Wockhardt Limited's Regulatory Woes: Hard Work Ahead
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Case Code: BSTR450 Case Length: 13 Pages Period: 2010 - 2014 Pub Date: 2014 Teaching Note: Not Available |
Price: Rs.300 Organization: Wockhardt Limited Industry: Pharmaceuticals Countries: India; Global Themes: Globalization, Competitive Strategy, International Management |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Trouble at Wockhardt
However, the aggressive expansion through acquisitions in India and abroad landed the company in financial trouble. Between 1998 and 2007, Wockhardt acquired eight companies and thereby grew from a Rs. 2.6 billion company in 2000 to a Rs. 11.6 billion company by the end of 2008. Nevertheless, the acquisition of one company after another resulted in Wockhardt's total borrowing moving up substantially from Rs. 499 million in 2002 to Rs. 42.3 billion in 2008 and also increased the debt to equity ratio from 0.65 to 3.65 in the same period. Consequently, the interest expenses of the company increased from Rs.76 million in 2002 to Rs. 3.78 billion in 2008. In 2008, the company also announced...
Turnaround of Wockhardt
Immediately after entering CDR, Wockhardt sold all of its ten hospitals to New Delhi based Fortis Healthcare Ltd. for Rs. 9.09 billion in August 2009 in an effort to clear off its debt.
After eight quarters of continuous losses, Wockhardt reported a profit of Rs.1.4 billion in the third quarter of FY 10 2011 ended December 31, 2010. It had registered a Rs.1.8 billion loss in the same period of the previous year. The company also witnessed a 7% growth in sales in the same period.
In October 2011, Wockhardt agreed to pay back its FCCB creditors in five instalments by August 31, 2012. Out of the Rs. 4.73 billion (excluding default interest amount) due, Wockhardt had deposited Rs.1.15 billion with the court and had agreed to pay Rs. 850 million by December 31, 2011; Rs.300 million by January 31, 2012; Rs.1billion by March 31; Rs.500 million by June 30; and the balance by August 31, 2012.
Industry Overview
Since the 1970s, the Indian pharmaceutical industry had flourished as the Patents Act of 1970 which came into effect in 1972 only recognized process patents and not product patents. The Act enabled Indian drug manufactures to grow by focusing on reverse engineering the drugs developed by research-based pharmaceutical companies in the West. In 1984, the US became a lucrative market for Indian companies following changes to the Hatch-Waxman Act in that country. Under this new law, manufacturers of generic drugs no longer had to go through a lengthy period of clinical trials in order to market a generic drug. It also allowed generics companies to challenge the originator companies long before patent expiration and also established a 180-day exclusivity period for the first company to file an Abbreviated New Drug Application...
The Regulatory Issues
In FY2013, Wockhardt's international business contributed 83% of its total revenue. Of this, 52% came from the US, 24% from the EU, and the remaining 7% from the other global markets. Wockhardt had 502 products selling in the US and Europe. The growth in the US market was due to the launch of a series of niche products including two first-to-file products. In FY2013, Wockhardt had 18 products at No.1 position and 17 products at No.2 position in the US pharmaceutical market. The company's sales in the US increased from Rs.10.74 billion in FY2011 to Rs.28.99 billion in FY2013...
Turnaround at Risk?
For Wockhardt, the warnings from the USFDA and MHRA happened at a time when the company was all set to rejoice over the successful completion of its debt-restructuring exercise. The US was a key market for the company, contributing 52% of its revenue in FY2013. Wockhardt, experts said, might find itself in as bad a mess as Ranbaxy had in recent years. Industry experts were of the opinion that the import alerts would not only affect a large part of Wockhardt's business but also lead to a delay in product approvals. In FY2013, the company received approvals for 12 new products in the US, 13 products in the UK, 25 products in Ireland, and 21 products in India and emerging markets. As of September 2013, cumulative products pending approval with USFDA stood at 53. "The problem is not just getting the old products back. Whatever major approvals they've filed from the factory are not going to go through until the import restrictions are cleared. Growth will be impacted from that," said Anand Bagaria, an analyst at Mumbai-based Finquest Securities Pvt. Ltd....
Hard Work Ahead
In January 2014, Wockhardt's factory in Shendra, in Aurangabad, Western India, was due for an inspection by the USFDA. In September 2013, the company pointed out that it might shift production of some medicines intended for US export from the Waluj plant to the Shendra palnt. Industry experts were of the view that if the company managed to get approval for the Shendra plant, then it might start export of several of its products, which had been banned for US export the previous year. The Shendra plant had already got approval from the MHRA and the regulatory authority from Ireland....
Exhibits
Exhibit I: Wockhardt's Consolidated Financial Statement between 2000 and 2008
Exhibit II: Financial Highlights of Wockhardt in FY2013
Exhibit III: Manufacturing Facilities of Wockhardt
Exhibit IV: Wockhardt's Stock Price Chart in 2013
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