Photo: Bloomberg
Photo: Bloomberg

Aurobindo takes a knock on US FDA issues, overhang may persist

  • The Hyderabad plant contributes significantly to operating profit, revenue. It has 47 pending filings, 30% of overall
  • Given the sizeable number of observations, it has overshadowed the company's decent September quarter numbers

Shares of pharmaceutical firms have had it tough recently following rising incidence of warning letters from the US Food and Drug Administration (US FDA). Aurobindo Pharma Ltd received a Form 483 with 14 observations for its injectable plant. Little surprise that the drug maker’s shares tumbled 8.8% on Thursday.

Aurobindo’s Unit IV, its general injectable formulation manufacturing facility in Pashamylaram, Hyderabad, underwent a US FDA inspection from 4-13 November, following which the drug regulator issued a Form 483 with observations to the unit.

Graphic by Satish Kumar/Mint
Graphic by Satish Kumar/Mint


The unit contributes significantly to revenue and operating profit. Besides, this unit has around 47 pending filings, and about 30% of overall filings, according to Emkay Global Financial Services Ltd. Hence, if these overhangs persist, fresh filings in the US could be hit.

“According to our assessment, Unit IV accounted for around 9-10% of US sales and 8-9% of overall EBITDA in FY19. It accounts for around 50-60% of total injectable sales of $213 million in FY19, with the rest being from Unit XII, Eugia and Auronext facilities," Emkay said in a note. Ebitda stands for earnings before interest, tax, depreciation and amortization.

Now, the concern is how quickly the company can respond to the pending issues. Earlier too, Aurobindo had received warning letters and official action indicated status from the US FDA for some of its other units. The injectables unit has been one of the key growth drivers in recent times.

Meanwhile, the company reported better-than-expected numbers. Sales rose 18% year-on-year in Q2 FY20. This was largely led by the US and Europe, which grew 27% and 21% year-on-year, respectively. Higher sales of existing products coupled with new launches were the key factors for the strong overseas growth. Net profit was also ahead of analysts’ estimates.

The markets, though, have seemingly overlooked these numbers and chose to focus on larger US FDA issues.

“While we remain positive on Aurobindo Pharma based on the limited price erosion in the base business and the robust ANDA pipeline, including complex generics, regulatory issues may remain an overhang over the near term," said Motilal Oswal Financial Services Ltd in a note. ANDA stands for abbreviated new drug application.

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