Biocon stock hovered around its 52-week low reacting to news of 12 observations being issued across three units — drug substance, drug product, device assembly — of the company’s Malaysian facility.

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The inspection, which took two weeks was a PAI or a Pre-Approval Inspection. A PAI inspection is focused on investigating and approving the processes to be undertaken for manufacturing a specific product the company will supply to the United States. A successful PAI inspection leads to the approval of the drug. The inspection doesn’t include checking compliance of the whole plant but can certainly extend to it if deemed necessary by the investigators.

In Biocon’s case, the PAI inspection was focused on Biocon’s biosimilar version of diabetes drug Lantus or insulin glargine. Used for both Type 1 and Type 2 diabetes, insulin glargine is injected once a day subcutaneously. The market size of insulin glargine is around $3 billion.​

The PAI inspection was expected as Biocon applied for a change in the manufacturing site for insulin glargine from Bangalore to Malaysia. In June 2018 Biocon received a CRL or Complete Response Letter from the US Food and Drug Administration (USFDA), asking for additional information on Biocon’s request for site change to manufacture the insulin. Hence, this PAI inspection is expected to be a part of Biocon’s application to move the manufacturing of the drug to Malaysia.

The management seems confident about the 12 observations, saying that they are procedural with no data integrity issues. The remediation will be focused on shifting the plant to a non paper-based management system, according Biocon chairperson and managing director Kiran Mazumdar-Shaw.

Indeed, a confidence booster is that Biocon has resolved observations successfully in the past at its Malaysian plant. In Feb 2018, the facility received six observations from the USFDA, the remediation was successful and the company eventually received an establishment inspection report, according to people familiar with the matter.

Additionally, the company continues to be confident about the launch plan for insulin glargine. They have already launched the drug in Japan and the European Union and are sticking to their earlier timeline for commercialisation of the drug in the US by March 2020.

However, while the management is confident, analysts are treading cautiously. The street is factoring in around $100-200 million sales for Biocon within a year or two of launch with peak sales in 3 to 4 years. Any delay in approval could disrupt these estimates.