Pharma Monday blues: USFDA warnings drag down Glenmark, Aurobindo stocks

Regulatory worries dragged down major pharma stocks on Monday, with Glenmark Pharmaceuticals and Aurobindo Pharma leading the pack, falling 9.3 per cent and 19 per cent, respectively, on the bourses. While Glenmark’s Himachal Pradesh site received a warning letter from the US Food and Drug Administration (USFDA), Aurobindo’s unit VII in Telangana got seven adverse observations from the same regulator. 

At close, the Glenmark stock was Rs 286.3, a 52-week low, on the BSE. Aurobindo Pharma shares fell more than 20 per cent, a five-year low, during intra-day trading. The company’s scrip closed at Rs 458.50.  However, neither has an import alert and hence they can continue to export to the US. 

The sites under the scanner contribute 7 per cent of Glenmark’s and 25-30 per cent of Aurobindo’s revenues from the US. 
Hyderabad-headquartered Aurobindo is the fifth-largest generics player in the US and draws 46 per cent, or Rs 9,030 crore, of its revenues from there. This financial year, the revenue share of the US market is expected to cross 50 per cent. 

Mumbai-based Glenmark draws around 35 per cent, or about Rs 3,200 crore, from the US and ranks among the top 20 generics players in the market. The Nifty Pharma index fell 3.35 per cent during the day. Among other drug firms, shares of Cipla (2.35 per cent), Sun Pharma (1.57 per cent), Cadila Healthcare (1.72 per cent), and Lupin (2.59 per cent) were down because regulatory developments marred sentiment. 

Glenmark’s Baddi facility, which makes dermatological formulations, was inspected during April 15-20 this year and was classified as “official action indicated”, or OAI, by the USFDA. The company, however, said this facility would not be affected. “The Baddi facility is expected to contribute $30 million in sales for this financial year, which is approximately 7 per cent of US sales,” Glenmark said. 

Exports from a facility stop if it is placed under an import alert. A warning letter is an escalation of Form 483, which notes adverse observations around quality and compliance. Edelweiss said while the Baddi facility was classified as OAI, there were no data integrity issues and Glenmark had cleared the latest inspection without observations. 

“But the USFDA still issued a warning letter as the agency believed the problem was recurring. Glenmark is in the process of preparing a detailed response to the USFDA over the next 15 days,” the brokerage said.  

The company said it would work with the regulator on all corrective actions required to address the concerns in the USFDA’s letter. 
Glenmark further said there were no major pending approvals from this facility in the next 12 months. 

“There will be no financial impact on the organisation on account of this development,” a statement from the company said. 
Glenmark has eight manufacturing facilities approved by the USFDA — five formulations facilities and three active pharmaceutical ingredients (APIs) facilities under Glenmark Life Sciences. None of these except the one in Baddi has outstanding issues with the USFDA. 

As for Aurobindo, the US inspection team cited several shortfalls — ranging from an incomplete electronic trail and documenting manufacturing processes and products, to failure in cleaning equipment at appropriate intervals — in a 16-page report related to a latest inspection conducted during September 19-27 at the formulations plant located in the Polepally Industrial Park.

This facility, which has more than 130 product approvals in place, is one of the key sites for US exports. According to HDFC Securities analyst Amey Chalke, Unit VII contributes 25-30 per cent of the company's US revenues. Though Form 483 observations allow the manufacturer to respond with suitable remediation responses before any adverse import restrictions are imposed by the US drug regulator, analysts fear the process could take longer owing to the nature of the observations.

Aurobindo had seen similar compliance shortcomings with regard to three other manufacturing facilities earlier this year. 

The latest Form 483 observations have raised fears of a possible disruption in US exports if Aurobindo fails to address the USFDA’s concerns in time.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel