FDA ban: Why Ranbaxy shares have tanked 35% when Sensex is soaring

The BSE Sensex today opened more than 300 points higher,gaining 289.66 points or 1.47 percent at 20022.42after Lawrence Summer’s exit from the race for US Fed president.

However,Ranbaxy Laboratories tanked 35% to Rs 297 in opening trade after _CNBC-TV18 r_eported that the US Food and Drug Administration (USFDA) has issued import alert on the company’s Mohali unit, saying the plant owned by India’s biggest drugmaker by sales had not met so-called good manufacturing practices.

After the problems at Paonta Sahib and Dewas, the USFDA now has a problem per se with its unit at Mohali.

Mohali being a new plant, its manufacturing wasn’t at full scale but most of the new drugs by the company were slated to be actually manufactured there.

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More clarity is required from the company in terms of what will happen to all of their big ticket drugs, which were expected to be launched especially the fourth quarter of calendar year 2013.

The stock opened at Rs 412 and has seen a more than one million shares changing hands on the counter on BSE and NSE.

At 9:48 am, the stock was down24 percent at Rs 347.25.

However, Sriram Rathi, Anand Rath believes the import issued by US authorities on Ranbaxy ’s Mohali plant is likely to have a sentimental impact rather than a financial one because the pharma major is not selling any product from this plant.

“The company is not selling any product as of now from this plant to US market. But at the same time, if few exclusivities that are still in the pipeline like Diovan and Valcyte are from this plant then there can be significant impact on the financial side as well. But otherwise it is going to be more of a sentimental impact,said Rathi in an interview with CNBC-TV18.

HSBC downgraded the stock to underweight and cut its target price for the stock to Rs 421 from Rs 440 apiece.

HSBC said Ranbaxy had started shipping generic Lipitor, the widely used cholesterol lowering medicine, from its Mohali plant in April last year but six months later it recalled some of the batches due to the potential presence of glass particles.

“Given there are no sales from Mohali, the import alert has no financial impact … However, hopes for approvals for new products from Mohali have been dashed. We understand Ranbaxy had been working with the USFDA on approval of Diovan from Mohali.”

Two of the company’s other plants at Dewas and Paonta Sahib were hit with the same alerts in 2008, and are still barred from making shipments to the United States. The company has a total of eight plant locations across India.After this Ranbaxy had to stop exporting Lipitor from its Mohali plant, the brokerage said.

The latest ban on Ranbaxy, controlled by Japan’s Daiichi Sankyo Co comes just a few months after the company pleaded guilty to US felony charges related to drug safety and agreed to a record $500 million in fines.

With inputs from Reuters