US ban may cost Wockhardt a 33% drop in FY14 profit

Written by fe Bureau | Mumbai | Updated: Nov 29 2013, 21:16pm hrs
US banThe ban on Wockhardt?s Chikalthana facility, coupled with the earlier ban on its Waluj facility
The ban on Wockhardts Chikalthana facility, coupled with the earlier ban on its Waluj facility, will reduce its FY14 and FY15 revenues by 14% to 16% and will cause a fall of 33% in its net profit in FY14, according to an analyst.

Wockhardt Ltd's Chikalthana and Waluj units together contributed $360 million in revenues in FY13, according to Prakash Agarwal, analyst at CIMB. The company saw a total US sales of R2,899 crore or about $534 million in FY13 which would make the contribution of the two units account for a 67% of the companys total US sales in the same period.

Consolidated sales stood at R5,610 crore and net profit at R1,595 crore in FY13.

We believe that Wockhardts revenue will be impacted by 22% in FY15 and 18% in FY16 as the company will have to stop supplying from this facility immediately. Also, the USFDA import alert implies higher resolution costs and blockage of future ANDA approvals, Agarwal said.

The analyst estimated that US sales growth will decline by 25% in FY14 and 45% in FY15, in dollar terms.

The USFDA said the import alert was sounded because of product quality and other significant concerns. The regulator said the products manufactured at Chikalthana facility, with the exception of five drugs, will be detained without physical examination if they enter the US market.

Specifically, these were violations of current good manufacturing practices (poor sanitary conditions) and data integrity concerns observed during an FDA inspection in July 2013, USFDA spokesperson Christopher Kelly said.

The five drugs not hit by the ban are bethanechol (bladder problems), ceftriaxone (antibiotic), enalapril (anti-hypertension), divalproex (anticonvulsant) and venlafaxine (antidepressant). The market value of these drugs is not known. However, the major drug produced at this facility, hypertension therapy Metropol, has been banned. The drug had brought in $140 million in revenue in FY13. Waluj facility near Aurangabad has also been under an import ban since May this year.

While the USFDA import alert will impact revenues from higher-margin products sold in the US, higher USFDA resolution costs would also hurt margins, Agarwal said.