Unit IV observations are milder than expected and has low chance of escalation, Credit Suisse said.
Drug maker Aurobindo Pharma shares fell 3.7 percent to close at Rs 600.75 on Monday after the company has received nine Form 483 observations from the US health regulator for its Unit IV injectable facility.
The USFDA had conducted an inspection at the company’s Unit IV from February 12 to February 20.
Sterile injectables and opthalmics are manufactured in Unit IV which is located in Pashamailaram near Hyderabad.
The company in a statement to stock exchanges said - none of the observations are related to data integrity or repetitive in nature.
"We are in the midst of providing a comprehensive response to the observations and would be replying to the FDA within 15 working days from the date of closure (20th February, 2018) of audit," the statement added.
The plant contributes about 15 percent of US sales, and is significant for the future of the company because around a third of company's total generic filings that are pending for approvals are filed from this facility. Much of these products filed from Unit 4 are part of high margin complex portfolio.
Aurobindo has 114 filings under review as on December 31.
Most of the observations relate to deficiencies in maintaining equipment, cleanliness of equipment and utensils, sterility, employees training, lab controls and computer controls, according to the U.S. Food and Drug Administration’s Form 483 reported by CNBC-TV18.
Though none of the observations are related to data integrity or root cause investigations - but the observations indicate that the company was found wanting in basic GMP hygeine requirements such as maintenance of equipment and cleaniliness.
"Unit IV observations are milder than expected and has low chance of escalation. There are no repeat observations from the April 2017 inspection by USFDA and there are no observations related to out of specification," global brokerage house Credit Suisse said while upgrading Aurobindo to Outperform from Neutral rating with a target price at Rs 750 per share as the stock is attractive for low valuations at 13x FY19 EPS.
Company should benefit from volume gains as large players exit high competition products, it believes.It has cut EPS estimates by 5.3/1.8 percent for 2018/19 due to one-off in Q3FY18 & lower US sales.