When Wockhardt reported financial results in October, regulatory slapdowns in the U.S. and Europe made for a bleak quarter. Now, things are about to get much worse. The FDA has filed an import alert against the plant that generates 25% of Wockhardt's sales.
The action prevents Wockhardt from selling products manufactured at its plant in Chikalthana, India, in the U.S. Regulators in the United Kingdom took a similar action against the facility in October, but it is the loss of sales to the U.S. that will hit hardest. Bloomberg reports the plant generated $230 million in sales to the U.S. last year, which equates to one-quarter of company revenues.
Much of the income from Chikalthana is generated by a generic version of AstraZeneca's ($AZN) Toprol-XL. While the FDA has spared 5 products from its ban, Toprol-XL isn't on the list. As such, the steady income stream Wockhardt receives from the strong-selling heart pill is now under threat. Analysts see little reason for near-term optimism.
"There's going to be a big impact from this. There could be a 25 to 30% shave-off on earnings per share. FDA resolution costs will increase and new product approvals will be very much delayed. Product transfers to other plants will take a very long time," CIMB Securities India analyst Prakash Agarwal told Bloomberg. Agarwal is reassessing his rating on Wockhardt, while The Economic Times reports other analysts have already seen enough to recommend investors sell their stock.
The recommendation is underpinned by knowledge of what has happened at Ranbaxy, Hospira ($HSP) and others, all of which are still working to resolve regulatory disputes years after the initial snafu. In Wockhardt's case, it is up against a particularly damning warning letter--which said staff hindered FDA inspectors--and already has problems at multiple production plants. FDA now has import alerts against two facilities, and the U.K. has taken action against three plants.