Cadila Healthcare Swings After U.S. FDA Issues 14 Observations For Moraiya Plant

Cadila Healthcare Ltd. said the U.S. Food and Drug Administration issued Form 483 with 14 observations after the drug regulator inspected its formulations manufacturing facility in Moraiya, Ahmedabad from April 22 to May 3.

There were no repeat or any data integrity-related observations, the drugmaker said in an exchange filing. Data integrity issues refer to changing or falsifying data to get the desired output and the U.S. FDA stops export of drugs to the U.S. if data integrity issues are flagged. On the other hand, a Form 483 does not stop any current business but may halt new approvals going ahead.

While the nature of the observations was not known until Monday morning, Cadila Healthcare will have to respond to the U.S. FDA within the next 15 days with a detailed explanation providing reasons for the observations. The U.S. drug regulator will upload the Form 483 on its website over the next few weeks.

The drugmaker said that it is confident of addressing these observations and responding to the U.S. FDA at the earliest.

The number of observations, according to historical trends, is not the only point which the U.S. FDA will consider while escalating the plant to a ‘warning letter' or ‘import alert'. A Dr. Reddy's Laboratories Ltd. plant (Unit 3) with 11 observations was cleared in three months but its Srikakulam plant with two observations is still under the scanner. Even Lupin Ltd.'s facility which received only 6 observations is still not off the hook.

Moraiya is the largest manufacturing facility of the company catering to the U.S. market and currently close to 50 percent of the sales to the U.S. come from this plant, as per reports by Motial Oswal Financial as well as Investec.

The 14 observations may act as an overhang, Investec pharma analyst Anshuman Gupta wrote in a report, adding that the sheer number of observations appear worrisome but the company statement that there are no repeat observations and none are related to data integrity provides some comfort.

U.S. business is critical growth driver for Cadila and timely resolution of Moraiya facility is critical, Param Desai, analyst at Elara Capital, said, adding that out of the 144 pending ANDA's around 35 are from Moraiya quoting the management.

Shares of Cadila Healthcare slumped as much as 3.6 percent to Rs 292 apiece, the lowest since Feb. 2015. The stock has corrected over 45 percent from its June 2017 peak. Currently, 25 out of the 38 analysts tracking the drugmaker have a ‘Buy' rating with nine suggesting to ‘Hold' and four in favour of a ‘Sell'.