UK regulator's move could hit Wockhardt hard

Drug maker Wockhardt is facing more regulatory headwinds. British authorities have revoked their approval for one of Wockhardt's key manufacturing facilities, a move that could have major implications for the Mumbai-based pharmaceutical company.

On Saturday, Wockhardt informed the Bombay Stock Exchange that the UK Medicines and Healthcare Products Regulatory Agency, or UKMHRA, withdrew its certificate of good manufacturing practices issued to the Chikalthana plant, located near Aurangabad in Maharashtra. This means the watchdog has banned the import of drugs into the UK from the facility. The agency will, however, issue a restricted certificate to the factory, which means it will be able to supply products that are "critical" to public health.

The news dragged the company's shares down on Monday. Shares of Wockhardt dropped five per cent - their maximum permissible limit -- to touch Rs 499.30. The stock has lost more than three-fourths of its value since touching a one-year high of Rs 2,166.05 on March 12. Analysts say this is because of the adverse reports the company has received in recent months. In July, the US Food and Drug Administration had issued a warning letter following an import alert issued in May on the company's Waluj facility. Also in July, UK authorities had issued a precautionary recall of medicines following manufacturing deficiencies identified at the Waluj plant.

While the company cannot export products from the Chikalthana facility to the UK, the bigger worry is whether US authorities would follow suit. An analyst at a Mumbai-based brokerage, who does not wish to be named, says the Chikalthana plant supplies a generic version of leading cardiac drug Toprol XL to the US. Any move by US authorities to curb imports from this facility would mean that almost a third of the total sales of the company could get impacted, the analyst said.

So far, the damage appears to be limited. The Chikalthana facility contributes about »12 million ($19 million) to Wockhardt's revenue from the UK and European Union market. This amounts to roughly two per cent of the company's $1.03 billion sales in 2012/13. Still, the company will have to work extra hard to ensure the damage does not spread.