SEBI 'Warning' To Aurobindo Pharma Is A Red Flag For All Drugmakers

The market regulator has warned Aurobindo Pharma Ltd. for not meeting its disclosure requirements by not providing full details related to observations by the the U.S. Food and Drug Administration.

"From the disclosures made by the company, it was observed that the company had disclosed very limited and restricted information," the Securities and Exchange Board of India said in a June 24 letter. "The only fact disclosed was that a warning letter was received from USFDA. The company did not disclose the details on the reason and the non-compliance/aberration observed, for which the warning was issued."

The regulator called it a non-compliance of SEBI (LODR) Regulations, 2015.

The warning letter may be a precursory message to drugmakers who merely disclose the number of observations received on their facilities without offering other details. SEBI, when not satisfied with public disclosures, has in the past sought explanation from companies on their U.S. FDA audit.

"While companies may not be clear about the implications and effects of the observations received by them due to constantly changing goalposts of U.S. FDA, it would be good corporate governance to publish the Form 483/warning letter stating the observations and issues on the exchange," Aditya Khemka, fund manager at InCred Healthcare Fund, told BQ Prime.

"The company could then state whether it believes the same to be material or not," he said. "For a matter that is so material to their operations, it must be disclosed publicly to protect the interests of the shareholders."

The market regulator's warning for Aurobindo Pharma came after the Hyderabad-based drug-maker failed to make public details of the communication it received from U.S. FDA regarding the inspection conducted at Aurobindo's Unit-I between Aug. 2 and Aug. 12, 2021 as official action initiated.

The company on Jan. 14 disclosed it had received a warning letter from the U.S. FDA regarding the OAI classification of Unit-I. OAI means "regulatory and/or administrative actions will be recommended".

Aurobindo, however, said it did not disclose the details as the the classification would not have affected its continuing commercial supplies to the U.S. market. The company said it had communicated it in its earnings call and a transcript is available on the exchange.

But SEBI said its examination found that the investor call “did not provide any additional information beyond what was already disclosed.”

The drug-maker said it did not take the OAI classification seriously as it has already taken robust corrective actions to mitigate the risk.

Finding the argument not tenable, the SEBI said, "While the warning letter is available on the USFDA website, the company chose to make limited disclosure. Mere disclosure of the receipt of the USFDA warning letter is insufficient and an impediment to assess the current status."

It said the disclosure was not in line with its regulations, and "any such aberration in future would be viewed seriously and appropriate action would be initiated".

According to Vishal Manchanda, a pharma analyst at Systematix, stock behaviour is very volatile around Form 483 and warning letters. While certain institutional research houses may have access to the information ahead of others, he told BQ Prime, it may "not be fair to the retail investors that important public information is not available at the same time".

Disclosing the form 483 or warning letter on the exchange would help address the issue, Manchanda said. However, its analysis on the impact on business would still be a "subjective issue since it would depend on individual assessment".