New Ranbaxy import ban provides Novartis with unexpected benefit

Ranbaxy's misfortunes continue to translate into Novartis' good fortune. For a year, the revenues of the Swiss drugmaker have benefited from the fact that a generic of its top-selling hypertension drug Diovan has yet to hit the market. And now the FDA has banned Ranbaxy's manufacturing plant from exporting the drug to the U.S.

The FDA on Friday issued an import alert against the Mohali facility, according to Reuters. It is the plant that was slated to make generic Diovan, a drug that last year generated $4.4 billion in global sales for Novartis ($NVS). The drug went off patent in September of last year, and Ranbaxy was to make the exclusive generic but never got the go-ahead from U.S. regulators to launch its version. Mylan ($MYL) tried to get the FDA to nix the exclusivity in light of Ranbaxy's issues but was unsuccessful. A spokesperson for Ranbaxy said today that the drugmaker has yet to receive any communication from the FDA on the ban. Ranbaxy is "presently seeking information from the USFDA in this regard."

The fact that Novartis was not suffering the usual patent plight on Diovan allowed it in July to revise its full-year sales higher. It said it expected them to grow at a low single-digit rate instead of turn flat and core earnings to fall less than earlier forecast, again because generic Diovan was missing in action. Leerink Swann analyst Seamus Fernandez noted at the time that Novartis' second-quarter sales beat the firm's estimate by $264 million, driven "almost exclusively" by Diovan.

Of course the news is devastating to Ranbaxy, which on Monday saw its shares fall about 30% after the disclosure. Ranbaxy's other two Indian plants directed at U.S. production have been on import alert for 5 years over regulatory issues that the company in May agreed to pay the U.S. $500 million to settle. With the three Indian plants under alert, the company has only a plant in New Jersey to supply drugs to the U.S., a market that Reuters says accounts for more than 40% of its sales.

There have been indications that Ranbaxy was having issues at the Mohali plant. The facility began shipping generic Lipitor for the U.S. market in April 2012, but in November of last year, a piece in a reactor broke, and glass particles were found in the active pharmaceutical ingredient it needed for the drug. The company had to recall 41 lots, a move that wiped out its U.S. market share for the generic. In June, there were reports in Indian media that the plant had been issued a Form 483 by FDA inspectors for problems there.

Other drugmakers can also expect to benefit from the ban. As Reuters points out, it may delay the launch in the U.S. of other Ranbaxy generics, including a copycat version of Roche's ($RHHBY) anti-viral Valcyte as well as a generic of AstraZeneca ($AZN) blockbuster heartburn and ulcer pill Nexium.

- here's the Reuters story
- the import alert can be found here

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