Aurobindo Injectables Unit Falls Foul Of FDA But Analysts Hopeful
Executive Summary
Aurobindo Pharma Ltd, India’s third-largest drug company by sales, has run into trouble with the US Food and Drug Administration, which has issued nine observations on its key sterile injectables unit in southern India, but analysts are confident there will be only a limited commercial impact.
The US FDA has made new observations on a key facility for Indian firm Aurobindo Pharma Ltd., slapping the sterile manufacturing unit with a Form 483 containing nine observations that highlight issues ranging from a lack of proper practices and systems to problems with ensuring drug quality and purity.
The observations also cite poor equipment maintenance and badly designed equipment, along with ill-trained employees and deficient computer control systems.
Although the injectables facility, known as Unit IV, has been rapped for violating good manufacturing practices by the FDA, analysts still have high hopes that high-margin generic injectable products will power the company’s revenue growth to new peaks thanks to a number of pending approvals. First, however, the facility needs to get the US regulator’s all-clear.
Aurobindo must reply to the FDA by March 20 outlining the steps it plans to take to clean up the problems and has said in a statement that it is “in the midst of providing a comprehensive response to the observations.” It declined further comment.
“Equipment and utensils are not cleaned and maintained and sanitized at appropriate intervals to prevent contamination,” the FDA said in the wake of last month’s inspection. The FDA also noted tersely the building used in the manufacturing,of drug products is “not free from infestation by rodents, birds insects and other vermin."
Even though the standards expected of an injectables plant are normally more stringent than for an oral formulations facility, analysts believe Aurobindo should be able to resolve the issues in a relatively short space of time at Unit IV, which makes lyophilized and powder injections, prefilled syringes, ophthalmics and low-volume parenterals.
FDA Observations Not 'Serious'
“None of the observations were related to data‐integrity issues...(they) were mostly on procedural aspects. We believe Aurobindo will be able to address the issues raised in the observations as none of those are serious in nature and mostly are about GMP (Good Manufacturing Practice),” Prabhudas Lilladher, a leading Indian brokerage, said in a note.
The brokerage has a “buy” on the stocks with a one-year target price of INR909; Aurobindo was trading on March 14 at INR578. Global brokerage Credit Suisse is equally confident about Aurobindo’s regulatory chances and has upgraded the shares to “outperform,” asserting the observations are “milder than expected” and have a “low chance of escalation.”
It will be good for Aurobindo if analysts are right about Unit IV. “A large part of Aurobindo’s growth over the next two years is contingent on scale-up of injectable sales, with Unit IV being a critical facility, accounting for one-third of all pending ANDAs and three-quarters of all pending injectable ANDAs,” noted Kotak Securities, another big Indian brokerage.
In recent quarters, Aurobindo’s robust financial performance has helped it stand out from many of its Indian peers whose profits have tumbled as US pharmacies have consolidated, curbing drug makers’ pricing leverage, and the FDA has accelerated product approvals, fueling competition that’s amplified price erosion. The sector’s woes have been compounded by unrelenting regulatory scrutiny.
Still, recent data from McKinsey & Co India suggests that while moving up the compliance curve remains a work in progress for a number of Indian firms, there may be early signs FDA inspection outcomes are improving. (Also see "Signs Of Improving FDA Inspection Outcomes At Indian Sites But Long Road Ahead" - Pink Sheet, 8 Mar, 2018.)
Aurobindo’s net profit growth moderated in the third-quarter ended Dec. 31 due to a one-off tax charge, but even then the company fared far better than sector leader
Sun Pharmaceutical Industries Ltd., for instance, whose net profit slid 75% to INR3.65bn ($52m) on weak US sales. Sun Pharma is also still awaiting FDA clearance for its largest plant Halol over GMP violations, though analysts believe the company stands a good chance after more than three years of effort. (Also see "Sun’s Key Halol Plant Flunks FDA Inspection Again" - Scrip, 28 Feb, 2018.)
Aurobindo’s third-quarter net profit rose nearly 3% to INR5.95bn from the same year-ago period on revenue that climbed a better than expected 11%. US formulation sales jumped 9% from a year earlier while European formulation sales surged 37%. Aurobindo is on a push to move up the value chain by expanding its biologics and sterile production in the US and Europe. Analysts also approvingly note that Aurobindo’s FDA approvals in a single quarter often outstrip larger rivals, even as its R&D spend is far lower as a percentage of revenues.
US Injectables Ramp-Up Hinges On Hyderabad
While Unit IV represents just 10-12% of US sales, 37 out of 114 pending ANDAs (Abbreviated New Drug Application) are linked to the Pashamylaram facility located on the outskirts of Hyderabad. In addition, 75-80% of pending injectable ANDAs are filed from Unit IV and the ramp-up of the US injectable business hinges on the clearance of this unit, Kotak Securities said.
Like Prabhudas Lilladher and Credit Suisse, Kotak believes the FDA observations “can be viewed as ‘low-to-moderate’ in criticality” and can be addressed “without major remediation.” But it predicted investors’ attention will “remain glued on regulatory outcomes” particularly in the light of an upcoming inspection at Aurobindo’s Unit XII and recent product recalls from Unit IV and Unit XII.
The company has been targeting sales of $180-185m from Unit IV for the current financial year to March 31. The company told analysts in a conference call last month it had filed 89 ANDAs from the unit out of which 50 have been approved. “We’ve also clearly said the next year, we would still grow at 30% plus [in injectables] because by that time we are expecting the approvals to happen,” Aurobindo managing director N. Govindarajan said.
Still, analysts caution as well it’s important not to be too complacent about Unit IV’s outlook as there’s always risk of a time-consuming escalation. “An escalation, although unlikely, will depend on management’s remediation plan,” Kotak warned. If the FDA is not happy with the company’s corrective action plan, it could lead to a warning letter that would mean Aurobindo could keep supplying existing products to the US from the plant but not supply any new filings.
Unit IV has already been in the news in previous months over recalls. Govindarajan said last month one recall “has already been addressed...for the other two recalls, the correction work is in progress right now.” Kotak sees as an encouraging sign the fact the FDA inspection did not result in any observations on the product recalls and suggested that all going well, the facility could get the green light in three to four months.
From the editors of PharmAsia News.