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FDA charges roil Ranbaxy, Daiichi stocks

FDA charges roil Ranbaxy, Daiichi stocks
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First Published: Thu, Feb 26 2009. 11 39 PM IST

Updated: Fri, Feb 27 2009. 10 47 AM IST
New Delhi: Japan’s third largest drug maker, Daiichi Sankyo Co. Ltd, fell to a record low in Tokyo and Ranbaxy Laboratories Ltd dropped in Mumbai after a US regulator said it’ll stop evaluating new products made at a plant of India’s biggest maker of medicines.
Ranbaxy shares fell as much as 18% to close at Rs169.95 on the Bombay Stock Exchange and shares of Daiichi Sankyo, which acquired Ranbaxy last year, fell 9.5% to 1,680 yen on the Tokyo Stock Exchange.
The US Food and Drug Administration (FDA) said on Wednesday it has suspended review of all drug applications from Ranbaxy’s plant in Paonta Sahib, Himachal Pradesh, on grounds that it falsified data and test results in pending and approved applications.
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The agency also invoked its Application Integrity Policy (AIP)—an administrative programme it uses to deal with fraud, scientific misconduct, or other instances where wrongful acts have been committed or are suspected—for the first time for an Indian firm. Ranbaxy is one of only four companies on that list.
“After carefully analysing the letter and information, Ranbaxy will be responding to the FDA and will continue to cooperate with (it). Both Daiichi Sankyo and Ranbaxy have... formed a team to solve this issue,” Daiichi Sankyo said in a statement on Thursday.
FDA had in September banned Ranbaxy from importing to the US 30 drugs made in its Paonta Sahib and Dewas, Madhya Pradesh, plants. Its latest action will affect drugs Ranbaxy makes in the US that rely on Paonta Sahib data.
Though FDA’s action may only marginally impact Daiichi’s earnings, an analyst predicted market sentiment could worsen. “We imagine the additional FDA warning will have an extremely negative impact on investor sentiment. The event follows the consolidation of Ranbaxy, and we hope to see efforts by Daiichi Sankyo management aimed at resolving the issue,” Hidemaru Yamaguchi, a Citi Investment Research analyst, wrote in a Thursday note to investors.
Ranbaxy may also see increased strain on US sales. “Ranbaxy has three drugs in the US market that rely on data from this facility (Paonta Sahib). These include its two cholesterol-lowering drugs— simvastatin and pravastatin sodium—and anti-allergic loratadine. These are manufactured at Ranbaxy’s New Jersey facility, Ohm Laboratories,” FDA’s press officer Christopher Kelly said by email. US sales for these drugs are approximately $30.5 million.
FDA has, however, said in a statement on Wednesday that it has no evidence so far that these drugs do not meet quality norms. The regulator has also not identified any health risks associated with currently marketed Ranbaxy products.
“One can expect delays in restoration of Ranbaxy’s US business, which the company has been trying to do. People expected the FDA trouble to end by the end of this year but now it looks like it will be a long-term issue,” said Hemant Bakhru, an analyst with CLSA. He added that immediate concern for Ranbaxy would be the impact on its application for a generic version of GlaxoSmithKline’s anti-viral drug Valtrex, which it aims to launch by the end of this year. “There could be a delay in approval for Valtrex since it was initially filed from one of the affected facilities. This is a profit opportunity close to $50-70 million.”
Another analyst, who spoke on condition of anonymity, said the accusation of fraud would hurt Ranbaxy’s reputation with consumers, employees and other regulators. “The European and South African regulators might take some action since these are big markets for Ranbaxy,” he said.
The hope for Ranbaxy at this point could be FDA’s commitment to review drug applications in public interest. “Barring Valtrex (already excluded from our estimates), Ranbaxy’s large settlement opportunities appear safe to us... FDA also mentions in its letter that it may review and act on applications that are in public interest,” Prashant Nair, chief financial analyst at Citi Investment Research, wrote in a Thursday note to investors.
FDA has also asked Ranbaxy for assurance of the integrity of the data concerned. Since 2005, it has inspected Ranbaxy plants at least 20 times.
With the latest in a series of FDA-related issues Ranbaxy has faced in the past few years, bankers ascribed its woes in part to lobbying by big pharma firms against cheaper generic drug producers.
“There is more to it than what meets the eye. The issues started when they (Ranbaxy) started cutting corners on research with a large US drug firm,” the investment banker at a European bank said, requesting anonymity.
“Pharma is the most protected area in US, though using the word protectionism will be a little too far (stretched). The FDA issues faced by Ranbaxy is a result of it rubbing with US firms,” said another investment banker with a US brokerage. “Competing for assets could have played a role but Ranbaxy’s issues started in drug research.”
Meanwhile, Ranbaxy, which has been scouting for FDA approved facilities in the US, may have to speed up the process. “They need to do a US acquisition soon,” said Bakhru. “It’s imperative.”
Nesil Staney in Mumbai and Bloomberg also contributed to this story.
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First Published: Thu, Feb 26 2009. 11 39 PM IST
More Topics: Ranbaxy | Shares | Stocks | Daiichi Sankyo | Drug Firm |