Can one draw parallels with Ranbaxy's case and Wockhardt?

Drug major Wockhardt’s stock has pummelled nearly 70% in the last four months. Incidentally, this was the best performing pharma stock in 2012 gaining nearly eight times during the year as the company staged a turnaround as it successfully managed to come out of corporate debt restructuring. However, issues with overseas drug regulators like US’s Food and Drug Administration (FDA) and UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) have yet again pushed the stock to the levels where it was trading a little over a year ago.

The US FDA raising issues questioning the company’s integrity and transparency are likely to have long term ramifications on the way the company has been doing business overseas. As a consequence, the company’s other facilities that export drugs in regulated markets will also come under regulatory lens. Investors are likely to draw parallels with the Ranbaxy’s ongoing settlement with the US FDA following an import ban. Ranbaxy’s stock too has been volatile since the company’s regulatory lapses first surfaced.

However, in case of Ranbaxy, the company has had a change in ownership and management, and is now a subsidiary of a global drug major firm Daiichi Sankyo. The new management has shown keenness on settling issues with the regulator and bringing Ranbaxy’s performance back on track. In case of Wockhardt, there has been no such management change in the last many years with no likelihood in the immediate term.

In spite of the ongoing regulatory issues with US FDA, Ranbaxy managed to get approval in November 2011 to exclusively launch the generic of Lipitor, the world’s largest selling drug – an aspect which helped it to keep its topline growing strongly and retaining the revenue leadership among its peers. It may not be the same in case of Wockhardt. Besides, following the Ranbaxy episode, investors are likely to be doubly cautious in cases of companies found to be involved in regulatory lapses. All in all, it may not be an easy road uphill for Wockhardt.