Would you trust Made-in-India medicines? For years, the country’s pharmaceutical companies have been betting that consumers worldwide would be happy to buy low-cost drugs from India. Just as IT services companies such as Infosys (INFO:IN) and Tata Consultancy Services (TCS:IN) became outsourcing powers by providing inexpensive ways to do work offshore, pharma companies from India have tried to take advantage of the country’s big supply of low-cost, high-skilled workers to make medicines.
There’s plenty of opportunity for Indian companies to make generics, or cheaper versions of brand-name drugs that have lost their patent protections. The global generics market will grow to $430 billion in 2016, up from $242 billion in 2011, according to a recent report from Dolat Capital, an investment management and financial advisory company in Mumbai. That’s a compound annual growth rate of 12 percent, compared with 8 percent from 2006 to 2011, as many brand-name drugs lose their patent protections.
According to the Dolat report, published Sept. 4, “$100 billion worth of drugs [are] slated to go off patent over the next five years.” In 2011, only 25 percent of global spending on drugs was for generics. In 2016, generics’ market share will increase to 35 percent. “Indian generic companies,” Dolat reported, “are gearing up for this opportunity.”
Today, though, those ambitions suffered a major setback. The stock price of Ranbaxy Laboratories (RBXY:IN), the largest drugmaker in India, dropped more than 30 percent. That’s no typo: The shares lost nearly a third of their value in one day.
The plunge came on the first day of trading following news that broke in the U.S. last week. On Friday, the U.S. Food and Drug Administration announced an import alert against one of Ranbaxy’s Indian manufacturing facilities that was going to produce a generic version of Diovan, a blood-pressure medication made by Novartis.
The FDA’s import alert is bad news, for sure, but is that announcement enough to merit such a disaster for the top pharma company in the country? Keep in mind the FDA’s move is just the latest embarrassment for Ranbaxy, which this year already has had to pay a huge penalty in an attempt to solve its problems with American regulators. In May, the company admitted it had lied to the FDA about procedures at two of its plants. At the same time, Ranbaxy agreed to pay a $500 million fine to resolve fraud allegations involving improperly manufactured, stored, and tested drugs.
Ranbaxy isn’t providing much information about the newest punishment. “We have so far not received any communication from the U.S. FDA on this subject,” Ranbaxy said in an e-mail to Bloomberg News. “We are seeking information from the U.S. FDA in this regard.
But the FDA’s move does indicate the company has yet to absorb the lesson from its half-billion-dollar fine. “It doesn’t seem that things have changed,” Rohit Bhat told Bloomberg. ““Everyone knows that the company has been facing FDA compliance issues for their other units, but it was expected that they would have learned from earlier experiences and hoped that they would be able to clear the FDA for this unit.”
Ranbaxy isn’t the only Indian drugmaker to have problems with the FDA. Another pharmaceutical company, Strides Arcolab (STR:IN), today said in a statement that the U.S. regulator had issued a warning letter after an FDA inspection of its factory in Bangalore. “The company is committed to work collaboratively and expeditiously with the U.S. FDA to resolve concerns cited.”