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Hurt by stock write-off because of the US regulatory enforcements at its Mohali facility and foreign exchange charges, drug maker Ranbaxy Laboratories reported a loss of Rs 454 crore for the third quarter ended September, against a profit of Rs 750 crore a year earlier. Even after adjusting for one-offs, the net profit pegged by analysts at about Rs 72 crore is substantially lower than adjusted consensus number of Rs 122-133 crore for the quarter.
Ranbaxy follows a January-December financial year.
Ranbaxy, owned by Japan’s Daiichi Sankyo, clocked sales of Rs 2,750 crore during the quarter, marginally up three per cent from Rs 2,668.5 crore in the same period of the previous financial year. While the year-ago sales number was largely boosted by generic version of Atorvastatin, a cholesterol-lowering drug, what has helped improve sales in the quarter is the performance of Absorica. Analysts believe this acne-treating drug has fetched the company about $40 million (Rs 240 crore) in the September quarter against $23 million (Rs 200 crore) in the June quarter. This works out to about nine per cent of the quarter’s sales.
During the July-September quarter, Ranbaxy’s revenues from the US market rose to Rs 790 crore from Rs 770 crore a year ago. In the domestic market, sales for the quarter were Rs 570 crore, in line with the corresponding quarter.
Exceptional cost
The exceptional cost of Rs 69.5 crore was largely due to stock write-off at its Mohali facility, after the US Food and Drug Administration (FDA) imposed an import alert on the factory in September, barring it from supplying medicines to the US market. The regulator said the drug maker has not met the required current good manufacturing practices (cGMP) norms. An ongoing consent decree with the company has also been extended to the Mohali facility following the enforcement.
“Whatever has happened at Mohali is unfortunate and we have to do a lot more than what we have done in the past. We recognise that,” Ranbaxy chief executive and managing director Arun Sawhney told investors on a post-earnings conference call. He added the company has made further improvements at its Mohali facility since the last inspection in 2012 and remains committed to meeting the US FDA’s expectations.
Ranbaxy also incurred a foreign exchange charge of Rs 360 crore in the latest quarter, while the year-ago results included a foreign exchange gain of Rs 393 crore.
In the May-June quarter, too, the company had reported a net loss of Rs 524 crore on foreign exchange transactions and loss of goodwill booked at its overseas subsidiaries.
According to the management, earnings before interest, taxes, depreciation and amortisation (Ebidta) margins would have been 11-12 per cent instead of the seven per cent reported in the September quarter due to two exceptional items. The first is the Rs 33-crore legal settlement, while the second is the expenses related to the consent decree (amount not disclosed) for its Indian facilities. Analysts say margins adjusted for these were flat on a sequential basis. The company, however, said there should be a tapering down of remediation expenses, which should come down completely by 2015.
No capacity constraint
While Ranbaxy’s all three manufacturing facilities in India dedicated to the US market, which accounts for more than 40 per cent of its sales, have now been barred from shipping, the company’s management maintained there is no capacity constraint. When asked if the firm is looking to acquire manufacturing facilities in the country to meet the US demand, Sawhney told investors: “We are comfortable with our existing infrastructure, which is sufficient to address our business requirements at the moment.” The company is currently supplying to the US from Ohm Laboratories based in New Jersey. While the drug maker sounded confident, how will it be able to monetise exclusivity or first-to-file opportunities of Diovan (to treat hypertension), Valcyte (anti-viral) and Nexium (gastric relief) will be keenly watched by the Street.
In May, the company had pleaded guilty to US Justice department charges related to drug safety and it has already paid a record $500 million in fines. After falling more than 40 per cent in the months afterwards, the share price had started to inch up.
The Street was also disappointed as the firm failed to indicate any timelines for resolving issues with the US regulator. Most analysts believe that with key facilities under the FDA scanner, margins and profits will not see any dramatic change in the near future.
On Tuesday, Ranbaxy shares declined on the Bombay Stock Exchange to close at Rs 385.65 apiece, down 0.8 per cent from the previous close.
