The stock of Ranbaxy Laboratories, which has been witnessing a smart turnaround at the bourses since August 2, plunged 30 per cent on Monday on reports that US Food and Drug Administration has sanctioned an import ban on one of the company's units in Mohali.
According to the US FDA, the plant owned by Ranbaxy at Mohali had not met "so-called good manufacturing practices".
However, a spokesperson for Ranbaxy, in which Japan's Daiichi Sankyo Co owns 63.5 per cent, said “the company has so far not received any communication from the US FDA on this subject.” A statement to the stock exchanges said: “We are seeking information from the USFDA in this regard” but the company’s stock plunged 30.27 per cent (Rs 138.40), the sharpest single-day fall in its history, closing at Rs 318.85.
There was a huge surge in trading volume in the counter with nearly 63 lakh shares being traded compared to the two week average of about 7.74 lakh shares on the BSE. The stock witnessed a wild swing, registering a low of Rs 297.25 and a high of Rs 411.55.
The stock on August 2 hit a 52-week low of Rs 253.95 and rose to a high of Rs 473 last week.
The drug regulator’s alert has been issued on concerns over the quality of medicines being produced at the Mohali plant. In 2008, the FDA had issued similar alerts against the company’s plants at Dewas (in Madhya Pradesh) and Paonta Sahib (Himachal Pradesh). These plants continue to be barred from shipping to the US. Ranbaxy has eight plants in India.
According to agencies, the US accounts for more than 40 per cent of Ranbaxy’s sales. Now, the company has to bank on its wholly-owned unit in the US, Ohm Laboratories. The import ban will remain “until such time as the FDA is satisfied that the appearance of a violation has been removed.”
This alert comes on the heels of the $500-million settlement made by Ranbaxy in the US in May after pleading guilty to drug safety violations, and lying to the FDA about manufacturing and testing processes.
Ranbaxy had started shipping the popular generic of the cholesterol lowering Lipitor from its Mohali plant in April last year but six months later recalled some batches due to the potential presence of glass particles. After this Ranbaxy had to stop exporting Lipitor from the plant.
The company has been awaiting the FDA’s nod for its generic versions of Novartis AG's hypertension drug Diovan. The FDA action may delay the launch of other new products including a generic version of Roche's anti-viral Valcyte and AstraZeneca Plc's blockbuster heartburn and ulcer pill Nexium in the US.
This is the third Indian plant of Ranbaxy Laboratories that has been sanctioned with an import alert ban from the US FDA.
According to a Reuters report, two of the company's other plants at Dewas and Paonta Sahib were hit with the same alerts in 2008, and are still barred from making shipments to the US.
The company has a total of eight plant locations across India.
The latest alert can deal a blow to the company’s turnaround plans.
Huge setback: Angel Broking
In a note on the developments concerning the scrip, 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.
Sarabjit Kour 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 per cent 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.
HSBC downgrades
Following the warning, HSBC on Monday downgraded Ranbaxy to "underweight" from "overweight".
HSBC said Ranbaxy had started shipping generic Lipitor, the widely used cholesterol lowering medicine, from its Mohali plant in April last year but six months later it recalled some of the batches due to the potential presence of glass particles.
Anand Rathi stock call: Sell
According to Anand Rathi, Ranbaxy received another import alert on its Mohali plant, which brings all its three plants dedicated to the US under import alert. This leaves Ohm Labs, in the US, as the sole supplier to the geography. This import alert follows Form 483 issued to the facility earlier this year by the USFDA with several observations.
"We expect base business margins to continue to improve, led by high-margin products in the US, recovery in domestic formulations and reduction in remediation costs pertaining to the consent decree. However, the import alert would delay the recovery. We downgrade the stock to sell from buy, considering this import alert and target price already achieved," said Anand Rathi with a price target of Rs 382.
A major negative: Karvy
According to Karvy, the import alert for the Mohali plant is a major negative for the company. The company has had around 18 filings since 2009 from this facility. We believe this would take a very long time, considering the past record of Consent Decree. "We have reduced the number of approvals from USFDA to 2 in current year from 10 previously and from 15 approvals in CY14 to 5 approvals".
The broking house, however, maintains a buy call on Ranbaxy but reduced the price target by 17.5 per cent to Rs 429.