Cipla rebounds 13% from 52-week low on heavy volumes

Shares of Cipla gained 5 per cent to Rs 442, thus bouncing back 13 per cent from its early morning low on the BSE on Friday as, according to analysts, the USFDA's inspection of Goa facility found no repeat or data integrity (DI) observations, so there is no chance of import alerts at the plant.

The stock of the pharmaceutical company hit a 52-week low of Rs 390 in the intra-day trade. The trading volumes on the counter jumped seven-fold with a combined 16.6 million shares, representing 2 per cent of the total equity of Cipla, changing hands on the NSE and BSE till 02:50 pm.

The United States Food and Drug Administration (USFDA) conducted a cGMP (current good manufacturing practices) inspection at the company’s Goa manufacturing facility from September 16-27, 2019. The inspection ended with 12 observations, none of which were related to data integrity, Cipla said in a regulatory filing on September 28.

Cipla's US business contributes 22 per cent of total sales. Goa unit is an important facility for Cipla (injectable plant; around 20-25 per cent of US sales; one source products contributes 2.5 per cent of total sales).

Analysts at Reliance Securities expect there will be limited financial impact (sales of around US$40-50 million) due to lack of new approvals from the facility. Most of the new filings are from Indore facility. Further, the company can do site transfers for large products (Cipla has multiple USFDA approved plants), it added.

The brokerage firm said it has shown Form 483 to few regulatory experts, and as per them, some of the observations are of serious in nature. The observations are very detailed ones and USFDA inspectors have raised questions on cleaning validations, batch failures, quality of drugs, design of the equipments, aseptic processing areas, size and construction of the building, prevention of microbial contamination of the drugs and material specifications.

Hence, resolution of this plant would be time-consuming and it would take at least 8-10 months unlike Cipla’s historical track record of resolving USFDA issues within 2-3 months. There are good chances of getting Official Action Indicated (OAI) status for the facility; however, it may be avoided by providing robust Corrective & Preventive Action (CAPA) by the company. Additionally, all the observations are related to plant-specific and hence, we are not expecting Global CAPA, the brokerage firm said in a company update.

In the past three months, Cipla has underperformed the market by falling 22 per cent, as compared to a 2 per cent decline in the S&P BSE Sensex till Thursday.