Cipla Ltd’s shares have declined 4% after saying last week that the US Food and Drug Administration found its plant in Goa did not meet norms and issued Form 483 to the company. While this does not affect the company’s existing US business, it may delay the launch of a new product to be produced in Goa.
Yet, an adverse report on the third successive inspection of the Goa plant affects its credibility. The US FDA issues Form 483 upon inspection of a plant if it finds that the operating conditions do not meet its standards.
The development is a dampener for Cipla, which planned to launch a key product, Abraxane, in Q4. The high-value drug is used to treat pancreatic cancer. Abraxane is projected to generate about ₹450 crore of sales in the US in the second year of its launch, analysts at JPMorgan India said.
Goa is an important facility for Cipla, contributing 10-12% of US sales, but it has been vulnerable. It received Voluntary Action Indicated (VAI) status in June 2017. The status was downgraded to Official Action Indicated (OAI) in September 2019 and re-issued in 2022. The company now faces a similar situation, having received Form 483 with six observations in the recent inspection.
A US FDA inspection status report is classified as OAI, VAI and NAI (No Action Indicated), depending on the degree of non-compliance. An OAI makes it obligatory for the company to take remedial action, unlike VAI, which is voluntary.
To be sure, some of Cipla’s other Indian plants also have a weak compliance record. The facility in Pithampur has been under OAI since February 2023. Patalganga has received Form 483 with as many as six observations and Kurukumbh has received one observation.
However, none of these is serious enough to warrant import restrictions. On the other hand, Cipla’s four US plants had cleared their last inspection.
For Cipla, the US has emerged as an important growth driver over the past few years. Its US sales increased 24% in FY24, faster than the 10% growth in the domestic market.
The US now accounts for 30% of Cipla’s revenue, up from 17% six years ago. Despite the potential delay for Abraxane, its plan to launch products from other plant locations is unaffected.
“Cipla remains reasonably well-placed in the US, driven by the launches in FY26 as well as projected Revlimid sales of $123 and $92 million in FY2025 and FY26. We expect a string of launches amid steady pricing trends to drive a healthy 8% US sales CAGR over FY2024-26,” analysts at Kotak Institutional Equities said.
The company still has a chance to escape OAI. Its Patalganga plant, which had been issued Form 483 in April, has received VAI status. Cipla can secure the same status for the Goa plant if it takes quick remedial action, paving the way for the launch of Abraxane.
Investors will have to see what progress the company makes in the next three months to factor in gains from Abraxane. Despite the recent loss in its stock price, Cipla’s shares have gained almost 19% so far in 2024.
