WHO red flag on Cadila to cost Rs 30-35cr revenues: Analyst

The World Health Organization (WHO) has issued a Notice of Concern to Cadila Healthcare over a unit in its Moraiya plant that manufactures vaccines.The notice, which was issued in January 2016, has now come to light via a report issued by Equirius Securities, and contains some worrying observations with respect to data integrity issues.The larger Moraiya facility was also issued a warning letter by the US FDA in December 2015.In an interview with CNBC-TV18, Nimish Mehta, Founder of Research Delta, said the financial impact of the decision will be about Rs 30-35 crore.Below is the transcript of Nimish Mehta’s interview with CNBC-TV18's Surabhi Upadhyay and Latha Venkatesh.Surabhi: I believe you have gone through this note of concern. That is what it is being called from the World Health Organisation (WHO). But first if you could clarify are we talking about the same physical facility where the US Food and Drug Administration (FDA) came out with its warning letter. So, is this a secondary so to speak, red flag raise by a different agency, in this case the WHO?A: This particular facility is actually within the premises of Moraiya facility itself. So, it is actually a part of the overall facility which US FDA has given a warning letter on. However, the manufacturing sites of the vaccines on which WHO has raised its concerns is actually in a different building in the same premises. So, you can say it is another line of facility within the same premises or within the overall facility.Latha: How much does this second building contribute to sales?A: In terms of contribution it is only limited to the tender business in WHO countries for these vaccines which is roughly about Rs 30-35 crore which is insignificant in comparison to Cadila's overall sales. But to the extent there is not much immediate financial impact because of the banning of the vaccines by WHO.Latha: So, the downgrade is more because of the older US FDA warning?A: Correct. Because it is housed in the same facility which US FDA has raised the flag and it is in the warning letter and the observations that WHO made are very serious in concern related to data integrity, data falsification and also the fact that the company according to their own corrective action plan is going to take as much as one full year. So, they will take their last action as per Corrective and preventive action (CAPA) will end in December 2016 which means they themselves are going to take a lot of time to resolve it and FDA cannot ignore the observations because it is in the premises. They will definitely have a few more things to look at, at the least, beyond the ones that they have already raised.Latha: Even assuming the FDA writes a note on this second facility as well what will be the total loss to Cadila. It will still remain the Rs 35 crore or can there be more losses for Cadila?A: It all depends on how the FDA looks at it. If the FDA kind of invokes, which is the worst case though, an import alert on the other facility as well where they are manufacturing for the US market then the loss can be humongous.