Drugs giant Ranbaxy faces a tough road ahead after US authorities imposed stiff conditions to settle a long legal battle over manufacturing safety violations at its plants, analysts say.
Ranbaxy shares hit a 10-month low Friday after the US Justice Department filed a so-called consent decree in court requiring "fundamental changes" to the firm's operations, calling it "groundbreaking in its international reach".
US prosecutors accused the company of making "adulterated, potentially unsafe" drugs for its crucial US market.
The decree requires Ranbaxy to stop selling drugs to American consumers made at three of its Indian plants and one US factory until it cleans up its act.
Analysts had no estimate of the settlement's potential impact on sales.
The agreement provides for "very stringent and punitive measures," Bino Pathiparampil, vice president of Mumbai's IIFL Capital, told CNBC. "They will have a long period struggling before they come out of the woods."
New Delhi-based Ranbaxy, which has factories in seven countries and made the first generic version of top-selling cholesterol buster Lipitor, has grown by selling cheap copies of branded drugs that have gone off-patent, and through challenges to patents owned by Western companies.
But US authorities allege the firm took short cuts along the way, falsifying data, failing to prevent contamination of medicines, keeping inadequate records and not making sure drugs remained potent until their expiry.
Ranbaxy neither accepted nor denied the allegations in the consent decree, which was agreed by the two sides in late December but the details were only made public last week when it was filed in a US state court.
A judge must still approve the deal.
While the decree "offers a definite path towards resolution" of the dispute, Priti Arora, a pharmaceuticals analyst at Kotak Securities in Mumbai, told AFP that the provisions were "more rigorous" than expected.
The firm has already set aside $500 million to cover costs from the dispute, more than twice its profit last year, but analysts say it may have to spend at least $200 million more to implement the settlement.
Under terms of the deal, Ranbaxy must hire a third party expert to conduct an internal review at the facilities, implement procedures and controls to ensure data integrity, and withdraw any applications found to contain untrue statements or data irregularities that could affect approval.
US authorities have previously taken up to seven years to re-approve pharmaceutical plants once they had been blocked from doing business, analysts said.
Ranbaxy has put a brave face on the settlement with chief executive Arun Sawhney saying the company was "pleased to have resolved this legacy issue" with the US Food and Drug Administration (FDA).
"We are (also) pleased with the progress we have made in upgrading and enhancing the quality of our business and manufacturing processes," he said.
Ranbaxy has declined further comment on the deal.
Particularly damaging, analysts said, is that Ranbaxy is required to give up 180-day marketing exclusivity for at least three pending US generic drug applications and maybe more.
The drugs have not been named, but could include AstraZeneca's Nexium heartburn pill, with annual sales of $5.0 billion.
All this spells more bad news for Ranbaxy's parent, Japanese drugmaker Daiichi Sankyo, which paid $4.6 billion in 2008 -- considered by analysts to be top dollar at the time -- to buy a controlling stake in the Indian firm.
Daiichi saw the purchase -- the largest-ever transaction in the Indian pharmaceutical sector -- as a way to diversify globally. But regulatory reverses have seen the value of its investment plummet.
Only three months after Daiichi took control, the FDA banned more than 30 drugs made at Ranbaxy's plants in India due to concerns about their production.
Just last month, Daiichi, whose share price has dropped by half since the Ranbaxy acquisition, cut top executive pay after slashing its profit forecast -- partly due to the $500-million provision to settle Ranbaxy's legal dispute.
Ranbaxy shares had risen following news of the settlement in December, but the details "dispel any optimism", Credit Suisse AG said in an investor note.