Cadila’s Moraiya Facility Gets USFDA Approval

The shares of Ahmedabad-based Zydus Cadila surged by nearly 5 per cent today after it reported that the USFDA has found its Moraiya manufacturing facility to be acceptable.  In June 2011 the company had received a warning letter about this facility due to the violations of the cGMP (Current Good Manufacturing Practice) regulations for finished pharmaceuticals. The USFDA had found deviation of microbial data in their inspection carried during the period January 17 - February 3, 2011. The regulator had found that the environmental monitoring of Cadila was inadequate in relation to personnel monitoring.

USFDA had therefore stated that these violations made the products adulterated and had subsequently withheld the approval of new applications of the firm. The USFDA approval is now very positive news for the company as it will start making new applications. After the USFDA withheld the applications, Cadila’s management, in the course of a conference call to analysts, had said that the inspection was of pre-approval in nature for its injectable facility and that there were no commercial operations and no product approvals had been filed in the injectable space from the facility.

The company had, however, recognized that if the facility was to remain under the USFDA scanner for a long time, then there would have been significant loss of future business. The existing business was not hampered due to this development in FY12. For the pharmaceutical companies, injectable is another big opportunity and the Cadila management had taken the issue very seriously. In fact, the company had taken the help of American consultants and was hopeful to get matter resolved in 6-9 months. Had the issue been stretched over a longer period of time, its products pipeline would have been affected negatively.

Now with the issue resolved there would be rise in the product approvals which will help it gain a larger share of the pie in the U.S. markets. Injectable is a space where the operating margins are higher than other type of formulations. We at Dalal Street Investment Journal see this as very good news and reiterate our call to buy the scrip. For a more detailed analysis of Cadila Healthcare, refer to our magazine (Volume XXVII, No 15 dated July 15, 2012).