Shares of Aurobindo Pharma were under pressure on Tuesday as it lost over 2 percent intraday due to regulatory issues.
The US Food and Drug Administration (FDA) made some observations for the company’s Hyderabad unit and issued a Form 483 for the same.
– The observations made by the watchdog are as follows:
– Buildings used in manufacturing of a drug product not maintained in a good state
– Lab controls do not include establishment of scientifically sound test measures
– Changes to written procedures are not drafted, reviewed, approved
– Failure to review whether or not batch batch has been already distributed
– Equipment used is not of appropriate design
– Appropriate controls not exercised over computers or related systems
– Procedures to prevent microbiological contamination not established
Brokerages, however, retained their buy call on the stock amid a few concerns from these observations.
The brokerage stated that Unit IV is the most important of the 4 injectable formulations plants for the company.
“Of the 169 products pending final approval with the USFDA, Unit 4 represents25%. The US business is 45% of Aurobindo’s FY17E topline. Injectables are typically higher margin, lower competition products compared to the bread-and-butter orals portfolio and an important part of the growth and margin expansion story at Aurobindo, in our view,” it said in a report.
“Escalation of pending Form 483 into Import Alerts/Warning Letters, slowdown in product approval/launch rate, price erosion in the US market, US cross border taxation, US DOJ penalties for alleged price collusion,” the report added.
Unit IV approvals may be delayed by 2-3 months but see minimal risk of escalation, the brokerage said in its report.
“We believe that observations 3, 5, 6 and 7 are more benign and may not take long for the company to resolve. However observations 1, 2 and 4 might take longer to resolve as Unit IV is a sterile injectable formulation facility and is subjected to relatively higher quality standards. As a result some of the expected approvals may get delayed by 2-3 months in our view,” it said in a report.
Moreover, FDA could need retrospective studies for maintenance observations. This, it says, could delay approvals though an escalation to warning letter is not expected.