It was a volatile day of trade for Cipla Limited. The stock on Friday took a beating after the US Food and Drug Administration (USFDA) issued Form 483 to the Goa manufacturing facility of the firm. The share price fell up to 7.74 percent to touch its five-year low of Rs 389.6 on the NSE after the US regulator issued 12 observations to the plant.
The plant, one of the most important facilities for its US business, was inspected for over 10 days from September 16 to 27. The inspection across the 10 units of the facility that manufactures varied dosage forms was conducted by three USFDA officers.
While the street was aware of 12 observations being issued to the facility, the details of the observations were not known. The expansive and detailed Form 483, the document that contains the observations, spooked the street. The observation letter extended to 38 pages with the first observation itself extending to 11 pages. While the number of observations and pages don’t ascertain the severity of the observations, it gives a broad indication of the issues pointed out by the regulators.
Remediation to take time
The observations did not have data integrity issues or were not repeat observations from earlier inspections. According to the company, the observations mainly centered on facilities, equipment and infrastructure. For example, the first observation focused on equipment and utensils required for drug production not cleaned at appropriate levels. This observation itself brought up 14 instances of residue medicines seen inside the air exhaust duct. Similarly, other observations extended to lack of adequate control over air pressure, asceptic processing areas being deficient and procedures to prevent microbiological contamination of sterile or injectable products not being established.
According to experts, remediation of these observations will take time; estimates range from 8 to 10 months. The observations are detailed, raising questions on failure of drug batches, drug quality, validation of cleaning, size and construction of building, among others. The company, according to experts, will require a long term change in Standard Operating Procedures (SOPs). Also, given the observations to the injectable unit one cannot rule out the plant being classified as Official Action Indicated (OAI). This OAI status increases the probability of the plant eventually receiving a Warning Letter. The issuance of a Warning Letter in case of a plant with an OAI status is dependant on the company’s remediation efforts and severity of the observations. For Cipla, the street has not ruled out an escalation to a Warning Letter either.
Impact to be limited
The company, however, is confident of submitting a response to the USFDA and will work with the agency to address the observations. Financially also the impact is expected to be limited. The US business is around 22 percent of Cipla’s total sales. The Goa unit comprises 25-30 percent of current US sales but they don’t see these observations as a risk to the existing business. In fact, existing sales of any facility supplying to the US are only stopped by the USFDA in case it is issued an Import Alert, not an OAI status or Warning Letter unless specified.
While Goa is important to current sales, the management said like all pharma companies they have an active de-risking programme in place. That means the company drug filings from multiple plants, not just Goa and they possibly have provisions in place to transfer large products to other sites. The company said their products that are filed only from Goa are limited to 2.5 percent of total sales. More so, the future drug filings are mostly from other sites such as Indore. Lack of new approvals from Goa plant is likely to impact the company’s sales by $40-50m.
Cipla is still to respond to the USFDA. The response to the USFDA will be crucial to determine if the regulators will be satisfied with the measures taken by the company. Besides the comfort of a derisking strategy, the street is also taking solace in the fact that Cipla has had quite a robust regulatory track record. Even when it has received observations it has managed to solve issues successfully. Some recent examples include the company’s API and formulation facility in Kurkumbh that was slapped with 18 observations in March 2019. It received an Establishment Inspection Report (EIR) indicating closure of observations in June 2019. Similarly, Cipla received 7 observations at their Bengaluru API plant in July 2019 and an EIR in September 2019.
The company yet to respond to USFDA