Ranbaxy shares fall on $1bn payout news

Settlement of USFDA charges important for plans to launch Lipitor in US.

The shares of Ranbaxy, India’s largest drug maker, fell the most among healthcare stocks today after a US magazine reported it might have to pay over $1 billion (Rs 4,476 crore) to the US drug regulator for lifting the ban on import of medicines produced at two of its production centres.

When contacted, Ranbaxy refused comment.

The company has been negotiating with the United States Food and Drugs Administration (USFDA) ever since the regulator accused it of indulging in a “pattern of systemic fraudulent conduct” for a long period. The company was accused of falsifying data from the two plants.

 

USFDA also banned import of 30 drugs produced at the plants. This led to a big revenue loss for Ranbaxy as the US was its key growth driver.

While Ranbaxy’s negotiations with USFDA are known, the magazine quoted “sources with knowledge of negotiations” to predict a possible settlement fee of over $1 billion, approximately half of Ranbaxy’s operating income in 2010.

Settling the issue is important for Ranbaxy as it is close to getting the final approval to sell, exclusively for six months from November, a low-cost version of the world’s largest-selling medicine, Lipitor, in the US. Lipitor, Pfizer’s cholesterol-lowering drug, saw sales of $7.2 billion in the year ended September 2010.

While USFDA has given tentative approval for the launch, the final go-ahead will come only if issues related to the two plants are settled.

The regulator may also allow Ranbaxy to make Lipitor at a different plant, but a final decision on this is yet to be taken.

Ranbaxy’s US rival, Mylan, recently moved court to prevent USFDA from giving the final nod until the charge of “falsification of data” was cleared. However, the court rejected Mylan’s plea.

In 2008, USFDA had banned 30 generic drugs produced at Ranbaxy’s Dewas (Madhya Pradesh) and Paonta Sahib and Batamandi units (Himachal Pradesh), citing violation of approved manufacturing norms. The same year, the US Department of Justice moved a motion against the company in a court alleging forging of documents and fraudulent practices. It withdrew the case the same year.

Ranbaxy’s shares closed 6.03 per cent down at Rs 426.4 on the Bombay Stock Exchange today. The Sensex fell 1.4 per cent.