Pharma firm Ipca Labs' plant gets 3 observations from US drugs regulator

Ipca Laboratories said on Thursday the US Food and Drug Administration (USFDA) has issued three observations under form 483 for the company’s formulation manufacturing facility at Piparia, near Silvassa.

The observations were followed by the USFDA inspection at the site from April 18 to April 26. The company told stock exchanges it will work closely with the drug administrator to resolve the issues.

Ipca’s US business suffered after the USFDA put import bans on three of its sites: Silvassa, Indore SEZ, and API plant in Ratlam. Mumbai-based Ipca drew 46.89 per cent of its revenues from exports in FY22. Of this, around 20 percent came from the US, according to the company’s FY22 annual report.

Ipca said on Monday it had acquired a 33.38 percent stake in Unichem Laboratories for Rs 1,034 crore at Rs 440 per share. The company also approved an open offer of up to 26 percent in Unichem at Rs 440 per share, aggregating to Rs 805 crore.

Ipca said that it saw status quo from the USFDA on its plants with no developments.

Ipca’s shares have been bleeding since the Unichem deal announcement, breaching the 52-week low and hitting a low of Rs 690 in the morning trade on Thursday. The stock, on Wednesday, traded at the lowest levels for three years and was down 20 per cent in two days. In the last one year, the stock has fallen 30 per cent and is down 17 per cent since the start of 2023.

Analysts said the company may have allocated capital on a low value, low margin generics business of Unichem.

Analysts at Nuvama Research said: “We are cautious on Ipca’s proposed acquisition of up to 60 percent stake in Unichem as it gets a plain-vanilla generics portfolio; and  flat revenues for last four years and, while 15–17 percent revenue guidance is strong, execution is awaited. Besides, a Rs 3000 crore valuation implies around 10x mid-FY26 estimated EBITDA—lofty even if Rs 300 crore EBITDA guidance in two–three years is met.”

Ipca went for Unichem to assuage the impact of its troubles with the USFDA. “The acquisition will allow IPCA to re-enter US formulation generic market, however at 2.3x sales, as acquisition cost is expensive in our view given challenges and uncertainty associated with the US market,” said Param Desai, analyst with Prabhudas Lilladher.

Unichem has formulations manufacturing facilities in Goa, Ghaziabad (Uttar Pradesh) and Baddi (Himachal Pradesh); the active pharmaceutical ingredients (API) manufacturing units at Roha (Maharashtra), Pithampur (Madhya Pradesh) and Kolhapur (Maharashtra).