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Aurobindo Pharma received a voluntary action initiated (VAI) intimation from the US Food and Drug Administration. Photo: Bloomberg
Aurobindo Pharma received a voluntary action initiated (VAI) intimation from the US Food and Drug Administration. Photo: Bloomberg

Aurobindo Pharma gathers pace, but new launches in US remain key

  • Unit IV is a key facility, accounts for nearly a third of firm’s pending abbreviated new drug applications in the US
  • Investors now focus on how fast the company closes acquisition of Sandoz

Aurobindo Pharma Ltd received a voluntary action initiated (VAI) intimation from the US Food and Drug Administration (US FDA) lifting the overhang partially on one of its units. But while that is a relief, the company has to fast-track new launches in the US, close the acquisition of Sandoz and also get other plants cleared from the US regulator.

The Street, though, was positively surprised with the US FDA’s VAI on its Unit IV as some observations were quite demanding in nature. The US FDA has also been increasing regulatory action in the pharma sector, which has affected quite a few Indian drugmakers in the recent past. Aurobindo has also received an official action indication and warning letters for some of its other facilities in the recent past, so this was welcome indeed.

However, the recent VAI indicates that Aurobindo need not worry about new drug launches from this critical Unit IV plant for now. Note that Unit IV is a key sterile facility for the company, accounting for about nearly a third of its pending abbreviated new drug applications (ANDAs) in the US. As such, this plant is crucial for future growth. In fact, this plant already generates a substantial part of revenue.

Graphic by Naveen Kumar Saini/Mint
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Graphic by Naveen Kumar Saini/Mint

“Our estimates already assumed a clearance for Unit-IV; the clearance now de-risks our $280 million and $343 million revenue forecasts for the sterile business in FY2021/22, respectively," said analysts at Kotak Institutional Equities in a recent note to clients.

Nevertheless, investors are now looking ahead at how fast the company completes the acquisition of Sandoz, which has quite a few key products that are expected to generate decent revenue.

However, some of Sandoz’s key distribution agreements are expected to end, which may hamper revenue growth. Still, Aurobindo has access to Sandoz’s three facilities, which aids in strengthening product portfolios as well as cost synergies.

However, the US FDA overhang continues on some of its other plants for which inspections are due. “The USFDA will start inspections at Unit 10 from 24 February and at the Eugia unit sometime in April. Together both house 62 pending ANDAs, accounting for 40% of pending approvals. These units will be key growth drivers over the next 2-3 years. Sandoz regulatory approval is another key monitorable," said analysts at BoB Capital Markets Ltd in a note.

The Aurobindo stock, though, has shot up 19% in the past two days, which makes it rather pricey at this stage. After all, some of the growth challenges still remain. Besides, scaling up of its new facilities and pace of product approvals will be a key to the fortunes of the stock going forward.

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