Ranbaxy’s new products, margins may be hit

It was Black Monday for Ranbaxy Laboratories.

With its Mohali (Punjab) plant coming under the scanner of the US drug regulator, Food and Drug Administration (FDA), the pharma major will be left high and dry on the drug-development front.

Pending re-approval of its two plants at Dewas, Madhya Pradesh, and Paonta Sahib, Himachal Pradesh, which have been barred from making shipments to the US since 2008, Ranbaxy was banking on the Mohali facility for new products.

Though generic Atorvastatin, a cholesterol-lowering medicine, is the only key product supplied from this facility currently, nearly half of the 38 products Ranbaxy has filed for are from this facility.

Also, the company is believed to have re-filed applications for select high-margin exclusive products from this facility, including the generic version of anti-hypertension drug Diovan. The import alert will delay approval of these products.

With Ranbaxy’s profit outlook looking shaky, the stock price will be under pressure.

Given the pricing pressure on Ranbaxy’s portfolio in the US and the company’s high dependence on that country, product launches are critical to driving growth.

The temporary halt in approvals will not only risk the company’s US growth but also slow overall profit growth.

India, being a low-cost manufacturing base, the company was hoping to improve margins by shifting production from its US-based Ohm Labs facility to India.

But with all its India facilities now under regulatory scrutiny, margins are not likely to improve in the near term.

Also, the company may have to shell out more money to get its Mohali facility back on track.

This will further dilute Ranbaxy’s profit margins.

The company’s ability to resolve the issue at the earliest will determine the stock’s performance in the medium term.

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