Provision of $500 million to put pressure on balance sheet.
Ranbaxy Laboratories announced on Wednesday that it has signed a consent decree with the US Food and Drug Administration (FDA) on charges of violations of current goods manufacturing practices (CGMP) at two of its facilities. The FDA had imposed an import ban on products from the Paonta Sahib and Dewas plants in September 2008.
It was followed by FDA invoking application integration policy (AIP) on the Paonta Sahib plant in February 2009. The AIP charges were related to false data in filing ANDA from the plant. Analysts say, the company has monetised para-IV opportunities (Imitrex, Valtrex, Aricept, Lipitor and Caduet) from the plants through settlement with patent holders.
For long, the CGMP violations were a key overhang for the stock, due to cessation of manufacturing activity at the plants. While the resolution of this dispute is a positive for the company, analysts believe there is unlikely to be any immediate impact on the stock. Both production facilities will not start immediately. According to Edelweiss Financial Services, “Although the resolution is positive and gives clarity on resumption of manufacturing at Dewas and Paonta facility, we do not have clarity on the time line for supply of products from these facilities.”
Analysts cite a similar example of Sun Pharma’s case, which also signed a consent decree for its Caraco plant. The US FDA had seized the inventory of Caraco in June 2009 and a consent decree was signed in September 2009. However, analysts say there is no definitive timeline for withdrawing the import ban. However, Elara Capital says with the lifting of the ban, 30 products, along with pending ANDAs, would be rationalised.
The company says the consent decree is subject to approval by a district court. The company has made a provision of $500 million in connection with the investigation by the US Department of Justice. According to Elara Capital, the provision would put a strain on the balance sheet. Currently, the company has a debt/equity ratio of 0.6, cash of $60 million and gross debt $590 million.