Also, it is difficult for us to assess if the 483s could lead to further action by US FDA (warning letter or import alert) in the absence of information on the severity of observations. However, it is a negative development and will weigh on the stock price given that Toansa is a critical API manufacturing facility. Maintain hold.
The Toansa API facility is critical for the company as it is the sole plant catering to two thirds of its captive API requirements for the US. Moreover, some of the first to file (FTF) opportunities (Diovan, Valcyte, Nexium) may also be dependent for API supplies from this facility.
However, issuance of 483s does not impact the companys current business (US revenue: $400m plus), given that manufacture and supply will continue uninterrupted. Ranbaxy will respond to FDA observations within 15 days as per normal procedure and will await the agencys response. However, the nature (Warning Letter or Import Alert) and timeline of any further action by US FDA is uncertain and also difficult for us to predict in light of limited information available on the current 483s.
Our target price of R335 values the stock at 14x September FY15E EPS, significant discount to peers, given concerns over manufacturing issues and longer time line of FDA resolution. We have a HOLD/Sector Performer recommendation/rating on the stock.