USFDA import ban on Ranbaxy's Mohali plant to hit future launches

Ranbaxy has received its third USFDA import ban, this time for its Mohali plant. In 2008, the company had received import ban on its facilities in Paonta Sahib and Dewas. While there are no major financial implications for the company, the fate of supplying most of the future launches from the Mohali facility now hangs in balance with the latest development.

The company has couple of first-to-file generic drug launches like Diovan, Valcyte and Nexium, giving it an exclusive period of 180 days for marketing the products in the US. The import ban on Mohali, even as exports to the US from Paonto Sahib and Dewas facilities have not begun, makes it difficult for the company to go ahead with the launches on time.

Ranbaxy’s June quarter performance had been encouraging with improvement in the company’s base business in the US and sequential improvement in its margins, giving the impression that the company is finally out of the woods.

Validating this belief, Ranbaxy’s stock also recovered 35% in the past two months. However, majority of these gains were wiped out in a single-day drop of nearly 29% following the news of the US FDA import ban. In September last year, the company received Form 483 from the US FDA concerning its Mohali facility. This is a form used by FDA to document and communicate concerns discovered during inspections. The early warning that has got converted into a full-fledged import ban points to the fact that Ranbaxy’s new management has not been able to successfully resolve manufacturing-related issues concerning the company’s new plants.

With the problems with the USFDA showing no signs of abating, investors are unlikely to repose confidence in the stock any time soon. Ranbaxy is slated to be an underperformer among its peers.