US inspectors visiting a factory in India owned by drugmaker Wockhardt Ltd in March found torn data records in a waste heap and urinals that emptied into an open drain in a bathroom six metres from the entrance to a sterile manufacturing area.
And when an inspector asked about the contents of unlabelled vials in the laboratory glassware washing area, a plant worker dumped them down a sink and said the contents could not be determined, according to a July 18 letter from the US Food and Drug Administration to Wockhardt, which makes sterile injectable drugs and various forms of insulin.
Habil Khorakiwala, chairman of Wockhardt, last week told shareholders that the problem at its Waluj plant "is an inexcusable lapse, but we have taken swift and definitive action, both corrective and pre-emptive," including appointment of a new quality chief and hiring of outside consultants.
India's drugmakers, battered by a rash of US regulatory rebukes including a record fine for Ranbaxy Laboratories Ltd, face closer FDA scrutiny as the agency ramps up its presence in the country.
Increased on-the-ground oversight reflects India's growing importance as a supplier to the United States, and should ultimately bolster quality and confidence in Indian-made drugs.
In March, India allowed the FDA, guardian of the world's most important pharmaceuticals market, to add seven inspectors, which will bring its staff in India to 19. India produces nearly 40 per cent of generic drugs and over-the-counter products and 10 percent of finished dosages in the United States.
"As more trade happens, as more drugs are approved and applications are submitted we will have to inspect more," Altaf Lal, the new FDA office director for India, told Reuters.
"Many Indian firms fairly well understand and they know good manufacturing practices. The problems we have seen with some companies are why we choose to make quality as one of our highest priorities," he said.
The FDA's stepped-up presence should also accelerate what some in the domestic industry hope is a more rigorous attitude towards compliance in a country whose cheap generics have made it the low-cost pharmacy to the world.
In the near term, it means Indian drugmakers could be more frequently hit by enforcement measures or inquiries, unnerving investors.
Shares of Ranbaxy, controlled by Japan's Daiichi Sankyo Co, fell as much as 42 per cent in the months after it pleaded guilty in May to US felony charges related to drug safety and agreed to $500 million in fines.
Ranbaxy, India's biggest drugmaker by sales, remains barred from making U.S. shipments from its plants at Dewas and Paonta Sahib. Ranbaxy has said the implementation of a consent decree it signed in January 2012 with the FDA to restart shipments has "progressed as per plan".
While Ranbaxy shares have recovered, the case put a cloud over the industry.
"We all know how Indian companies function and issues such as Ranbaxy and other import alerts have brought us a very bad reputation globally," said Ajay Kumar Sharma, director of research at the Organisation of Pharmaceutical Producers of India.
The urgency to be first with a generic version of a drug coming off patent is the main reason for quality problems, Sharma said. The company that first launches such a drug enjoys a 180-day exclusivity period, which can be lucrative for the generic version of a commercial blockbuster.
"We need to be sincere towards quality issues rather than following procedures just for the sake of it," said Sharma. "We are doing things fast but then losing out on certain aspects and facing import alerts."
Wockhardt's once-soaring shares fell as much as 79 per cent in the months after the announcement of an "import alert" banning shipments from the Waluj factory in May. By the middle of this week, the stock was down nearly 59 per cent.
On July 31, Strides Arcolab shares fell as much as 17 per cent on worries over FDA scrutiny of its manufacturing practices, although the Indian company said on that day that it had answered the FDA's queries, made in a so-called form-483 letter, and continued to make US shipments. Its stock has more than recovered.
The FDA's power cuts both ways. Last week, IPCA Laboraties shares gained 7.6 per cent on the day it said the FDA had cleared its oral solid formulations plant in Indore for US shipments. In November, IPCA had voluntarily reported "non-conformances" at the plant to the FDA.
"More inspectors initially could mean some more enforcement actions, but eventually that would end up meaning even fewer enforcement actions going forward," said Macquarie analyst Abhishek Singhal.
India is the biggest overseas source of medicines to the United States and is home to over 150 FDA-approved plants, including facilities run by global players. Pharmaceutical exports from India to the United States rose nearly 32 per cent last year to $4.23 billion.
New US legislation requires the agency to inspect global plants on the same schedule as domestic facilities, and to clear its backlog of drug applications within five years. Indian firms account for more than one-third of US drug approval filings.