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BW Businessworld

Ranbaxy Recalls Generic Lipitor in US, Shares Fall

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Ranbaxy Laboratories Ltd, India's top drugmaker by sales, said it has recalled its cholesterol-lowering drug atorvastatin in the United States, a generic version of Lipitor that largely drove the company's sales in the first of half the year.

Earlier this month, Ranbaxy had beat estimates with a Rs 750 crore quarterly net profit on stronger demand for its generic drugs in its key North American market while foreign exchange gains had ballooned.

The recall will temporarily disrupt supplies of atorvastatin in the US market while it conducts an investigation, Ranbaxy, controlled by Japan's Daiichi Sankyo Co, said in a statement.

Shares of the company fell more than 2 per cent following the announcement.

"The development will impact the company's credibility to an extent," said Bhagwan Singh Chaudhary, a research associate at the brokerage IndiaNivesh.

"There have been issues in the past (about compliance) and a recall suggests, corrective measures suggested by the US FDA are not being implemented."

Last month, talking to BW on the hybrid business model as well as FDA issues, Ranbaxy chairman Tsutomu Une had pointed out that Daiichi-Sankyo had bought into ranbaxy after their own due diligence and believed Ranbaxy to be a valuable company to invest in. The FDA action had come after that and was unexpected and unfortunate.

Incidentally, Daiichi-Sankyo follows a a hybrid model with regard to Ranbaxy and allows it to pursue its own growth like any other generic major. In markets where Ranbaxy is very strong, such as emerging markets, Ranbaxy takes care of both its own and Daiichi Sankyo's innovative products.

Read: 'Ranbaxy Is A Critical Asset For Daiichi Sankyo'

The US Food and Drug Administration had banned shipments from some of Ranbaxy's manufacturing plants over compliance issues in 2009. Early this year, Ranbaxy agreed to make broader changes at it plants and agreed to appoint an external auditor to resolve the matter.

Ranbaxy was the first company to launch generic Lipitor in the United States after Pfizer Inc's patent expired on November 30 last year.

The Indian company enjoyed marketing exclusivity for the first six months to May 2012 along with US-based Watson Pharmaceuticals Inc.

Generic Lipitor generated nearly $600 million in sales for Ranbaxy for the first six months, when it had exclusive marketing rights, IndiaNivesh's Chaudhary said.

Ranbaxy has initiated an investigation about the recall and expects to complete it within two weeks, after which the company plans to resume supplies, the company said.

Early this year, Ranbaxy agreed to make broader changes at its plants and agreed to appoint an external auditor to resolve the dispute with the US Food and Drug Administration.

It has also set aside $500 million towards any settlement charges it might have to pay.

Shares of Ranbaxy, which is valued at $3.93 billion, ended down 3.2 per cent at Rs 496.35, underperforming a 0.07 per cent fall in the Mumbai market.

(With Reuters input)