Ranbaxy Laboratories Ltd. (RBXY), India’s biggest drugmaker, slumped the most in ten months in Mumbai trading because of costs of a proposed settlement with U.S. authorities over manufacturing violations.
Ranbaxy declined 6.5 percent to 443.90 rupees, the worst fall since March 21, at the close in Mumbai, making it the biggest loser on the 50-member S&P CNX Nifty (NIFTY) index. The company, based on the outskirts of New Delhi, may forgo at least $200 million in sales as a result of the settlement, Kotak Securities Ltd. said.
A decree signed last month and filed by the Department of Justice in federal court in Maryland on Jan. 25 requires Ranbaxy to relinquish 180-day marketing exclusivity for three pending generic drug applications. Court documents don’t identify the affected medicines, though probably include a version of Takeda Pharmaceutical Co. (4502)’s Actos diabetes pill, said Priti Arora, a pharmaceuticals analyst at Kotak in Mumbai.
“Losing 180-day exclusivity is very bad,” Arora said in an interview yesterday. Selling generic Actos in the U.S. with limited competition may have generated more than $200 million in revenue for Ranbaxy, she said. The drug, which had global sales of $4.7 billion in 2010, faces generic competition in August.
Ranbaxy set aside $500 million to resolve all potential civil and criminal liability related to the three-year-old dispute with the Justice Department and Food and Drug Administration, it said on Dec. 21. Before today, the stock had gained about 20 percent since then on optimism the company can press ahead with its applications to sell generic medicines in the U.S.
Details of the proposed settlement released this week “dispel any optimism,” Credit Suisse AG said in a report yesterday.
‘More Severe’
“We had expected the filing of this consent decree to show a way out of Ranbaxy’s difficulties and reopen its exports to the U.S., but the decree’s actual terms are more severe than we anticipated,” Tokyo-based health-care analysts Fumiyoshi Sakai and Toshiyuki Tateno said.
One of the three generic drug applications affected may include a version of Nexium, a heart-burn treatment sold by AstraZeneca Plc (AZN) that had global sales of $5 billion in 2010, according to Credit Suisse. Five other generic-drug applications are at risk if Ranbaxy doesn’t implement certain changes by a specified date, Mumbai-based analyst Anubhav Aggarwal said.
Chuck Caprariello, a spokesman for Ranbaxy in the U.S., declined to specify the drug applications affected.
‘Potentially Unsafe’
The Indian drugmaker made “adulterated, potentially unsafe” medicines that were illegal to sell, U.S. prosecutors said in the court documents. The company didn’t admit or deny the accusations detailed in the 58-page filing, which requires approval by a federal judge.
Ranbaxy consented to the proposed decree on Dec. 20 in an agreement signed by company officials including co-defendants Dale Adkisson, head of global quality; Managing Director Arun Sawhney; and Venkatachalam Krishnan, the company’s regional director for the Americas.
Drug manufacturing and testing defects led the FDA to block more than 30 generic drugs made at the Indian drugmaker’s Paonta Sahib and Dewas plants, the FDA said in September 2008, three months after Tokyo-based Daiichi Sankyo Co. (4568) agreed to buy a controlling stake in Ranbaxy for $4.6 billion.
Daiichi Sankyo closed down 2.3 percent in Tokyo trading at 1,422 yen, the lowest since Dec. 2.
Earnings Prospects
Earnings contributions from Ranbaxy “remain uncertain, weighing down shares in Daiichi Sankyo,” Sakai and Tateno said yesterday. They reiterated an “underperform” rating on the stock and expect it to fall to 1,200 yen in the next 12 months.
The proposed decree made it clear why Ranbaxy and Daiichi Sankyo took more than three years to reach an agreement with U.S. authorities, a Morgan Stanley analyst said.
“While the companies are making progress to resolve the issue, they still have many more hurdles to overcome,” said Mayo Mita, health-care analyst at Morgan Stanley in Tokyo by telephone today. “The timeframe of that is unclear. The process may require more staffing and investment, in addition to $500 million Ranbaxy set aside.”
Daiichi Sankyo declined to comment on the proposed settlement until the court approves the filing, spokesman Masaya Tamae said.
Ranbaxy has 66 generic-drug applications awaiting approval with the FDA. For 13 of these, the company was the first to challenge patents, according to a presentation on its website. Under a 1984 law, the first generic drugmaker to challenge U.S. patents gets six months of exclusive sales before competitors can enter the market.
Provigil, Diovan
Near-term exclusivities relate to versions of the sleep- disorder drug Provigil, which had $1.1 billion in sales in 2010; Actos; and Diovan, a blood-pressure pill made by Novartis AG (NOVN) that generated $1.5 billion in annual sales, Nomura Holdings Inc. said in a report yesterday.
The proposed settlement includes requirements that Ranbaxy remove false data contained in past drug applications; hire an outside expert to conduct a thorough internal review at the affected facilities and to audit applications containing data from those facilities; withdraw any applications found to contain false data; set up a separate office of data reliability within Ranbaxy; and hire an outside auditor to audit the affected facilities in the future, according to court documents.
“The detailed process, particularly product-by-product validation of data integrity, imply that complete resolution can take two to three years,” Nomura analysts Saion Mukherjee and Aditya Khemka said in a report yesterday. “As Ranbaxy works towards compliance with the help of external agencies, it will continue to incur high costs for resolution.”
To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net
To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net
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