Wockhardt plummets on UK ban but bigger worry is whether US will follow suit

Shares in Wockhardt fell by their daily limit of 5 percent on Monday after Britain’s drug regulator revoked its good manufacturing practice certificate for one ofWockhardt’s key manufacturing facilities, a move that would banthe import of drugs into the UK from the facility

The Medicines and Healthcare Products Regulatory Agency will instead issue a restricted certificate, meaning Wockhardt will only be able to supply only “critical” products from the facility.

The restricted GMP certificate was issued as the UK health regulator wants to avert shortage of certain drugs essential for maintaining public health.

Wockhardt earns about 12 million pounds in UK and European Union sales from the Chikalthana, Aurangabad facility, located in western India.

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The Mumbai-based pharmaceutical company has received a letter from Medicines & Healthcare Products Regulatory Agency, United Kingdom (UKMHRA) whereby the agency has decided to withdraw previously issued GMP Certificate to company’s facility situated at L1, MIDC, Chikalthana, Aurangabad, the company said in its filing.

The regulator will be issuing a restricted GMP certificate to the site along with a statement of non-compliance for the said site.

However, the company can continue exporting some critical drugs to the UK because there is no feasible alternative in the market.

“In order to avoid market shortage of medically essential products, the GMP certificate will be conditioned to permit continued manufacturing and QC testing of ‘critical’ products in situations where it has been agreed by the national competent authority or EMA (as appropriate) that there is no feasible alternative in the market concerned. Accordingly, the company shall be able to manufacture and supply from the said facility certain medicinal products critical to public health,” Wockhardt said.

The impact of the withdrawal of GMPC on existing business will only be known once the company receives further communication from UKMHRA.

According to reports, the bigger worry is whether US authorities will follow suit.The company has in the past indicated the bans by the US and Europe of its Waluj site will be very costly. It has acknowledged the US ban alone could cost it as much as $100 million in lost revenue.

Macquarie has cut its target price on the stock to Rs 480 from Rs 750 earlier and also cut FY14 and FY15 earnings per share estimates to Rs 96 & Rs 80, respectively. The brokerage house said adverse action from USFDA could impact earnings projection as company’s 70 percent of FY15 expected EBITDA is dependent on Chikalthana facility.

According to the brokerage, the speed with which Wockhardt is able to resolve the issue will be critical. The brokerage does not expect the issue to be resolved before FY15-16.

Nitin Jain of Edelweiss Securities told CNBC-TV18, “As far as Wockhardt is concerned, it is an avoid for most of us because of the overhang in terms of regulatory that we see on stocks like that and just do not know how the cookie will crumble, so, one should rather avoid those stocks right now.”

Wockhardt has already taken a number of steps to ensure direct coporate oversight over the quality and operation functions of all facilities.

Earlier in July this year, UKMHRA had imposed an import alert on Wockhardt’s export-oriented plant at Waluj in Maharashtra and issued a precautionary recall for sixteenmedicines made by the company at the unit.

In May, US Food and Drug Administration (USFDA) had also issued an import alert on the same facility which makes injectables and solid dosages.

With inputs from Agencies