Ranbaxy? Wow.

The effluent has finally hit the fan. Ranbaxy has stonewalled the FDA for ages to keep records relating to quality audits at its manufacturing facility in Paonta Sahib secret, but the FDA seems to have lost patience: yesterday it banned the importation of anything produced at Ranbaxy's plants at both Dewas and Paonta Sahib. From an FDA press release:

The Warning Letters identify the agency's concerns about deviations from U.S. current Good Manufacturing Practice (cGMP) requirements at Ranbaxy's manufacturing facilities in Dewas and Paonta Sahib (including the Batamandi unit), in India. Because of the extent and nature of the violations, FDA today issued an Import Alert, under which U.S. officials may detain at the U.S. border, any active pharmaceutical ingredients (API) (the primary therapeutic component of a finished drug product) and both sterile and non-sterile finished drug products manufactured at these Ranbaxy facilities and offered for import into the United States....

Earlier today, the FDA informed Ranbaxy that until it resolves the deficiencies at each of these two facilities and the plants come into compliance with U.S. cGMP requirements, FDA's drug compliance office will recommend denial of approval of any New Drug Applications (NDAs) and Abbreviated New Drug Applications (ANDAs) that list the Paonta Sahib or Dewas plants respectively as the manufacturer of APIs or finished drug products.

That's shocking. As the FDA's press release says, Ranbaxy is one of the biggest importers of generics into the US. The action casts doubt on the standards of all Indian drug manufacturers, who have worked for years to improve their reputation. It was only months ago that the heparin disaster raised the possibility that offshoring might be proceeding to quickly. Anyone considering outsourcing the manufacture of their API to India will factor this example into their calculation of risk. They will already be considering the rising costs of India and China, where inflation is over 10%.

I wonder how Daiichi Sankyo feels about their acquisition now-- as if it hadn't been hard enough to get Japanese to use generics....

How would you like to live in Hyderabad?

Rob Bryant, a fine chemicals consultant based in the UK, had a provocative essay called Can Asia innovate? published in Scrip in January.

Given the far lower margins to which most Asian companies operate (bar those in Japan) compared to their European counterparts, improving the efficiency of processes would seem to be a good idea. Yet the majority of Asian pharmaceutical manufacturing processes remain inefficient, often polluting and generally second-rate.

Bryant suggests that Europe benefits from an innovation-friendly culture that is absent in Asia.

It is certainly intriguing that Asian social traditions tend to avoid intellectual confrontation and that people are educated to respect the status quo to a degree that Europeans could not tolerate.... Perhaps a talent for asking difficult, and even annoying, questions is one of Europe's competitive advantages in the pharmaceutical industry.

If that's so, it hasn't stopped pharma fine chemicals manufacturing from migrating to Asia. Companies in India and China can easily undercut Western companies on cost. However, Bryant notes, competition among Asian companies has cut even their margins to the bone. He says the only room for reducing costs is improved processes, and he suggests that Asian companies will have to turn to Western technologists for that.

Europeans must be quick-witted enough to take advantage of this opportunity to continue to participate in API manufacture in this way. By inventing better processes to replace the older ones employed in Asia, they can participate actively in these countries' success and, where scale of manufacture allows, even compete successfully from a Western production base.

If not Hyderabad, how about Shenzhen?

Drug shortage in India?

According to the Indian Drug Manufacturers Assoc., Olympics-related shutdowns of key raw materials suppliers in India are going to mean drug shortages in India in the next few months. Says DNA India:

India imports as much as 80% of its pharma raw material requirement, including APIs, from China because it is 10-40% cheaper, said Swati A Piramal, director, Piramal Healthcare.

Shinde says the shortage is not being felt today because medical stores are coping with pre-clampdown inventories.

“But after September, the shocks will be felt everywhere. The current stock will be consumed by then.

People will find it difficult to source drugs they would desperately want,” Shinde warns.

Domestic manufacturers are hurting, too, because shortage is spiking raw material prices and price control has become a bigger headwind.

“After the clampdown, prices of raw material have risen by 30-50%,” Piramal said. About 40-60% of the total costs of a pharma company is accounted for by raw material.

Indian manufacturers blame price controls in the country for driving them to outsource so much raw material manufacture in China, although it's hard to imagine why they wouldn't go to the cheapest source even absent the price controls.

Tapan Ray, director general of Organisation of Pharmaceutical Producers of India (OPPI), says companies have primarily been sourcing raw material from China because the low cost offsets the price control in India.