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More bad news in the offing for Ranbaxy Laboratories

European antitrust regulators are set to impose a fine on the pharma major, along with seven other drug makers for limiting the supply of low-cost medicines.

twitter-logo E Kumar Sharma        Last Updated: June 4, 2013  | 17:13 IST

E. Kumar Sharma
The last thing drug maker Ranbaxy Laboratories needs now is yet another regulatory problem. Yet, this is precisely what it is about to get.

Media reports say European antitrust regulators are set to impose a fine on Ranbaxy, along with seven other drug makers, including Denmark's Lundbeck, for limiting the supply of low-cost medicines.

The move is part of the European Commission's efforts to clamp down on the so-called pay-for-delay deals. These pacts are signed by pharmaceutical companies holding patents with makers of generic drugs to delay the market entry of cheaper versions of their medicines.

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The European Commission hasn't yet announced the fines. In July 2012, it had named Lundbeck, Merck KGaA, Generics UK, Arrow, Resolution Chemicals, Xellia Pharmaceuticals, Alpharma, A.L. Industrier, and Ranbaxy for entering into such agreements that it said violated EU antitrust rules.

These are not the best of times for India's second-biggest drug maker by sales.

Earlier in May, Ranbaxy pleaded guilty to felony charges and agreed to pay $500 million to settle regulatory disputes in the United States. Thereafter, the Indian drug regulator decided to review Ranbaxy's dossiers and applications based on which the company was granted drug approvals in the past.

Also, battle lines have been drawn between Ranbaxy's current and previous controlling shareholders. Daiichi Sankyo, which currently owns a majority stake in Ranbaxy, has accused the Singh family, the previous owners, of withholding information regarding the Indian company's disputes with US authorities. The Singh family denies the accusations and says Daiichi knew about the problems.

A Ranbaxy spokesperson declined to comment on reports of a likely fine by European regulators. The company has been taking steps to allay fears about its products. On May 31, it said in a statement that all its products in India and globally are "safe and efficacious".

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Analysts feel any fine by European regulators may not have a huge financial impact on the company.

"Ranbaxy is not the only company being named in this case. There are several others," says Kunal Mishra, Associate, Institutional Equity Research, SBICAP Securities.

He says the maximum financial hit for Ranbaxy could be about 10 per cent of its sales in Europe, in which case it may not be more than $10 million to $15 million.

Mishra says there will be little impact on other markets. Africa, for instance, is a tender-based market and Latin America is a branded generics market. These are different from Europe and the US where patented drugs comprise a large part of the market.

This may be one reason why reports of the likely European fine hasn't affected Ranbaxy's shares, says Mishra. The shares gained 4.4 per cent on Tuesday to close at Rs 378.35 on the Bombay Stock Exchange.

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