UPDATE 2-Ranbaxy hit by FDA product ban at fourth Indian plant

Toni Clarke and Sumeet Chatterjee
Thursday, 23 Jan 2014 | 11:58 PM ET

* Move to keep "substandard" drugs out of US-FDA

* Most Ranbaxy products now barred from key market

* Shares in Ranbaxy drop nearly 20 percent

* Parent Daiichi Sankyo's shares also hit

Jan 23 (Reuters) - The U.S. Food and Drug Administration has banned products from a fourth plant run by Indian drugmaker Ranbaxy Laboratories Ltd from entering the United States due to manufacturing violations, sending its stock down nearly 20 percent on Friday.

The FDA said India's top drugmaker by revenue is prohibited from making and distributing pharmaceutical ingredients from its facility in Toansa in the northern state of Punjab "to prevent substandard quality products from reaching U.S. consumers."

Ranbaxy has been a major supplier of drugs, especially generics, to its most important market in the United States and this latest enforcement action means most Ranbaxy products are now banned there.

The ban, which followed an inspection completed at the plant on Jan. 11, is the latest in a series of measures taken by the FDA to keep substandard products made by Ranbaxy, majority owned by Japan's Daiichi Sankyo Co Ltd, out of the U.S. market.

The FDA had previously barred products from the company's facilities in Paonta Sahib, Dewas and Mohali as part of a 2012 consent decree designed to ensure compliance with good manufacturing practices.

"Almost like the worst-case scenario for Ranbaxy building up in the U.S. and extremely negative for the company in the long term as well," Mumbai brokerage Emkay Global said in a client note.

Indian drugmakers are among the world's biggest producers of cheap generic medicines. Demand for generics is on the rise as the United States battles rising health-care costs and as more big-selling branded drugs go off-patent in western markets.

The rise in demand for generic drugs has led to closer regulatory scrutiny and sanctions imposed on top drugmakers including Ranbaxy and Wockhardt Ltd, which has been hit by import bans from both the FDA and Britain's drug regulator.

Shares in Ranbaxy fell as much as 19.8 percent on Friday to their lowest level in nearly four months, while Daiichi Sankyo shares were trading down 6.6 percent.

Ranbaxy said it was disappointed with the FDA's action and that it had voluntarily suspended shipments of products from the Toansa facility to the U.S. market when it received the inspection findings.

"This development is clearly unacceptable and an appropriate management action will be taken upon completion of the internal investigation," Chief Executive Arun Sawhney said in a statement.

Daiichi Sankyo said in a statement that it was "confirming the situation with Ranbaxy" and would issue a statement when it had more details.

The FDA's action follows an inspection that identified "significant" violations of sound manufacturing practices.

Staff at the Toansa facility were found to have re-tested raw materials and other ingredients after the items failed analytical testing "in order to produce acceptable findings," and did not report or investigate the failures, the FDA said.

The agency said the Toansa facility was now subject to certain terms of a consent decree entered against Ranbaxy in 2012. Under that agreement, Ranbaxy is prohibited from exporting active pharmaceutical ingredients (APIs) made at the facility to the United States, including for drugs made at its Ohm Laboratories facility in New Jersey.

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