Cipla's Pithampur unit gets USFDA warning; analysts remain bullish

Pharmaceutical giant Cipla has received a warning letter from the United States Food and Drug Administration (USFDA) as part of its (USFDA’s) routine current Good Manufacturing Practices (cGMP) inspection at the Pithampur manufacturing facility.

The letter, dated November 17, 2023, highlights contraventions regarding methods or controls at the facility that do not conform to prescribed GMP regulations.

The warning letter does not halt the sale of products from the Pithampur plant in the US market. However, it puts a hold on approval for any new products from the site. This development comes after the facility received eight Form 483 observations in 2022-23, and the facility was classified as Official Action Indicated (OAI) by the USFDA in August.

Non-compliance with the warning letter, resulting in the inability to obtain approvals for new products, may prompt the USFDA to issue an import alert. This alert, in turn, would not only prevent new approvals but also restrict the facility from selling its existing products.

Cipla did not wish to comment on the status of pending USFDA approvals from the facility. On Monday, Cipla’s share price dropped 0.21 per cent at Rs 1,246 apiece on the BSE.

Despite the regulatory setback, financial analysts remain optimistic about Cipla’s future. The company is in the midst of strategic talks regarding a potential sale of the founding family’s 33.4 per cent holding.

Ashika Group, in its analysis, maintains an overweight recommendation for Cipla, citing the potential for returns exceeding 30-50 per cent from its current valuation within the next six–nine months.

Nirali Shah, an analyst from Ashika Group, said while the warning letter to the facility indicated a lapse in GMP practices, it allowed Cipla to continue selling existing products from the Pithampur facility in the US market. The delay in product approvals, however, adds a layer of complexity to Cipla’s operations.

“The Pithampur facility is very crucial for Cipla as it manufactures respiratory and orals products. The company has already mitigated the risk as the transfer to another plant is on track. This Warning Letter is for GMP practice, common good manufacturing practice that every pharma company has to maintain. The assumption we are making is this is a possibility that they would have added a few additional new observations, and before there were 8 observations, there might have been certain observations that did not meet the FDA’s standards,” said Nirali Shah.