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The stock of Aurobindo pharma fell more than 5 per cent on Monday on news that the US Food and Drug Administration has issued nine observations against the Unit-4 facility of its Hyderabad plant.
The observations for Unit-4 relate to equipment and cleanliness, employees training, quality control and computer controls. While the facility is important for the company, the observations will not impact its business in the immediate future.
Clean track record
The 483 observation is only the first step and there are many other stages before import alert (which can lead to halting imports from the facility) is issued. The company has to respond to these 483 observations within 15 working days. Any delay in the regulatory clearance will impact the approval and new launches from the facility. If the management does not convincingly address the Form 483 observations within the specified time period, the FDA issues a warning letter. The USFDA doesn’t approve filings from a facility that has received a warning letter.
Also, Aurobindo Pharma has a fairly clean track record in dealing with the USFDA. Unlike many of its large-cap peers, none of Aurobindo pharma's manufacturing facilities have faced regulatory action in the last four to five years. In January 2016, the company’s Unit VII at Mahbubnagar in Telangana received four Form 483 observations from the US regulator FDA. But this was resolved later with the issue of the Establishment Inspection Report.
Injectables market
Unit-4 is a manufacturing facility for generic sterile, ophthalmics and low volume parenterals. Most of its high-margin injectable products, that accounts for 15 per cent of overall US business in FY17, are filed from the facility. The company’s US business accounts for 44 per cent of the total revenue. Aurobindo expects significant growth in injectables in its US business. Injectable drugs are complex in nature with a market size of $8 billion in US generics market.
Among Indian players, Aurobindo Pharma has a high number of products (55 approved generics, 2 with tentative approval and 33 under review) in its injectables portfolio. Its future pipeline includes complex injectables, including microspheres, oncology and hormones.
Aurobindo shares closed down 3.73 per cent or Rs 23.30 at ₹600.80 on the BSE.
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