Under FDA fire

The stock of Ranbaxy Laboratories fell 18% to Rs 169.95 per share on Thursday after the company received a letter from the US Food and Drug Administration (USFDA) charging the company with falsifying data and test results in pending and approved ANDAs (abbreviated new drug applications) from its Paonta Sahib facility. The decline came on a day the Sensex rose 0.59%.

The USFDA has invoked the Application Integrity Policy (AIP), which questions the integrity of data in drug applications at the Paonta Sahib facility. Somewhat comfortingly, the USFDA does not have any evidence that imply the drugs do not meet quality requirements. Nor has the regulator found any evidence of health risks from the products.

Ranbaxy has 10 days to react to USFDA's charges.

The development does not bode well for Ranbaxy since it impacts around 25 approved drug applications.

However, the impact of this development is unlikely to be huge, say analysts. This is because the USFDA had already banned most of the drugs in September 2008 and blocked imports from the Paonta Sahib facility due to manufacturing problems.

All the same, there are certain risks.

First, this could lead other regulators to evaluate their stance on the Paonta Sahib facility.

Second, ANDAs from the facility which have already been approved could be cancelled.

Third, until the AIP issues are resolved, scientific review of pending ANDAs from Paonta Sahib may be stalled.

Analysts say the company would witness significant decline in revenues in the days to come if the current issues are left unresolved.

Ranbaxy recently got approval for Imitrex with a 180 days marketing exclusivity for 100 mg strength only. This augurs well in the near term. Analysts estimate the company will earn revenues of around $14 million assuming a price erosion of 70%.

But, revenues in the June quarter are expected fall on account of import ban and challenges in Europe (pricing pressures).

The company posted a net loss of Rs 679.8 crore in the March quarter.

At Rs 161.80, the stock trades at 10.5 times its estimated earnings for 2010. Investors would do well to stay away from the stock. 

Pallavi Pengonda/ DNA-Daily News & Analysis Source: 3D Syndication

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