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US FDA Targets Ranbaxy / Daiichi Sankyo’s American Facilities

December 24, 2009

Woes for Ranbaxy continued as the FDA has issued a warning letter to Ranbaxy’s liquid manufacturing plant at Gloversville (NY), citing cGMP violations (inspected in Jul/Aug 2009). It is one of the three plants in Ohm Labs; the others did not have any material deviations. Ranbaxy has engaged a consulting firm to address the issues.

Ranbaxy has indicated the plant accounts for under 10% of US (c.2%-3% of total) sales. Sales would continue and while approvals are likely to be on hold, there are not too many major filings pending approval from this plant. We see a worst case impact at c.2%-3% and c.5% of core sales and EPS respectively, and believe the FTF pipeline appears secure.

While this development, by itself, does not appear to have a material impact on financials or the key drivers, it is likely to affect recently rising confidence levels w.r.t. the stock among investors, given its past issues with the FDA [Whether targeted because American Pharma giant failed to outbid Japanese major, Daiichi Sankyo]

However, Daiichi Sankyo is committed to its plans and long term investors need not worry.

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