It hasn’t been a good year for shareholders of India’s largest drug maker, Ranbaxy Laboratories Ltd.
A series of adverse developments in the US and Europe—a raid by US federal authorities and an adverse court ruling—have lopped off a fifth of its market capitalization in just three weeks.
The big drop in shares—Ranbaxy shares closed Monday on the Bombay Stock Exchange at Rs323.8, down Rs2.25, or 0.69%, well off the 52-week high of Rs530—comes as the company eyes a potential acquisition of the generics business of Germany’s Merck KGaA. Bids for that unit were due on Monday.
A spokesperson for Ranbaxy declined to comment on the stock decline but added that “there is significant underlying value in the company”. As for Merck’s operations, the spokesman said Ranbaxy was indeed interested but only if the price is right. “The interest of the shareholders is paramount, so we will follow a disciplined approach,” he said.
“Ranbaxy’s falling price can put pressure on the company if they are looking to fund the acquisition through equity,” said Nimish Mehta, assistant vice-president, Edelweiss Capital, a Mumbai-based financial services firm. Merck’s generics business, tipped to go for $5.5-6 billion (Rs24,200-26,400 crore), had revenues of $2.3 billion in 2006 and a presence in 90 countries.
But, not all analysts believe Ranbaxy’s stock woes will have an impact.
“In these times of ample liquidity in the market, it will not be difficult for a company like Ranbaxy to raise money. It may be a tad harder, but only relatively so,” said Rajesh Vora, a pharma analyst with brokerage ICICI Securities.
Since 1 January, the BSE’s benchmark index, Sensex, has fallen 7.55%. The BSE Healthcare Index, which comprises stocks of 23 companies, including Ranbaxy, has fallen by over 6.5% since the middle of February, with shares such as Dr Reddy’s, Sun Pharma, Cipla and Glenmark dipping by 3-8%.
The shares of Gurgaon-based Ranbaxy, once among the 10 most-valuable companies in India by market capitalization, have plummeted 18.47% since the beginning of this year and by 21.66% since 14 February when its US offices were searched by federal officials there.
Meanwhile, adverse news has kept on piling up for Ranbaxy.
On 23 February, a Danish court blocked the sale of non-patented versions of Pfizer’s cholesterol-fighting drug Lipitor, including Ranbaxy’s version. The same day, the district court of New Jersey shot down Ranbaxy’s patent challenge to Japanese company Astellas Pharma Inc.’s prostate drug, Flomax.
“The adverse ruling scuttled Ranbaxy’s attempt to launch the non-patented or generic versions of Flomax with limited competition in the US on the one hand, and prevented sales of Lipitor copies in Denmark, on the other,” said a Mumbai-based analyst who did not wish to be identified.
The US is Ranbaxy’s largest market and accounted for 28% of the company’s revenue of $1.34 billion in 2006. The stock performance has come even as Ranbaxy posted a 21.5% increase in sales for the quarter ended 31 December.