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Another import alert savages Ranbaxy stock

Saturday, 25 January 2014 - 7:23am IST | Place: Mumbai | Agency: DNA

Daiichi Sankyo controlled Ranbaxy Laboratories Ltd, has been slapped with another import alert by the US Food and Drug Administration (USFDA) this time on the drug maker’s active pharmaceutical ingredients (API) facility at Toansa in Punjab.

This is Ranbaxy’s fourth unit in India that has come under USFDA’s import alert and all supplies to US for products manufactured at this plant have now been prohibited.

“This is going to be the worst possible fiscal for Ranbaxy. With the Toansa unit also under import alert, business will take a significant hit in the upcoming fiscal as well,” said Ranjit Kapadia, senior vice president at Centrum Broking.

The drug regulator’s ban analysts said, will help rival players like Aurobindo Pharma and Lupin gain more market share in the US.

Meanwhile the company’s stock on Friday tanked 18.94% or Rs 79.05 at the close of Rs 338.40 on the National Stock Exchange as news of the new import alert spread across big investors. Most pharma analysts, who were neutral on the stock earlier have now downgraded the stock to a ‘sell’ citing more pain in the near future.

Arvind Bothra, vice president at Religare Capital Markets said, US and India are the only two businesses that have been contributing to profitability. “With this adverse regulatory action, Ranbaxy’s profitability for next 4-6 quarters would be under duress.” he said.

“We expect significant negative impact on stock price following this news and reiterate our stance that Ranbaxy’s quality concerns would weigh on its fundamentals and current valuations are unjustified,” he added.

The import alert on Toansa comes immediately after the US drug regulator issued Form 483, an observation identifying issues with manufacturing practices, for the same plant earlier this month. Effectively, except the Ohm Labs (US) facility, now all of Ranbaxy’s manufacturing units viz. Ponta Sahib, Mohali, Dewas, Toansa are now prohibited from distributing products in the US. It’s fifth unit in Gurgaon isn’t currently producing drugs for the US market.

“The Toansa unit supplies almost 70% of APIs to Ohm and the import alert will have an impact on its capacity utilisation to a large extent. I’d say this import alert has partially paralysed the US facility as well,” said Kapadia.

Even for Ohm Labs, Ranbaxy can supply products only with external API sources, said Bothra. “We expect US quarterly sales of $125mn (base) to be bit by 35-40% for next 3-4 quarters, until they get site transfers for key products. However, this would imply negative operating leverage for its operations which would be under-utilised,” he said. Bothra expects redressal on the US facilities to take time, given its under consent decree. “There would be inordinate delays int approvals for exclusivities like Diovan,” he said.


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