Tough times  again for Aurobindo Pharma  as  USFDA  reverses stance

Mumbai: The US Food and Drug Administration has done the unusual. Three days after issuing a voluntary-action-indicated status for Aurobindo Pharma's Unit IV, the regulator on Friday told the company that the inspection of the unit remains open and is being reviewed.

The stock, which had zoomed nearly 20% following the US FDA's voluntary-action-initiated status, tumbled about 15% on Monday. The BSE Healthcare Index was down 1.5%.

The status implied that changes to Unit IV, as suggested by the US FDA, would need to be carried out by the firm and would not impede its export and growth potential.

In fact, the Unit IV manufacturing facility, which is now at the centre of this problem, accounts for about 10% of the company's sales. This unit also has the largest number of new drug applications pending approval at about 47 compared with the company's total pending applications at about 150. So, if these observations escalate to a warning letter or an official action indicated, it could put the spanner in Aurobindo’s growth.

“The rescinding of the VAI status for Unit-IV now places our US$280 mn and US$343 mn revenue forecasts for the sterile business in FY2021/22 at risk, with potential for a 20% haircut on injectable revenues in FY2021/22 (10% of FY2021/22E EPS) should the issue escalate to an Official Action Indicated or Warning Letter,” said analysts at Kotak Institutional Equities in a note to clients.

With the attendant scrutiny and increasing pressure, Aurobindo Pharma may also incur higher costs to comply with US FDA regulations. It will see an increase in the time taken to comply with the regulations, which means that new drug launches could get delayed. Hence, the company could lose some sales to the competition.

Analysts have already begun to downgrade the stock.

For now, all eyes will be on how soon the company integrates its Sandoz acquisition, and possibly gains synergies. But that will be little consolation till the US FDA overhang clears again.