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Respite for Ranbaxy – US Still a concern

March 24, 2009

Corporate FreePress of India broke the news that, Ranbaxy’s Paonta Sahib plant has received GMP certifications from MHRA, UK and TGA, Australia. Certifications have been issued following a joint audit conducted in October 2008. The MHRA certification is valid for three years, and covers product filings across the EU, while the TGA certification is valid for two years.

Europe remains a key market for Ranbaxy, accounting for 20% of total sales in CY08 US$328m), while Australia accounted for c.1%-2% of overall revenues. These now appear secure, at least from a regulatory standpoint.

American Concerns Remain:
With the AIP being invoked and data generated from the plant under scrutiny, we believe the onus rests with Ranbaxy to demonstrate that the issues which led to such data have been resolved and this could take some time. Futher, A one time penalty / fine cannot be ruled out.

The US FDA has approved three ANDAs filed from Ranbaxy’s Ohm Labs facility (Sumatriptan, Ramipril & Quinapril+HCTZ) over the past two months. While higher costs of manufacturing in the US would suppress profitability, it supports our view that Ranbaxy’s larger opportunities (barring Valtrex) appear safe as DMF filings are from Toansa (unaffected) and we believe it has enough time to switch sites and/or correct ANDA filings.

Ranbaxy is expected to report an EPS of Rs 9.47 for 2009 and Rs 13.29 for 2010.

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