Shares of India’s largest drugmaker Ranbaxy Labortories ended 30% lower today at Rs. 318.15 as the US
Food and Drug Administration has issued an import alert on drugs produced by
the company at its Mohali plant in Punjab, for violation of current good
manufacturing practices.
Detention without Physical Examination popularly known
as “Import Alert” or “Import Ban” of Drugs is due to non-compliance with drug
GMPs or good manufacturing practices. About Rs. 831 crore of investor wealth
has been eroded due to the stock tanking 30%.
Here are 5 reasons why the stock has been the biggest market
mover today:
1. Ranbaxy will not
be able to ship drugs manufactured in the Mohali plant to the US
US FDA has issued an import alert on drugs produced by the
company at its Mohali plant in Punjab, for violation of current good
manufacturing practices. According to information available on the USFDA
website, the import alert, dated September 13, will cover all ‘drugs and drug
products’ produced by the company at the Mohali plant. While the US health
regulator did not specify details for issuing the alert, it said “detention
without physical examination may be appropriate when an FDA inspection has
revealed that a firm is not operating in conformity with current good
manufacturing practices (GMP’s)”.
The same plant was even inspected last year and in June
2013, the stock had slipped 4.5% on reports that the US FDA had issued a Form
483 against the Mohali unit after finding deviations from prescribed norms
while inspecting the plant. Hence an import alert means Ranbaxy will not be
able to ship drugs manufactured in the Mohali plant to the US till the ban is lifted,
which is a major market for the pharma major.
2. This is not the first time that the unit has come under
US FDA’s scanner
This is the third Indian plant of Ranbaxy Laboratories that
has been sanctioned with an import alert ban from the US FDA. The FDA had
inspected Ranbaxy’s Mohali plant in 2012 and suggested compliance issues within
the plant. In May this year, Ranbaxy had
pleaded guilty to “felony charges” relating to manufacture and distribution of
certain ‘adulterated’ drugs made at two units in India and agreed to pay $500
million to US authorities as penalty. This followed a series of action taken by
the USFDA, which in 2008 banned import of 30 generic drugs produced by Ranbaxy
at its Dewas (Madhya Pradesh) and Paonta Sahib (Himachal Pradesh) plants for
violation of manufacturing norms. The company had admitted to past
“shortcomings” but said it has rectified those and insisted that its drugs were
safe and efficacious. It had also offered to co-operate fully with any
regulator from anywhere in the world wanting to investigate its manufacturing
practices.
3. USFDA move is certainly a negative sentiment for the
company
The Mohali plant is a very important for Ranbaxy as Diovan
was likely filed from Mohali unit and any delay in the launch will be a huge
negative.
Sriram Rathi of brokerage firm Anand Rath, told CNBC- TV18
that Ranbaxy is not selling any product from this plant. It is thus likely to
hit sentiments more than the actual balance sheet. However, he cautioned that
if the companies’ exclusivities which are still in the pipeline like Diovan and
Valcyte are from this plant then there can be significant financial
impact. “There were no direct sales to
the US from Mohali as of now, so EPS wise there is no hit to numbers yet.
However, several ANDAs had been filed from Mohali, which will now take time for
approval,” brokerage house Citi wrote in its note to clients. In other words,
Mohali is a new facility and is supposed to be the future revenue generator for
Ranbaxy, so the impact will be felt on the future financial performance of the
company rather the current.
4. HSBC downgrades stock
Reacting to the import alert, HSBC
downgraded Ranbaxy Laboratories to ‘underweight’ from ‘overweight’ and also
slashed its target price from Rs 440 to Rs 421.
“Import alert on Mohali facility not in line with
expectations as hopes for Diovan launch from Mohali have been dashed,” said the
HSBC report. However, they don’t see any financial impact due to import alert
but delay in new product approvals will hit long term recovery.
5. Ban impacts pipeline
Sarabjit Kour Nangra (VP-Research,
Pharma), Angel Broking, Mumbai, said the pharma major, after the problems at
Ponta Sahib and Dewas, has to contend with the import alert issued by the US
FDA on its Mohali unit. Though manufacturing was not on at full scale at the
new plant, the company had planned to produce most of the new drugs there.
She said the plant was issued Form 483 in 2012 indicating
that there were some manufacturing issues which the USFDA had pointed out
giving Ranbaxy time to comply with them. However, as the company could not meet
them, the 483 has now been converted into an import alert.
Nangra felt that Mohali plant was crucial for Ranbaxy since
the company had in the past three years had made filings from Ohm and Mohali.
The filings from Ohm and Mohali were worth around $6 billion of brand value at
present and the new facilities were expected to contribute more than 75 percent
of the business. She said the import alert could be a “huge setback” for
Ranbaxy since it has only Ohm labs to cater to its US business and would trade
at a significant discount to its “near comparable peers” such as Cipla and
Lupin.
She felt that after today’s fall the stock has little “left
in terms of the decline fundamentally” and was neutral on Ranbaxy.
And while only one product (generic of cholesterol lowering
drug Lipitor) was approved from the Mohali plant, Ranbaxy has indicated that
there are 34 filings pending approval from the Mohali and Ohm labs facilities.
These approvals are now at risk and could delay the launch of new products.
Ranbaxy in a statement to the BSE clarified that it has not received any import
alert for its Mohali facility in India from the US FDA. But this did not
inspire the investors and the stock continued to bleed much after clarification
was posted on the BSE web site.
