Aurobindo Pharma Ltd shares plunged over 18% in intra-day trade on Monday after the US Food and Drugs Administration (FDA) withdrew the 90-day ‘Voluntary Action Indicated’ (VAI) status given to Unit IV of the company last week.
At 2:12 pm, Aurobindo Pharma shares were trading at Rs 502.80, down 16.2% from their previous close, after hitting the day’s low of Rs 489.40. The stock had jumped 20% on Wednesday (20 February) after receiving the Establishment Inspection Report (EIR) with the VAl status from the US health regulator.
On Monday, the US FDA rescinded the VAI letter for the company’s Unit IV in Hyderabad. Aurobindo Pharma said that the inspection is still open, with the status under review. To recall, the USFDA had inspected Aurobindo Pharma’s Unit IV, a general injectable formulation manufacturing facility at Pashamylaram in Hyderabad, from November 4 to November 13.
EIR is essentially a factual report on all the activities conducted by USFDA investigators during the time spent at the manufacturing establishment. VAI means objectionable conditions or practices were found, but the USFDA is not taking or recommending any administrative or regulatory action.
After the development, brokerage firm Kotak Securities said in a report that there is now a high risk of an official action indicated (OAI) for the unit. The stock may react sharply, particularly after the 20% rally seen in the stock price after the VAI announcement, it added.
“We again move our fair value back to Rs 540 per share (versus Rs 620 per share) to take into account potential risks of an OAI/WL (warning letters),” the report stated.
Another brokerage firm Emkay Global, while maintaining its ‘hold’ rating on the Aurobindo Pharma stock with a target of Rs 530, warned: “This is probably the first time we have seen any such action from the regulator, and comes as a negative surprise. The action implies that the inspection conducted by the USFDA at Unit IV in November 2019 is still open and under review and will be classified at a later point of time.”
“While we are not sure of the exact reasons for the rescindment, it can be a simple case of miscommunication/misinterpretation, among other reasons. At this point, it is unclear by when Unit IV will be reclassified, as the mandatory 90-day period already seems to be over,” the brokerage firm added.
Prabhudas Lilladher also said it considered the USFDA’s withdrawal of VAI for Unit-IV as a negative for Aurobindo Pharma, though production/supply of injectable to the US and new drug filings would continue in the near term from the plant. The brokerage firm downgraded the stock to ‘Sell’ from ‘Hold’ while retaining the target price of Rs 525.
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