Don't let it get away!
Help yourself with the Fool's FREE and easy new watchlist service today.
When a company stumbles, it's often a great opportunity for competitors to step in and fill the void. Unfortunately for generic-drug companies, the market is so crowded that the Food and Drug Administration's action against Ranbaxy isn't likely to benefit them much.
The FDA said Tuesday that it's worried about the manufacturing practices at two of Ranbaxy's plants in India and will block the importing of more than 30 drugs and ingredients until the problems are resolved.
Unfortunately for the competition, most of the major drugs being blocked have quite a bit of competition already. For instance, there are 11 other generic versions of Bristol-Myers Squibb's (NYSE: BMY ) Pravachol (pravastatin), including those from Watson Pharmaceuticals (NYSE: WPI ) and Barr Pharmaceuticals (NYSE: BRL ) . Similarly, over-the-counter versions of Schering-Plough's (NYSE: SGP ) Claritin are available from 11 drugmakers, including Teva Pharmaceutical (Nasdaq: TEVA ) and Novartis (NYSE: NVS ) .
It's going to be a little hard to snatch up market share when there are nearly a dozen other companies doing the same thing. Prices aren't likely to jump, either, because there's one fewer competitor. A study by the FDA showed that prices of generic drugs didn't start to rise significantly until there were five or fewer generic competitors on the market.
One potential advantage for makers of both branded and generic drugs is that the FDA won't approve any new drugs manufactured at those plants until the issues are cleared up. That could delay the introduction of new generic drugs, although Ranbaxy could move the manufacturing to one of its unaffected plants.
While the competition isn't likely to benefit much, the news could hurt some drugmakers. Fellow Indian drugmakers like Dr. Reddy's Laboratories (NYSE: RDY ) can ill afford for the public to view drugs coming from India as being unsafe. That's one case when India doesn't want to be synonymous with China. Fortunately, the FDA has been helping the generic-drug makers out and even said that it "has no evidence to date that Ranbaxy has shipped defective products."
Ranbaxy's stumble may not help generic-drug makers much, but at least it's not likely to hurt them, either. For now.