Cipla Ltd Shares Rebound Despite US FDA Warning Letter Concerns

Cipla Ltd Shares Rebound Despite US FDA Warning Letter Concerns

VoM News Desk | November 24, 2023 | 05:33 PM IST | Breaking News | Follow on Google News

Cipla Ltd Shares Rebound Despite US FDA Warning Letter Concerns

Cipla Ltd Shares Rebound Despite US FDA Warning Letter Concerns

Cipla Ltd’s share price witnessed a recovery, gaining over 3% in Friday’s intraday trades. This rebound came after an 8% correction on Thursday following news of a warning letter from the US FDA for its Pithampur, Indore manufacturing facility, which is crucial for exporting respiratory products like Albuterol generics to the US.

Impact of the Warning Letter

• Supply Risk: There is a heightened risk that any further escalation related to the warning letter could disrupt the supply of Albuterol generics, a significant contributor to Cipla’s US sales growth.
• Continuation of Earlier Observations: The warning letter was a follow-up to the Form 483 observations received on February 17, 2023, and the Official Action Indicated classification received on August 5, 2023.

Analysts’ Viewpoint

• No Import Alert Yet: Analysts note that the FDA has not issued an Import Alert despite nine months having passed since the Form 483 was issued for the Pithampur facility. This suggests that any product quality issues might not be severe.
• Future Risks: However, if Cipla fails to resolve the issues, there is a possibility of an Import Alert in the future, which could impact the stock’s performance.
• Advair Generics Launch: The clearance of the Pithampur plant is also crucial for the launch of the respiratory inhaler Advair generics, filed from the same facility.

Cipla’s Current Performance and Future Outlook

• US Sales Drivers: Presently, Cipla’s US sales growth is driven by Albuterol generics and multiple Myeloma drug generics of Revlimid.
• Need for New Launches: To sustain growth momentum, another significant product launch is necessary.
• Company’s Assurance: Cipla has confirmed that there is no material risk to their existing commercial product portfolio and that they are actively working on addressing the observations.

Valuation Concerns and Earnings Risk

• Valuation Stretched: Cipla’s valuation, at 22 times FY25 earnings (including Revlimid generics) and 28 times base business earnings (excluding Revlimid), is considered stretched, especially with potential risks in the US market.
• Earnings Cut Risk: The possibility of an earnings cut due to potential volume loss in Albuterol Sulfate in the US poses a significant risk to the company’s FY25 earnings.

Investors and market analysts are closely monitoring Cipla’s situation, particularly how the company addresses the FDA’s concerns and maintains its growth trajectory amidst these regulatory challenges.

VoM News Desk

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