Ranbaxy Hit By Recall Of Lipitor Generic

Instances of drug recall are not new, but the recent recall of its generic of Lipitor in the US by Ranbaxy has been seen as a sign of nervousness by investors. Since the news of the recall on Friday, Nov 23, 2012, the shares of Ranbaxy have fallen by over 4%.

For Ranbaxy, the US has perennially been a very difficult market. The pharma major has been facing regulatory issues after it saw 2 of its facilities being banned by the USFDA for serious manufacturing deficiencies in 2008. Since then, it has been trying to maintain compliance with the USFDA guidelines. Last year, it entered in a consent decree with the US Justice Department and also made a steep provision of USD 500 million in connection with an investigation by the US Department of Justice. The company also hired consultants to ensure efficient compliance. In its efforts to improve its image, the company has voluntarily removed a total of 27 ANDA approvals under the consent decree. All these efforts to comply with the regulatory guidelines may receive a setback due to the drug recall.

In its filing, the company has not said much about the recall. However, media articles suggest that the recall is at the retail level after the company found glass particles in batches of the drugs. Reports say that a total 40 of batches have been recalled. The filing to the bourses read "The Company has made a recall of Atorvastatin from the USA market which will cause temporary disruption to that market of this product. The investigation with regard to the same of this issue is expected to be completed within two weeks and thereafter the Company expects to resume supplies."

Ranbaxy had lunched this product in the US market in December 2011 with 180 day exclusivity. The innovator Pfizer’s brand Lipitor peaked at sales of USD 13 billion at one time, making it the largest selling drug in the history of pharmaceutics.

During the first 6 months after the launch, the company gained a market share of 40%-45% and raked in about USD 600 million from this drug. For the recently elapsed quarter, we believe that it has contributed about USD 40 million or 8.3% of its Sept 2012 quarter topline.

Now, the two weeks of disruption will have a topline impact of about Rs 30 crore on Ranbaxy. However, we believe that what happens after the investigation is more important for the company than the loss of sales.

It is not clear which plant this drug was being manufactured from. Two of the company’s facilities have already been banned by the USFDA. The company had said that it has started supplies of generic Lipitor from its newly-approved Mohali facility, and therefore, any negative news on this front would have a material impact on the company as well as its shares.

Considering its consent decree and the recent drug recall, we would advise you not to enter the stock at least until the point that the company comes with a further clarification.