USFDA issues warning letter for Cadila Healthcare's Moraiya facility

The formulation unit 45% of the firm's US sales; Cadila says letter does not impact its existing business in the United States for now

Drug maker Cadila Healthcare Ltd (Zydus Cadila) received a warning letter today from the US Food and Drugs Administration (USFDA) for its Moraiya formulation unit.

Contributing roughly $400 million (Rs 2,800 crore), or 45 per cent of the firm's US sales, the Moraiya plant saw its case escalate with the US regulator on getting an official action indicated (OAI) after inspection between April 22 and May 3.

A warning letter is an escalation of Form 483 (which notes adverse observations about quality and compliance of a facility that needs the manufacturer needs to address) by the USFDA. Exports from a facility stop if it is placed under an import alert, which is an escalation of a warning letter.

For now, the warning letter does not affect the company's existing business in the US and product supplies from Moraiya will continue, Cadila Healthcare Ltd informed exchanges in its filing on Monday.

"The company has taken multiple steps after the inspection to address the observations received from USFDA during the inspection. The Company will continue to take all necessary steps to ensure that the USFDA is fully satisfied with our remediation of the above facility. We are confident of responding to USFDA to address the observations within the statutory time permitted in the letter," it stated, while adding that it was committed to patient safety and meeting expectation of regulatory compliances.

Sticking with their buy recommendations for Cadila Healthcare, analysts too are not making much of it, as they found the warning letter along expected lines.

"This warning letter at Moraiya is as per our expectations as the facility already classified as OAI status (observations related to cleaning validation/OOS). We expect Cadila Healthcare to deliver muted growth in the US owing to pending regulatory issues," Krishnanath Munde, Senior Analyst (Pharma) of Reliance Securities said in a note.

According to Munde, the firm does not expect any new approval from Moraiya for Cadila Healthcare owing to the warning letter till the facility gets resolved from the US regulator. "We have already factored warning letter impact of lack of new approvals into our valuation model in Q1 of FY20 only. We note that the remediation efforts at Moraiya are not likely to have any significant impact on product supplies to the US, as per management," Munde added in the note.

So far in 2019, Indian pharma companies have received a dozen-odd warning letters from the US drug regulator - much more than the seven that came in all of 2018. This has resulted in major companies now de-risking their business by developing alternative sites for their key products.

For Cadila Healthcare, this comes in the form of its Liva facility which has seen the company initiate site transfer of approved injectable products from its Moraiya plant. The firm expects to complete the site transfer of these injectables by the end of FY20, Cadila Healthcare management told analysts in its Q1 earnings call, according to an Edelweiss Securities' note.

Meanwhile, this year after the inspection of the Moraiya unit, Cadila Healthcare successfully completed USFDA audits of its formulations facility at Baddi, and AP! manufacturing units at Ankleshwar and Dabhasa. On Monday, Cadila Healthcare's stock price shed 5.42 per cent to close at Rs 241.45 on the Bombay Stock Exchange.