Wockhardt tanks amid concerns over long-drawn resolution of FDA warning
This article was originally published in Scrip
Shares of Wockhardt have nosedived on Indian bourses amid investor concern that resolving good manufacturing practice (GMP) issues at the company's Waluj site in Aurangabad may be a long-drawn out affair and that this could hurt the firm's performance significantly in the short-term.
Analysts said that that the FDA's warning letter dated 18 July highlighted some serious GMP lapses, ranging from data-related issues to inadequate washing and toilet facilities provided to working areas, diminishing the prospects of a quick resolution of the issue. Wockhardt's shares slumped by 20% to end at Rs660.90 ($11.06) on the Bombay Stock Exchange on 24 July.
Nimish Mehta, founder of Research Delta Advisors, said that the strongly worded FDA warning letter suggested that resolving the GMP concerns may take much longer than originally anticipated. The letter raised concerns on data "integrity" and "reliability" and this could "spiral into anything", Mr Mehta told Scrip. He also believes that the previously stated estimate of the regulatory action resulting in a $100m sales hit may be understated as things currently appear. Reuters also cited a Citigroup research note suggesting that said it could take Wockhardt about two years to fully address the FDA's concerns. Citigroup, though, retained its buy rating on the firm in view of the attractive valuations.
Wockhardt, however, stuck by its stated position that it had already initiated the process of taking corrective measures, including appointing a leading US-based consultant for its Waluj facility. "The consultant has extensive experience and expertise in cGMP and will work with the Wockhardt team to address issues raised by the US FDA. Wockhardt is fully committed to achieving full compliance of its Waluj facility at the earliest in accordance with the US FDA standards," said managing director Dr Murtaza Khorakiwala.
The FDA had previously issued an import alert at Wockhardt’s Aurangabad unit and the company had then said that the regulatory action could, in a "worst-case" scenario, affect around $100m-worth of revenues on an annualized basis. It, however, hoped to restore the bulk of that within eight to nine months by shifting production to alternative sites. It said that about 50% of pending ANDAs were from locations other than the site under the FDA lens. (scripintelligence.com, 24 May 2013). Dr Murtaza Khorakiwala had at that time also calmed investors by suggesting that with the overhang of the FDA alert, top line growth in 2013-14 would be "by and large stagnant" with perhaps just "marginal" growth , while (EBITDA (earnings before interest, taxes, depreciation and amortization) margins may decline by around 2-3% (scripintelligence.com, 28 May 2013).
The Waluj unit also faced more regulatory action with the UK MHRA recently implementing a precautionary recall of 16 prescription only medicines in different strengths made by Wockhardt following GMP deviations there (scripintelligence.com, 11 July 2013).
warning note
The FDA warning letter said that some of the cGMP violations during the inspection raised serious concerns regarding the integrity, reliability and accuracy of the data generated and available at the Waluj site.
The regulator, among others, sought an independent and comprehensive evaluation of the extent of the deletion and destruction of records, a risk assessment regarding the potential impact on the quality of products, and a comprehensive corrective and preventive action plan from the Indian firm. Among other deviations, the letter said that Wockhardt repeatedly delayed, denied, or limited an inspection or refused to permit an FDA inspection in March this year and that FDA investigators found that unofficial batch records for approximately 75 batches of injectable finished drug products torn in half in a waste area. The FDA said that the firm’s response of 9 April lacked sufficient corrective actions.
The FDA also said that until all corrections were completed and it confirms corrections of the violations and the firm’s compliance with CGMP, it may withhold approval of any new applications or supplements listing Wockhardt as a manufacturer.