New Delhi: Pharmaceuticals firm Ranbaxy Laboratories Ltd swung to a profit in the quarter ended September despite an 18% decline in sales. The profits were achieved due to a better product portfolio and cost cutting measures.
The firm, India’s largest drug maker by revenues and controlled by Japan’s Daiichi Sankyo Co. Ltd, said on Monday that it posted a net profit of Rs116.6 crore in the quarter ended 30 September from a loss of Rs394.5 crore a year ago—a loss attributable to trouble with the US regulator and foreign exchange losses.
Ranbaxy’s sales in the US and Romania, however, continued to decline, with that in the world’s biggest drug market recording a slump of 53% and that in the European country dropping 25%. The firm ended the quarter with a revenue of Rs1720.5 crore.
Since the beginning of 2009, however, Ranbaxy has been improving its performance. The firm attributes this to a focus on a better product mix, revenue growth in key markets and an attempt to contain operational costs.
Optimistic mood: Ranbaxy chief executive officer Atul Sobti says it would take about two months for the business to stabilize in Romania. Pankaj Nangia / Bloomberg
A CLSA analyst wasn’t impressed. “It’s not a dramatic improvement. In some geographies the decline is stable, specially in Europe. India is flat year-on-year,” said Hemant Bakhru, Mumbai-based analyst with foreign brokerage CLSA Asia-Pacific Markets. “But in the US, this quarter onwards, the number should not decline since the inventory has come down. Operationally, this quarter has been better.”
Shares of Ranbaxy rose 2.59% to close at Rs381.90 each on the Bombay Stock Exchange on a day when the exchange’s benchmark Sensex index fell 0.4% to close at 1,6740.5 points. Ranbaxy returned to a double-digit earnings before interest, taxes, depreciation and amortization (Ebitda) margin of 13% for the first time since the second quarter last year, against 8% in the year-earlier period. Ebitda is a measure of operating profit. The margin is derived by dividing Ebitda by total revenue.
“Thanks to the width and breadth of our products, we were able to cash in on opportunities in other markets,” said Atul Sobti, chief executive officer and managing director, Ranbaxy. “So, despite the US performance, we have not been hit so badly.”
US sales fell to Rs213.8 crore, following a 41% drop to Rs303.4 crore in the preceding quarter. Sobti attributed successive declines to the import alert and a final liquidation of US inventory. Ranbaxy has been facing trouble in the US since the US Food and Drug Administration (FDA) issued an import alert in September 2008 on 30 products from two of its plants in India—Dewas in Madhya Pradesh and Paonta Sahib in Himachal Pradesh.
In Romania, where Ranbaxy is the market leader, sales declined to Rs83.8 crore. In the preceding quarter, sales declined 11% to Rs100.7 crore. This decline is again being attributed to pricing pressures and channel destocking.
Ranbaxy also trimmed its sales force in Europe and closed one small manufacturing unit in Romania, reducing the workforce. Sobti added that it would take about two months for the business to stabilize in Romania.
Ranbaxy said it has completed all the compliance work at its Dewas plant and is now fully in line with FDA norms. The firm told analysts on an earnings call that it’s now just a matter of FDA scheduling a visit to the plant. At the Paonta Sahib plant, Ranbaxy, along with consultant Quintiles Transnational Corp., has put in place a corrective action plan as required by the FDA. However, Sobti said the process could take months and will not be short-term.
Earlier this year, FDA had invoked its application integration policy at Ranbaxy’s Paonta Sahib plant, thus halting all scientific review of data generated from the plant. This has put under risk several of Ranbaxy’s first-to-file generic drug applications. If a first-to-file patent application is granted, a firm gets an exclusive six-month marketing period in the US. However, Sobti said that the firm is confident of protecting its near-term first-to-file products such as anti-viral valaciclovir, which is used to treat herpes and has a global market of $1 billion (Rs4,660 crore) annually, and tamsulosin, used in treating enlarged prostates.
CLSA’s Bakhru said that even if the firm retains its exclusivity and launches the products in time, it could face constraints in terms of manufacturing capacity.