Cipla: Jefferies has cautioned that Cipla’s FY26E earnings per share might be jeopardized by lengthy corrective action on the issued warnings.
Following the US Food and Drug Administration’s (FDA) warning letter about the pharmaceutical company’s Indore factory, investors in Cipla are apprehensive.
Following the release of the letter’s specifics, which highlighted data integrity concerns at the plant coupled with product complaints and microbiological contamination, the stock fell 8% on November 23. Although losses decreased the next day, it was still down 6% and concluded the week more than 4% down.
On November 27, the market is closed in observance of Guru Nanak Jayanti.
Is it now possible for this warning letter to become an import alert? It takes years to settle an import alert.
As the warning letter is a continuation of the observations received in Form 483 on February 17, 2023, and the unit’s categorization as Official Action Indicated (“OAI”) on August 5, international brokerage company Jefferies estimates that the likelihood of an import alert is minimal.
The plant has been under OAI for several months, and according to Jefferies analysts, the WL (warning letter) does not alter the plant’s status. Prolonged corrective action on the issued warnings, however, would jeopardize FY26E profits per share (EPS).
We calculate that the Indore facility accounts for about 30% of Cipla’s US sales and 8% of total sales, with albuterol making up the majority of this contribution. The corrective work may take longer even if we give an import alert a low chance, the report from November 26 stated.
Albuterol is used to treat and prevent asthmatic and chronic obstructive lung disease-related wheezing, dyspnea, and coughing.
The FDA sent Cipla a warning notice on November 17 for its Pithampur, Indore, factory, pointing out problems with the production of albuterol inhalers, contamination occurrences, document disposal processes, and repeated inspections at several locations.
The first two problems had to do with production procedures, while the third had to do with data integrity, according to Jefferies’ analysts.
According to the brokerage, data integrity problems (manipulating, overwriting, or fabricating data) account for 47% of import warnings; product and quality concerns account for 37%; concealing information from the regulator accounts for 10%; and repeated observations account for 7% of import alerts.
Cipla
While we currently attribute a low probability to the issuance of an import alert, we anticipate that the remedial process will be extended. Unless essential products are transferred to another site promptly (Cipla has mentioned dual site filings to mitigate operational risks), there could be potential downside risk to FY26E EPS, it stated.
Investors should keep a tight eye on data for news of site transfers and declines in market share for important items.
Jefferies has upheld its “hold” recommendation for the stock, setting a target price of Rs 1,230. The stock concluded at Rs 1,196 on the National Stock Exchange, marking a 2.19 percent increase from the preceding week.
