Ranbaxy lost 30% in trade today to touch its lowest level since June 25 at Rs 297 on reports that the US FDA (United States Food and Drug Administration) has issued an import alert on the company’s unit in Mohali. This is not the first time that the unit has come under US FDA’s scanner. Earlier 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. Experts suggest that the Form 483 is issued by the FDA at the conclusion of an inspection to notify the company of objectionable conditions that might be in violation of the US Food, Drug and Cosmetic Act and related laws. However, it does not prevent a company from making regulatory filings from that unit. Impact Analysts suggest that the import alert is a setback for the company given that the Mohali unit is a relatively new unit with a focus on US markets. The latest development is likely to impact future earnings. Points out Sarabjit Kour Nangra, Vice President (Research), Angel Broking: “This is a setback for the company. After getting a clearance for its other facilities at Dewas and Ponta Sahib, it was expected that the US FDA issues will now be at the backburner and the company will move forward in terms of implementing its strategies with respect to the US and other overseas markets besides focusing on profitability.” “What is more worrisome is that this is a new facility and is supposed to be the future revenue generator for Ranbaxy. More than the current numbers (financials); the impact will be felt on the financial performance going ahead. The management had earlier indicated that from Mohali unit and Ohm's Gloversville (in US) facility put together, the company had planned to launch products worth $6-billion in the next couple of years,” she adds. Adds Aarthisundari Jayakumar, an analyst with Elara Capital: “The company has had a series of issues with the US FDA since the past five years. Despite paying $500 million in settlement/charges, there is no resolution in sight.” “The import alert will impact Ranbaxy’s future launches.
The company and the markets were expecting approvals for generic Valcyte and Diovan this quarter, which will now get delayed by at least six months. These two drugs could have easily added Rs 12 – 13 in EPS (earnings per share) and all this now gets pushed back,” she adds.Outlook Given the latest development, analysts remain cautious on the prospects of the company and suggest that one can avoid the stock at the current levels given uncertainty. “Given the current situation, the stock is unlikely to trade at a fundamentally fair valuation. Given the uncertainty, I don’t think that the stock will go up in a hurry. It can remain under-valued for quite a long time now,” Nangra points out. While an import alert usually pushes back the product launch by around six months, in case of Ranbaxy, the launch could get delayed to the second half of calendar year 2014 as the company has had issues with the US FDA regarding some of its other facilities. However, there is a silver lining. One must note that till the time Ranbaxy launches the generic version of Valcyte and Diovan, there will not be any other generic player for this product. “So, to that extent, the US FDA may be tempted to get these products out provided Ranbaxy can manufacture and supply them from their other facility,” Jayakumar adds. “There are better bets in the pharmaceutical space than Ranbaxy at the current juncture. One can exit the stock on a rally. Lupin, Cadila Healthcare, Sun Pharma, Cipla and Natco Pharma,” suggests A K Prabhakar, senior vice-president (retail research), Anand Rathi Financial Services in the pharma space.