anbaxy Plunges on FDA Alert That May Spur Novartis Diovan
Ranbaxy (RBXY) Laboratories Ltd., the Indian drugmaker that agreed to pay $500 million to settle fraud allegations, plunged the most on record after U.S. regulators restricted imports from one of its production facilities.
The U.S. Food and Drug Administration issued an import alert against a Ranbaxy plant in Mohali, Punjab state, according to a Sept. 13 notice. The plant was set to make generic versions of Novartis AG (NOVN)’s blood-pressure pill Diovan, said Girish Bakhru, an analyst with HSBC Securities India Holdings.
“Hopes for approvals for new products from Mohali have been dashed,” Bakhru said in a note to clients today. “While there is no financial impact, the delay in new product approvals will hit Ranbaxy’s long-term road to recovery.”
The delay may mean an additional year of Diovan sales, or about $1 billion in revenue for Novartis, according to Fabian Wenner, an analyst with Kepler Capital Markets in Zurich. Novartis in July raised its profit and sales forecasts as generic competition for Diovan, a drug to treat high blood pressure, failed to materialize in the U.S.
Ranbaxy, India’s largest drugmaker, dropped 30 percent to 318.50 rupees, the biggest loss since January 1991. Novartis fell 1.5 percent to 69.90 Swiss francs.
The import alert isn’t expected to cause a supply disruption or shortage of drugs in the U.S., the FDA said in a statement today.
“We want American consumers to be confident that the drugs they are taking are of the highest quality, and the FDA will continue to work to prevent potentially unsafe products from entering the country,” Howard Sklamberg, director of the Office of Compliance in the FDA’s Center for Drug Evaluation and Research, said in the statement.
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.
Ranbaxy said in an e-mail earlier today that it was “seeking information from the U.S. FDA in this regard.”
Ranbaxy’s forecast for 120 billion rupees 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 today.
Ranbaxy, which had the exclusive right to sell a generic version of Diovan in the U.S. beginning Sept. 21, 2012, failed to win regulatory approval to begin marketing the product. Novartis said in July it expects the delay in U.S. competition for Diovan to continue in the third quarter and that the benefit from that effect will reverse in 2014.
“This doesn’t look like it’s getting better quickly,” Wenner said in a telephone interview today. “This is surely going to take a lot longer than three months.”
A Novartis spokesman, Eric Althoff, wasn’t available for comment today.
Ranbaxy facilities in Dewas and Paonta Sahib, India, have both been on the FDA’s import alert list since 2009. Products from companies on the FDA’s import alert list may be subject to detention without physical examination.
‘On Their Toes’
The latest FDA notice “is a surprise,” said Prakash Agarwal, a health-care analyst with CIMB Securities India Pvt. Ltd. “The understanding was that, given the past experience with the two other facilities, the management would be on their toes to resolve these issues.”
Ranbaxy, based in Gurgaon on the outskirts of New Delhi, agreed in May to pay $500 million to resolve fraud allegations made in a whistle-blower’s lawsuit and federal criminal charges that it sold batches of drugs that were improperly manufactured, stored and tested. It also admitted to lying to the FDA about how it tested drugs at the two Indian plants.
“It doesn’t seem that things have changed,” said Rohit Bhat, a health-care analyst at B&K Securities India Pvt Ltd. “Everyone knows that the company has been facing FDA compliance issues for their other units, but it was expected that they would have learned from earlier experiences and hoped that they would be able to clear the FDA for this unit.”
Separately, Strides Arcolab Ltd. (STR) said a facility in Bangalore received a warning letter after an inspection found reasons for concern. Strides responded to the FDA’s observations made during an inspection of a sterile manufacturing facility in Bangalore in June by implementing corrective actions, it said in a statement today.
Strides fell as much as 6.8 percent to 839 rupees, headed for the biggest decline since Aug. 14.
“The company is committed to work collaboratively and expeditiously with the U.S. FDA to resolve concerns cited in the warning letter in the shortest possible time,” Strides said.