FDA it noted that there were no concerns about the medicines themselves and that users should continue taking the drugs.

This is not the first time that Ranbaxy has been in hot water with US regulators, and represents the second time in less than three years FDA has issued a Warning Letter to Ranbaxy. In 2006, FDA cited the Indian firm for violations of US cGMP at its Paonta Sahib facility. Since then, Ranbaxy has been attempting to resolve the issue with US regulators. However, in 2007, US officials seized documents from Ranbaxy's US headquarters in New Jersey. Furthermore, in July 2008, the US Department of Justice claimed that the company submitted false information about stability and bioequivalence to support ANDAs for antiretrovirals distributed by the President’s Emergency Plan for AIDS Relief (PEPFAR) programme. Prominent Congressmen on the US House Committee on Energy and Commerce indicated at the time that they would commence a formal investigation into the Ranbaxy drug approvals and potential violations of GMP regulations.

Daiichi Sankyo, which agreed to acquire the majority of the voting capital of Ranbaxy in June, has yet to comment on the latest events, though both firms have previously stressed that the share purchase agreement is binding and final. North America is a significant market for Ranbaxy, however; the region constituted around 26% of the firm’s revenues in 2007. Ranbaxy is already looking aggressive in its attempts to overturn the FDA’s ruling, enlisting former New York mayor Rudy Giuliani to represent it in Court in an attention-grabbing move. Nevertheless, the firm may need more than PR to help it out of its current predicament.

Jonathan Way - Editor, World Generic Markets

Counterfeit definition debate causes concern in India

World Health Organization attempts to introduce a broader new definition of counterfeit medicines have come under fire from the Indian government. A draft resolution on the new definition was presented at the 61st World Health Assembly in May 2008; this has been the subject of intense discussion, as was a WHO Secretariat report on the matter. The change from the current terminology has been promoted by the International Medical Products Anti-Counterfeiting Taskforce, a WHO unit set up in 2006.

The new definition could cause the registration of drugs in various territories to be an issue, as countries could link the issue of substandard drugs with intellectual property infringement. A major concern of the countries such as India is that legitimate generic medicines may become targets in the enforcement of counterfeit goods. According to a Business Standard report, the Indian Pharmaceutical Association has expressed concern that generic medicines that are legal in some countries could be classified erroneously as fake. This, combined with tougher enforcement of intellectual property rights elsewhere in the world, could mean that goods passing in transit may be seized for being fake, on the grounds that they are not registered.

A decision on the matter is unlikely before May 2009. Before then however, the office of the Drug Controller General of India is likely to come up with its own definition to promote to the WHO; this would incorporate recommendations from domestic manufacturers and is therefore unlikely to be a radical departure from the existing definition.

Perhaps of even more concern to India and other countries in the South Asia region is the new Anti-Counterfeiting Trade Agreement (ACTA) being negotiated between the United States, the European Union, Japan, South Korea, Canada, Mexico, Australia and New Zealand. By negotiating between themselves, these countries could undermine the WHO discussions and could simply ignore India’s objections. Treaty negotiations are still at a preliminary stage however, and no draft has been released to date; while this is a good sign for India that agreement is still not close, the secrecy will not help to allay its fears.

Jonathan Way - Editor, World Generic Markets

Daiichi shocks industry with Ranbaxy share deal

Daiichi Sankyo and Ranbaxy Laboratories have surprised the pharmaceutical industry by entering into a binding share purchase and share subscription agreement, which will eventually leave Daiichi with a controlling interest in the Indian firm. The deal values Ranbaxy at US$8.5 billion and the total transaction value is expected to be between US$3.4 billion to US$4.6 billion. Daiichi Sankyo and Ranbaxy highlighted the complementary business combination that the link-up would create, noting that it would leave Daiichi with an expanded global reach and strong growth potential by complementing proprietary drugs with generics. Daiichi also hinted that it may shift part of its production to India, commenting that it could achieve further cost competitiveness by optimising its new R&D and manufacturing facilities.

The move represents Daiichi Sankyo's first foray into generic drugs, and contrasts with the strategy adopted by its Japanese rivals: Takeda Pharmaceutical, for example, bought biotech firm Millennium Pharmaceuticals in April, while Eisai bought speciality manufacturer MGI Pharma in December 2007. The Ranbaxy deal should bolster Daiichi’s revenues more quickly however, with income from the acquisition expected from the fiscal year after next.

Interestingly, Daiichi is following the model of Novartis by incorporating generic sales into its structure; this strategy has the obvious benefit of maximising the full pharmaceutical life-cycle of products, and also hedges the inherent riskiness of new molecules with a more steady supply of generics. The model follows long-term assumptions over the future of the industry, where a handful of global players will dominate, crowding out all competitors bar the smaller niche-orientated firms.

