While the stock valuations still remain supportive, multiples could be under pressure in the near to medium-term, driven by uncertainty around remediation timelines and future approvals, Macquarie says.
Wockhardt shares plunged 20 percent to hit a new 52-week low of Rs 659.20 on Wednesday after Macquarie Equities Research downgraded the stock to "neutral" from "outperform" and cut the target price by almost half to Rs 750.
The Mumbai-based pharma company is facing several headwinds. The company has received a warning letter from the US Food and Drug Administration in relation to its facility at Waluj in Maharashtra not meeting manufacturing guidelines.
The UK drug regulator Medicines and Healthcare Products Regulatory Authority has also identified manufacturing deficiencies and earlier this month recalled some medicines made by Wockhardt at the plant, where injectables and solid dosages are made.
The US drug regulator has highlighted that Wockhardt, at the Waluj facility, failed to prepare batch production and control records for each batch of drug products manufactured and also failed to ensure that laboratory records included complete data derived from all tests necessary to assure compliance. According to the warning letter, Wockhardt also did not fully co-operate during the inspection, which delayed and limited the inspection process.
Murtaza Khorakiwala, MD, says the company will appoint a US-based consultant who will work closely with the Wockhardt team to address the issues raised by US FDA.
Macquarie analysts Abhishek Singhal and Kumar Saurabh say that while the stock valuations still remain supportive, multiples could be under pressure in the near to medium-term, driven by uncertainty around remediation timelines and future approvals.
"Appointment of third-party auditors to carry out detailed audit of the existing and past practices would involve additional costs and could further delay approvals from the facility. We think the speed with which Wockhardt is able to resolve these issues with the FDA is going to be critical (unlikely before FY15, in our view)," the analysts said.
Further they say that satisfactory inspection of other facilities by the US FDA, which are due near-term, remains critical, as this would give additional comfort regarding alternative remedial measures being pursued, for instance, potential transfer of high-value products from Waluj to other manufacturing facilities.
Singhal and Saurabh have cut their earnings per share estimates on Wockhardt for FY14 and FY15 to Rs 107 and Rs 115 from Rs 120 and Rs 135, building in higher remediation cost and delay in new launches.
They expect the stock to trade below its fair value in medium term due to regulatory uncertainty.
Wockhardt's local rival Ranbaxy earlier this year pleaded guilty to felony charges in the US related to manufacturing practices at its plant at Paonta Sahib in Himachal Pradesh and Dewas in Madhya Pradesh.
Wockhardt closed at its lower circuit limit of Rs 659.20.
As of Tuesday's close, the stock has tumbled more than 37 percent, since the US FDA imposed the import alert on May 24.
READ MORE ON Wockhardt, Macquarie, downgrade, neutral, target price, US FDA, Food and Drug Administration, drug regulator, warning letter, Waluj, Aurangabad, Maharashtra, EPS, third-party audit, inspection
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