Alkem Labs tumbles on fudging charges

Germany's medical regulator has accused the Mumbai-based firm of data manipulation in some clinical trials

Alkem Laboratories posted one of the biggest single-day drops on Monday after Germany’s medical regulator accused the Mumbai-based firm of data manipulation in some clinical trials. After dropping as much as 7.5 per cent, Alkem shares ended at Rs 1,276.25 apiece on the BSE on Monday, down 4.44 per cent from the previous close.

Germany’s Federal Institute of Drug and Medical Devices has accused the company of manipulating heart readings of patients in some trials for the antibiotic cefuroxime and the brain disorder drug rulizole. The charge was levelled after an inspection of Alkem’s plant in Taloja, Maharashtra in March 2015.

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The European Medicines Agency (EMA) is investigating the medicines after Germany reported its findings to the EMA and urged it to pursue action in a report that was posted on the EMA website.

Alkem said in a statement on Saturday that the company had responded to the German authorities with a “robust remediation plan” and would also submit “suitable clarification” to the EMA.

Alkem said in a statement that sales from Europe had contributed less than a per cent to its total consolidated sales in the first nine months of 2015-16.

Alkem said the inspection concerned studies conducted by the company between March 2013 and March 2015 on two products, one of which is selling, while the other is yet to reach the market. It did not name the products. It also said it had changed staff, upgraded equipment and improved its quality assurance systems at the Taloja plant since Germany’s inspection.

“Given the data misrepresentation observation and accentuation of the matter to EU (European Union) level, it implies significant regulatory risk for international operations of Alkem,” says Daljeet S Kohli, head of research at IndiaNivesh.

“Though the business contribution from Europe market is less than one per cent, the sharing of inspection outcome with different regulatory agencies as they work in tandem could pose risk to its international operation. International business is about 25 per cent of total sales, largely the US. The notification could be sentiment-negative on the stock,” he adds.

Alkem shares made their stock market debut in December 2015. After listing, the stock has touched a high of Rs 1,568 and a low of Rs 1,264.

Earlier this month, JP Morgan had initiated a ‘neutral’ rating on the stock with a target price of Rs 1,500.

“Alkem has witnessed margin recovery in recent quarters and expects the trend to improve further,” say analysts from JPMorgan.