Ranbaxy Laboratories Limited - No end to FDA travails; Diovan fate hangs in balance - Antique

Event

According to Media reports Ranbaxy has most probably got a form 483 for its Mohali facility Ranbaxy's third and newly commissioned Mohali facility, too, appears to have come under the US regulator's scanner.

After finding deviations from its norms during an inspection of the plant, the US Food and Drug Administration (FDA) is learnt to have issued a Form 483 to the company's Mohali manufacturing facility A Form 483 is issued by the FDA at the conclusion of an inspection to notify the company of objectionable conditions that might be in violation of the US Food, Drug and Cosmetic Act and related laws.

Background

FDA inspectors visited the Mohali plant in the process of giving approval to Ranbaxy's application for Valsartan, the generic version of Novartis' Diovan. However, the inspectors observed lapses and violations at the plant and issued Form 483, highlighting the problems. The move assumes significance primarily because the Mohali unit formed an important part of Ranbaxy's strategy source said. After Paonta Sahib and Dewas were blocked, the company was faced with capacity constraint at its US-based Ohm Labs. It then planned, in late 2011, to move key products from Ohm to Mohali. However, those plans might get stalled if Ranbaxy fails to take corrective measures soon. The move might also impact approvals of other products manufactured at the facility.

Impact

Ranbaxy, which was expected to secure an approval for Diovan generic in September last year, has yet to get a go-ahead from the regulator. After the company missed its first deadline, Pennsylvania-based Mylan had also sued USFDA. It claimed Ranbaxy forfeited its right to the six-month exclusivity to sell the drug by not winning the US regulator's approval. However, in late December, a US district court ruled in favor of Ranbaxy, on the grounds that the delay in approval was caused due to a change in approval requirements. We estimate Diovan contribution to Ranbaxy Stock Price to be around ~Rs25 per share.

Valuation

We are rolling forward our Price target to CY14 and continue to be negative on the stock on the back of a much weaker base business profile. We are also removing Diovan as an FTF opportunity given the unusual delay in approval from the US FDA. We value the stock at 17X CY14e EPS An improvement in base business margins, India growth rate catching up with the broader market growth rate remain key risks to our thesis.

Source : Equity Bulls

Keywords