Shares of Aurobindo Pharma on Friday witnessed a sharp decline after the company informed the exchanges that its unit at Srikakulam in Andhra Pradesh received a warning letter from the US Food and Drug Administration (USFDA). The facility manufactures active pharmaceutical ingredients (APIs) or bulk drugs, raw materials required for making finished drugs.

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The share price fell up to 7.68 percent to Rs 578.75 on the BSE, trading close to its 52-week low of Rs 566 touched on July 19, 2018. Aurobindo Pharma share has fallen 0.39 percent during the last one year and lost 17.31 percent since the beginning of this year.

While the warning letter does not impact the current sales from the facility, it will impact future approvals until remediation measures are complete and the site gets a clean chit from the US regulator after a re-inspection.

The regulatory action was not entirely unexpected for the company as it had informed the exchanges in May 2019 that three of its production plants – Unit 1, Unit XI and Unit IX – were all classified as Official Action Indicated (OAI)

An OAI status is the most severe of three certifications issued to a drug manufacturing plant after a USFDA inspection. The OAI status for three Aurobindo plants means the USFDA is unhappy with the inspection, remediation has to be undertaken and re-inspection is necessary. An OAI status also has a higher chance of escalation to a warning letter.

The Unit XI at Srikakulam was inspected for six days by three FDA officers – Dipesh Shah, Jose Cayuela and Bapu Gaddam -- and was issued three observations. The most serious of the three observations was on the inadequate investigations on root cause of potential genotoxic and suspected human carcinogenics found in the bulk drugs.

While the company says the developments will not hurt existing business from the unit, the investors are jittery. Their worries stem from the fact that one does not know the status of the other two plants which have outstanding OAI status. Moreover, the company’s Unit III, an oral solid dosage manufacturing facility at Bachupally, was inspected for 12 days in May by USFDA inspector Arsen Karapetyen and was slapped with 10 observations.

It may be noted that Aurobindo has a relatively clean track record with respect to regulatory issues. The last time the company faced a regulatory issue was in 2011, when it was issued a warning letter and an import alert for its Unit VI cephalosporin facility. The import alert was eventually lifted in 2013.

While regulatory issues remain an overhang, other issues also plague the Aurobindo stock. It is one of the seven Indian companies named in a US government lawsuit accusing pharmaceutical firms of conspiring to artificially inflate the cost of common medications in the US. Another concern is the debt that rose by $166m in the fourth quarter on a sequential basis albeit due to the recent acquisitions.

First Published:Jun 21, 2019 3:37 PM IST