US FDA alert not alarming for Aurobindo Pharma

Though the Aurobindo Pharma stock has nosedived 17 per cent on the US FDA's ‘import alert' on the company's unit-VI manufacturing facility, the direct financial impact of this development is not all that significant in the near term.

Located in Hyderabad, this facility is used to manufacture Cephalosporin oral and injectable products.

While the exact reasons for the ban are not public yet, the management is trying to get more clarity on the issue from the drug authority. But until the alert is lifted, the company cannot make any shipment from its unit-VI to the US market. The facility was inspected by the US FDA in December 2010.

The facility contributed 3-4 per cent to its top line and is estimated to have generated about $35 million in US sales. The import alert, therefore, would mean an immediate opportunity loss of about $35 million.

However, loss of incremental sales from the facility could be higher, as the company may now have to revisit supply contracts with other customers too. Besides, it may have to take remediation measures, incur legal costs and also write-off excess inventory.

Notably, the facility was also being used for supplying to Pfizer, with whom Aurobindo Pharma has a long-term supply contract.

Clarity on FDA observations and the scope of the import ban would help shed more light on earnings implications of the event.

Interestingly, this isn't the first instance of an Indian pharma company getting a Form 483 from the US FDA. In the past, Cipla and Lupin too had got Form 483 and warning letters, but had managed to resolve the issue.