Please refer to important disclosures at the end of this report
After the problems at Ponta Sahib and Dewas, the USFDA is said to have issuedan import alert on Ranbaxy Laboratories (Ranbaxy)’ Mohali unit. The Mohaliplant, being a new one, wasn’t manufacturing full scale, but most of thecompany’s new drugs were being slated to be manufactured at this plant. Thecompany was earlier issued Form 483 for Mohali in 2012. This means there werecertain manufacturing practices which the USFDA had already pointed out beforeto the company and the company had time to comply with the problems theUSFDA had bought up, which it however failed to rectify.
Implication of possible import alert for the Mohali facility
Since Ranbaxy could not comply with the issues raised in Form 483, the samehave now converted into an import alert. While the Ponta Sahib and Dewas unitsare out of trouble with the USFDA decree, the Mohali plant is crucial for thecompany’s future growth, as in the last three years the company has made filingsfrom Ohm and Mohali. According to the company, the filings from Ohm andMohali total to around US$6bn of brand value at present and these new facilitieswere expected to contribute more than 75% to the business even after Dewas andPonta Sahib get cleared from issues five years down the line.
Road cleared for Ponta Sahib and Dewas facilities but timelines uncertain
Post the USFDA’s adverse action in early CY2009 (AIP invoked on Ponta Sahibfacility and import alert issued for Dewas facility), Ranbaxy’s US sales had beenimpacted but for first-to-file (FTF) products. Ranbaxy has signed a consent decreewith the USFDA regarding the ongoing Current Good Manufacturing Practices(CGMP) issues. We note that the consent decree lays out a plan of action asagreed by the two parties to resolve the outstanding issues. However, the timelineregarding the resolution is still unclear. As per Ranbaxy’s Management, the company has taken corrective actions, as persuggestions by a consultant, and has been working closely with the USFDA toresolve issues. Ranbaxy settled a US suit by pleading guilty to felony chargesrelating to manufacture and distribution of certain adulterated drugs made at twoof its Indian manufacturing units. The US subsidiary of Ranbaxy agreed to pay apenalty of US$500mn, which is the largest settlement with a generic medicinemaker till date. With this settlement, the long lawsuit is now over for the company but the timeline for the final approval and subsequent export of products fromthese facilities is not yet certain.
Outlook and valuation:
Given that sometimes import alters take longer to resolve,as seen in the case of Ranbaxy (came in in 2008 and still unresolved), they couldbe a huge setback for Ranbaxy as it now has only Ohm Labs to service its USbusiness. We await more clarity from the Management on the exact impact of thedevelopment on the financials of the company, especially on the OPM. On thesales front, it is unlikely to have a major impact as the Mohali facility is fairly new(has been approved in October 2011) and has been supplying to the US only since1QCY2012. Hence we are not changing our estimates on the stock as of now.However, given the likely impact the development can have on the future growthof the company and the adverse impact on profitability (unless the issue isresolved soon), the stock will trade at a huge discount to its peers.
Hence wereduce our, rating to Neutral on the stock.
457Target Price -
Investment Period -
Stock InfoSector1,564 Bloomberg CodeShareholding Pattern (%)Promoters63.5MF / Banks / Indian Fls13.4FII / NRIs / OCBs13.1Indian Public / Others10.0 Abs. (%)3m1yr3yrSensex188.8.131.52Ranbaxy20.9(15.5)(9.3)RBXY@INFace Value (
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Sarabjit Kour Nangra
+91 22 3935 7800 Ext: email@example.com
Mohali plant likely to be under USFDA import alert
Event Update | Pharmaceutical
September 16, 2013