Ranbaxy Laboratories Ltd. (RBXY) had its rating cut by at least seven brokerages after plans to sell generic versions of two blockbuster pills were frustrated by import restrictions placed on a third Indian production plant.
Recommendations on the stock were lowered by brokerages including Jefferies LLC, HSBC Holdings Plc, and Edelweiss Securities Ltd. after the Food and Drug Administration issued an import alert against a Ranbaxy facility in Mohali, Punjab state, causing the shares to plunge 30 percent yesterday.
The plant was being prepared to make copies of Novartis AG (NOVN)’s blood-pressure pill Diovan and AstraZeneca Plc’s stomach ulcer medicine Nexium, which had combined annual sales of more than $5 billion. Products from Ranbaxy’s Dewas and Paonta Sahib factories are already prohibited in the U.S. because of quality control issues that were part of fraud allegations, which Ranbaxy agreed to settle in May for $500 million.
“It is very unlikely to get approval for Diovan and Nexium in the coming one and a half years,” Bhagwan Singh Chaudhary, a research analyst with IndiaNivesh Securities Pvt. in Mumbai, wrote in a note to clients yesterday. The news is “likely to be a huge negative for the stock,” which may drop as low as 250 rupees, he said.
The 30 percent drop yesterday in the shares of Ranbaxy factors in the business slowdown caused by the import alert and the “significant discount to peers is not justified,” Saion Mukherjee and Aditya Khemka, Mumbai-based analysts for Nomura Holdings Inc., wrote in a note to clients today.
The stock gained 3.6 percent to 330.10 rupees at the close in Mumbai trading, rebounding from its worst one-day slide since at least January 1991.
Daiichi Sankyo Co. (4568), which owns 64 percent of Ranbaxy, slumped 6.8 percent, the most since March 2011, to 1,772 yen at the close in Tokyo trading.
A company forecast for 120 billion rupees ($1.9 billion) in sales this year is in jeopardy because of the potential for the import alert to derail the timely release of other products, said Balaji Prasad, a health-care analyst with Barclays Securities India Pvt. Prasad, who has an underweight rating on the shares, expects revenue of 110 billion rupees, he wrote in a note to clients yesterday.
Ranbaxy has received information from the FDA on the import alert and the expansion of a 2012 consent decree for manufacturing standards to include the Mohali facility, Erica Jefferson, an FDA spokeswoman, said in an e-mail.
The company will review the details and will continue to fully cooperate with the FDA and “take all necessary steps to resolve the concerns at the earliest,” Ranbaxy said in a statement today. The FDA inspections of Mohali were made last year and the company has made improvements since then, it said.
“Ranbaxy is hopeful of an early resolution of these concerns,” the company said in the statement.
The drugmaker has had about 18 filings since 2009 with the FDA for approval to sell generic medicines from the Mohali facility, Rahul Sharma, a pharmaceuticals analyst with Karvy Stock Broking Ltd. wrote in a note yesterday.
Sharma now expects Ranbaxy to get two FDA approvals this year, instead of 10, and five next year, compared with the 15 he anticipated before the import alert, he said.
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