This major deal in many ways mirrors the divestiture of Merck Generics last spring. That deal saw a brandname manufacturer look to sell its generics division; the race to buy the firm was eventually won by Mylan Laboratories, which had to fight off competition from a number of other major generic firms. These included Ranbaxy, which was an early contender, along with Teva Pharmaceutical Industries and Actavis. At the time, it seemed these three companies would be in the forefront of bidding for the next big generics target; ironically, Ranbaxy itself has now become a target. That flurry of activity after the initial Merck Generics bid could indicate a similar bidding process for Ranbaxy; indeed rumours have since circulated that Pfizer may bid for the remaining shares. However, without the support of the Singh family, Ranbaxy’s largest and controlling shareholders, a counterbid may prove difficult. For now, Daiichi remains in the vanguard.

Jonathan Way - Editor, World Generic Markets

Sun and Taro squabble over merger agreement

Taro Pharmaceutical Industries and Sun Pharmaceutical Industries have become embroiled in an increasingly bitter row over a merger agreement between the two companies (see p. 19). Taro’s Board of Directors was first to act, announcing that it had unanimously voted to terminate the 18th May 2007 merger agreement with Sun, as the agreement provided for a termination from either party after 31st December 2007. Sun responded by refuting this claim, and noting its scepticism of Taro’s ability to turn itself around after its financial crisis early in 2007; Sun has also reacted angrily to suggestions that Taro may sell its Irish operations, as these were to play a key part in its post-merger operations.

Taro noted on 29th May that the merger is no longer in the best interests of the company. Its management board felt that the deal did not reflect the ‘dramatic operational and financial turnaround’ that the company has achieved since last year. The firm also felt that the operational constraints in the agreement were interfering with the company's ability to manage its business for the benefit of all of its stakeholders, and that, but for some of these constraints, Taro's profitability and cash resources could have been higher at present.

Sensing Taro’s reluctance to go ahead with the merger deal, Sun upped its offer per share from US$7.75 to US$10.25. After Taro went public over the matter, Sun questioned how the Israeli firm could afford not to make the deal, noting that if Sun had not injected US$60 million into the company in the last year, Taro would have virtually negative cash. The Indian firm also commented that it made every effort to fulfil its obligations under the agreement, and that Taro had ignored its attempts to discuss an increase in the merger consideration.

Taro’s termination of the deal is surprising, given the financial struggles that beset it before Sun agreed to refinance US$224 million of its net debt last year. It had suffered a turbulent time prior to the Sun deal: finance reporting problems led to the firm having to restate its financial results for 2003 and 2004, a move which eventually contributed to the resignation of its Senior Vice President and Chief Financial Officer and its delisting from the NASDAQ Global Select Market. The financial reporting problems and lower than expected results for 2006 led to concerns over Taro’s loans, leaving it with little other choice than to accept Sun’s offer. Whether Taro has accomplished enough in the last year to gain the upper hand in its dealings against Sun it remains to be seen. Either way, the fallout could hit both companies hard when the full financial ramifications are understood.

Jonathan Way - Editor, World Generic Markets

Intellectual protection issues come to the fore

Intellectual property issues have been a hot topic for various governments over the last few weeks, with significant developments occurring in Brazil, the Philippines and India. Earlier in April, the Brazil Health Ministry declared the antirretroviral drug tenofovir to be in the ‘public interest’, signalling its willingness to import a generic version of the medicine. The Health Ministry’s declaration indicates that the patent for the drug could be rejected due to its high price; this could then lead to negotiations over the import of a generic version.

At the end of last month, the Philippines also turned against branded manufacturers, with its Congress approving a bill that strongly promotes generic medicines. The new law, which still requires approval from the President, will allow limited parallel importation, should help to prevent incremental innovation, will allow local generic firms to register their versions before patent expiry, and could permit the use of compulsory licences for the public good.

Conversely, one region which has traditionally been without strong intellectual protection laws for years, India, is now looking to clamp down on marketing approvals of drugs already patented. The Drug Controller General of India has published a reference guide and hopes to co-ordinate with the Ministry of Health to create an integrated approach which will link patents together. Following this, the DCGI will then prevent any approvals for generic versions of patented drugs. To date, patent linkage in India has proven difficult, as it has been impeded by a decentralised and inefficient drug approval structure. Unsurprisingly, domestic firms in the country are against such moves, arguing that they will be unworkable in practice.

The motivation behind moves to promote generics through intellectual property reforms are clearly motivated by the high costs of patented drugs. Interestingly, think-tank African Liberty has recently questioned the link, noting that low uptake of drugs was more likely caused by poor infrastructure. Either way, governments in developing countries are likely to continue putting pressure on IP rules, as weakening them in favour of generics appears to provide them with a quicker fix to long term drug expenditure problems.

Jonathan Way - Editor, World Generic Markets