Share market, analysts give Ranbaxy a thumbs down

Drug maker's scrip falls 6.62% after details of FDA deal emerged

Lack of clarity over the extent of damage that awaits Ranbaxy if it fails to clear its ongoing American regulatory troubles in a time-bound manner took a heavy toll on its share prices on Friday.

The stock of India’s biggest drug maker fell 6.45 per cent to Rs 443.75, lowest in the past nine months, even as the bellwether 30-share Sensex of the Bombay Stock Exchange continued an upward momentum. The decline in share prices was triggered by negative sentiment among investors over the possible impact of the consent decree Ranbaxy signed with the US Food and Drugs Administration (FDA) last month.

The details of the decree were made known only on Wednesday, as the US department of justice placed it for court approval on behalf of the FDA. Forfeiture of six-month market exclusivity on three drugs and review of five other drugs would add to the cost of $500 million set aside earlier, several analysts said. 

The story so far

* 2006: USFDA doubts violation of Good Manufacturing Practices at Ranbaxy’s Paonta Sahib facility

* 2008: Bans import of 30 products from Dewas and Paonta Sahib facilities

* 2009: USFDA charges Ranbaxy for falsifying data to obtain product approvals from Paonta Sahib facility

* Warning letter issued to Ranbaxy subsidiary, Ohms Labs, for its liquid manufacturing facility in the US

* 2011: Ranbaxy signs consent decree with the USFDA, sets apart $500 million towards potential penalty

* 2012: US Department of Justice files the consent decree for court approval

“We believe the details presented in the consent decree are incremental-negative for Ranbaxy,” said stock broking firm Nomura. Another firm, UBS, has downgraded Ranbaxy to ‘sell’ from ‘neutral’, citing the consent decree and a sharp rally in the stock over the past month.

In the absence of specific data, speculation was rife over the identity of the three drugs that face potential risk of losing exclusive marketing opportunity. Opportunities to be the first to launch the generic versions of blockbuster drugs such as Takeda’s $4.5-billion Actos diabetes pill and AstraZeneca’s $5-billion Nexium heartburn drug were among those mentioned. Cephalon’s sleep disorder drug, Provigil, and Novartis’ blood pressure drug, Diovan, were also among the speculative list of exclusive marketing opportunities at risk. “We expect it to be generic Provigil, Diovan and Valcyte, contributing sales of $186 million,” stated Sushant Dalmia of PINC Research.

“Ranbaxy has been asked to make fundamental changes before it can receive FDA clearance for its troubled plants. This may require huge additional expenditure,” said Ranjit Kapadia, senior vice-president of Centrum Broking.

Ranbaxy set aside $500 million to resolve all potential civil and criminal liability related to the three-year dispute with the justice department and the FDA, it said on December 21. Details of the proposed settlement released this week “dispel any optimism,” Credit Suisse AG said in a report yesterday.

Drug manufacturing and testing defects had led the FDA to block about 30 generic drugs made at Ranbaxy’s Paonta Sahib and Dewas plants in September 2008, three months after Tokyo-based Daiichi Sankyo decided to buy a controlling stake in Ranbaxy for $4.6 billion.