Lupin Gives Up Gains On FDA Observations For Gujarat Plant

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Shares of Lupin surged for the second day, following the US regulator’s partial clearance for the drugmaker’s Goa plant. Lupin shares jumped as much as 3.4 per cent to hit a high of Rs 1,712.30 today, after rising 6 per cent yesterday.

The rally in Lupin was triggered following the company’s Thursday announcement that US Food and Drug Administration has closed its investigation about inspection carried out at Lupin’s Goa facility in July 2015.

According to Lupin, the US regulator filed an establishment inspection report (EIR) about the July 2015 inspection. An EIR is issued after completion of inspection of a plant.

The clearance for Lupin’s Goa unit has sparked hope of a re-rating in the stock, analysts said.

The US Food and Drug Administration had carried out two inspections at Lupin’s Goa unit – one in July 2015 after which 9 observations around equipment and warehouse management were issued; the other in March 2016 which was largely about adherence to standard operating procedures.

“Put together, there were 18 observations made by the US FDA… The fact that July 2015 inspection is all-clear is definitely a better situation for Lupin to be in rather than the entire 18 observations outstanding,” said Abhishek Singhal, associate director at Macquarie Capital Securities.

Lupin’s Goa facility supplies over 100 products to various regulated markets including the US and the EU. The plant has filed more than 115 abbreviated new drug applications (ANDAs) in the US market.

Brokerages turned positive on Lupin post Thursday’s development. Bank of America Merrill Lynch in a note said that the FDA’s move should remove the overhang on the stock and Lupin’s valuations can see a re-rating.

Morgan Stanley said that the attention will now shift to new approvals for Lupin, given that FDA risks have abated considerably. It maintains ‘overweight’ on Lupin for target price of Rs 1,986 per share.

Meanwhile, US FDA’s response to its March’s inspection is awaited, Lupin said in a statement. According to Mr Singhal, it is too early to come to a conclusion that all the FDA issues are behind Lupin.

The FDA-related issues have been a big overhang for Lupin shares. The stock is still down 19.5 per cent from its 52-week high of Rs 2,127.

Meanwhile, in a another development, Lupin today informed the stock exchanges that it has received two Form 483s from US FDA for its Dabhasa facility in Gujarat for an inspection which was conducted between June 29, 2016, and July 6, 2016.

Lupin said the “observations made are minor in nature and corrective and preventive actions were shown to the inspectors during the inspection and the inspection has been classified as Voluntary Action Indicated (VAI).”

Form 483 is issued by FDA when its investigators observe any conditions that in their judgement may constitute violations of the Food Drug and Cosmetic (FD&C) Act and related Acts.

Angel Broking in a note issued to its clients said, “Both the observations are minor in nature and corrective and preventive actions were shown to the inspectors during the inspection. The inspection has been classified as Voluntary Action Indicated (VAI). A VAI inspection classification occurs when objectionable conditions or practices were found that do not meet the threshold of regulatory significance. Inspections classified with VAI violations are typically more technical violations.”

“Site is emerging as one of the facility for manufacturing APIs for advance markets. Currently given the nature of the violations and given that it’s an API plant, we don’t believe we need to change our estimates. We maintain our buy rating with a price target of Rs 1809,” the note added.

Shares of Lupin ended 1 per cent lower at Rs 1,639.