Stock market investors are jittery about any regulatory action taken by the US Food and Drug Administration (FDA), the US pharmaceutical regulator. Aurobindo Pharma Ltd’s announcement on Thursday about an import alert issued by the FDA on one of its units, sent its stock down by 17%. The stock was already on a decline, and in a week has lost about one-third of its value.
In the past, Indian companies that have fallen foul of the US regulator have realized resolution can take a very long time. Ranbaxy Laboratories Ltd has been attempting to resolve its pending issues with the FDA for years now, but with no significant progress to show. The few other cases in existence, too, have dragged on too. Individual cases and circumstances may differ, but the general perception that an FDA violation takes a long time to remedy appears valid.
In Aurobindo’s case, the US regulator has issued an alert on unit VI, which makes oral and sterile (or injectable) cephalosporins. The company is seeking clarity on whether it applies only to the sterile products, because the oral facility had been cleared after inspection. Till then, further shipments from this unit to the US will be affected.
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A company spokesperson clarified that sales of formulations to the US market from the unit amount to $2.5 million, or Rs 10 crore, a month, contributing to about 3% of overall sales. The US market contributes to about half the unit’s sales of $5-5.5 million a month. The impact on future sales may be higher, though, as sales from this unit were expected to be stepped up over a period of time. Of Aurobindo’s Rs 3,300 crore revenue in the nine months ended December, formulations contributed to 53%, regulatory filings-related income 7% and active ingredients to 40%.
The immediate impact of this specific development appears limited, and the share price decline in comparison may appear an overreaction. Investors will, however, want to see the effect on future financial results. More importantly, will sales of other products to the US market remain unaffected and will cephalosporin sales to other markets continue as usual? They will await more clarity on this issue from the management, after it meets the US regulator. Investor sentiment meanwhile, may take a while to resolve, as will the FDA matter.
Graphic by Ahmed Raza Khan/Mint