Alkem Laboratories' brush with the German health regulator two days ago has once again put the spotlight back on legitimate practices of drug companies here. The Mumbai-based company had reportedly fudged data on clinical trials of two drugs. But the foreign regulator's flagging won't likely affect the company's revenue and profit, says Surajit Pal, pharma analyst at Prabhudas Lilladher. It will, no doubt, raise quality issues, he adds.To be fair, Alkem has subseuqently said it would submit 'suitable clarifications’ to the European Medicines Agency.
Pal believes there is growing harmonisation between leading regulators across the world and the World Health Organisation is taking note of the observations made by US FDA on pharma companies everywhere.
Below is the verbatim transcript of Surajit Pal's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.
Anuj: Talking about Alkem, not too much in terms of European exposure but we have seen quite a bit of derating over the last couple of weeks in this stock. How would you look at the news flow and how would you approach the stock now?
A: Definitely what we need to think of is that there is a growing harmonisation between leading regulators across the world. So even nowadays we can see that World Health Organization (WHO) is also taking notice of the observation made by US Food and Drug Administration (US FDA) or UK Medicines and Healthcare Products Regulatory Agency (UK MHRA).
As a result of it, if anything is mentioned by European Medicines Agency (EMA) or UK MHRA for Alkem and it will not be unnoticed by US FDA. So I believe that definitely any of the leading guys raising issues with any plant or any of the procedural issues in a plant, will definitely be noticed. So, as of now, for revenue and the impact in the profit may not be great but qualitatively, it could raise concern definitely.
Ekta: What is your sense in terms of the intentional data changes which has in fact been brought up by the German regulators on Alkem's two of the drugs, one commercialised, one still not commercialised. What is the gravity of the situation according to you?
A: If you look back the last two-three years, GVK Bio was one of the biggest victims of this kind of scenario and I had a chat with management of Alkem and they said that the data which was given to them by one of their employees might not be the right data to analyse. So that they have mission to EMA and the German regulator and they are in the process of providing them the right data. That is how they want to address it currently.
However, when they raise a concern, it will maintain a hangover in the valuation for the company and that is how company will suffer to a certain extent.
Ekta: Do you think that this could spill over to USFDA issues because US is a much bigger market for Alkem as opposed to Europe?
A: Could be, there is a possibility. As I said the harmonisation could also impact other regulators' mind or the observation about the company, it's the way of doing work. So definitely that could be impacting, anyone who is receiving any negative impact or negative observation from other regulators.
Ekta: The other piece of news or the stock which is in focus is Alembic; they have received four observations on their formulation plant which is based in Halol. Have you managed to go through the four observations and what do they look like to you?
A: Yes, I have gone through it. Whatever the preliminary observations they have made, which looks like more of a procedural aspect in quality control unit which is the main cause of concern for most of the companies which are under USFDA's negative observation, so is the company. So I believe definitely it will drag the issue in terms of putting the facilities or putting the procedures in place. Yes, it raises concern but if the company managed to get approvals following these observations that may dilute the gravity of the issue but issues raising quality control and the typicality of those issues which were also observed in the companies which are currently in the hot water.
Ekta: You think that approvals would come through from this plant and things would go on as usual based on what you have read from the observations?
A: It would be a bit speculative, I cannot say but again it depends on how the situation will grow up in next three-four months that needs to be watched out.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
