Ranbaxy lost 3.3 per cent to close at Rs 496 (from Rs 513) on Friday after Atorvastatin’s recall from the US markets. It, however, has recovered to Rs 503 after announcing the launch of dermatology product Absorica in the US market.
Though the launch is positive news and can accrue $30-40 million per annum for Ranbaxy, the recall of certain batches of Atorvastatin tablets in the US leads to more concerns. Drug recalls are nothing unusual in the US, however, this recall being on account of quality standards violation (glass particles found in the packing) has raised some concerns. This incident can make the regulators more cautious leading to further delay in clearance of facilities like Ponta Sahib and Dewas facilities, which were already under regulatory scanner. Additionally, the facility from where the batch of the recalled product was made, can also come under focus.
On the positive side, Ranbaxy has a series of product launches which can contribute to its top line. Key among these is the much-awaited launch of Diovan, which is pending approval on exclusivity and has already been delayed by two months. Investors need to watch with caution events unfolding in the near future.
Atorvastatin recall impact
Ranbaxy, in its statement on the recall, said that there will be temporary disruption in supplies to the US market, to be resumed post investigations, in two weeks. However, analysts are expecting a severe impact given the high contribution of the product to Ranbaxy’s revenues and earnings.
Analysts at Antique Stock Broking say the absence of the product from the competitive Atorvastatin market for even two weeks could cause medium- to long-term loss of market share.
The product is now part of the US Base Business and with annual revenues post-exclusivity pegged at $80 million, which is around seven per cent of Ranbaxy’s overall core earnings (ex-forex) for CY12. A loss in market share will lead to tweaking of the earnings estimates by analysts.
New product pipeline
The company’s strong product pipeline has all the potential to boost its revenue, going forward. Approval of Diovan, which has been delayed by two months, can be a positive trigger as the product-exclusivity remains intact.
Edelweiss believes that this product would have added $110 million for the entire six months of exclusivity. The company has launched generics of Absorica, which can add over $40 million, besides another Derma product Ximino, lined up for launch during the first quarter of 2013. Ranbaxy is also likely to launch generics of lipid lowering agent Tricor in the December 2012 quarter. These four products can be major US revenue drivers.
Other concerns
The recently announced drug pricing policy is an overhang on the stock. Around 70 per cent of Ranbaxy’s domestic portfolio consists of the acute segment, where the competition is intense and a part of the portfolio can come under price control, negatively impacting the profitability. Hitesh Mahida of Fortune Research observes that implementation of the pricing policy can impact Ranbaxy’s operating profit by four per cent.
