In the short term, that is expected to benefit
larger global competitors, such as Teva Pharmaceutical Industries
Ltd, Actavis Plc and Mylan Inc, which will be called upon to supply
drugs no longer available from some of their rivals in India, they
Over the longer term, the trend will put a new premium on
manufacturers who can demonstrate a strong quality record over time
and limit supply disruptions, particularly as U.S. drugstore chains
and pharmaceutical wholesalers make deals that consolidate their
buying on a larger scale than ever.
"When you talk to companies they will tell you that this was an
industry that used to be about nothing but price. Now the ability to
supply the market and have a reliable supply, to be in good favor
with the FDA, that's starting to mean something to customers," said
Gabelli & Co analyst Kevin Kendra.
The biggest setback for India's $14 billion a year generic drug
industry came in January, when the FDA banned imports from all the
Indian plants of Ranbaxy Laboratories Ltd, India's No. 1 drugmaker
by sales, over repeated production quality lapses.
While generic drugmakers based in the United States and elsewhere
have also been cited by the U.S. Food and Drug Administration for
quality control problems over the years, India's industry has come
under fresh scrutiny recently as the agency steps up its inspections
On a smaller scale, the U.S. health regulator banned medicines made
at a Sun Pharmaceutical Industries Ltd plant at Karkhadi.
Sun has said that plant accounts for less than 1 percent of its
Wockhardt Ltd and Dr Reddy's Laboratories Ltd have also run afoul of
the FDA or been involved in recent major product recalls.
Some U.S. doctors say the headlines have raised new concerns about
the quality of the generic drug supply.
Pharmacy chains including CVS Caremark Corp and Walgreen Co would
not comment on whether they have altered their purchasing operations
in any way.
Pharmacy benefits manager Express Scripts Holding Co, one of the
largest purchasers of generic drugs, would not single out India, but
said it has taken notice of quality concerns on a company-by-company
"We have increased our surveillance throughout the supply chain,"
said Express Scripts spokesman Brian Henry.
[to top of second column]
When products are temporarily removed from the U.S. market, "that
has given some larger manufacturers the ability to take up pricing
and pick up some share," said RBC Capital Markets analyst Randall
Jason Kolbert, an analyst with Maxim Group, sees Teva, with its vast
geographic reach and huge product portfolio, as a "direct
beneficiary" of Indian drug company setbacks. It sells, for example,
a version of the antibiotics made at the Sun plant under FDA
"These companies have to spend six months or a year fixing a
manufacturing quality control problem, so Teva is likely to pick up
a little bit of growth because this is not their problem," Kolbert
Morningstar analyst Michael Waterhouse said purchasers would
likely make a distinction between Ranbaxy, which has repeatedly been
cited by the FDA for lapses, against its Indian peers that have had
more sporadic problems, not unlike companies elsewhere around the
"The FDA overall is trying to raise the bar because it's a brutal
industry for a lot of these companies where the pricing pressure is
so hefty," he said.
Wockhardt, Ranbaxy and Dr. Reddy's did not respond to requests for
Piyush Nahar, an analyst with Jefferies India Private Ltd, said
Indian drugmakers have increased their investment in compliance and
some are considering investing in U.S. or European plants to
overcome regulatory challenges.
Waterhouse expects those efforts to pay off.
"Ultimately you would think standards would be raised in India and
they would still remain a formidable opponent," he said.
(Reporting by Bill Berkrot in New York, additional reporting by Zeba
Siddiqui in Bangalore; editing by Michele Gershberg and G. Crosse)
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