Aurobindo Pharma gathers pace, but new launches in US remains key


Aurobindo Pharma Ltd received a voluntary action initiated (VAI) intimation from the US Food and Drug Administration signalling its business as usual for the firm. But the drugs major still has to fast-track new launches in the US and close its acquisition of Sandoz.

The Street, though, was positively surprised with the US FDA’s voluntary action initiated status as some of the observations at its Unit-IV sterile facility were quite stern. Besides, the US FDA has also been increasing regulatory action in the pharma sector, which has affected quite a few Indian companies. Besides, Aurobindo had received official action indicated and warning letters across four other facilities in the past.

The VAI indicates that it is business as usual for Aurobindo. Note that the Unit-IV facility is a key sterile facility for the firm accounting for about nearly a third of its pending abbreviated new drug applications (ANDAs) in the US. In fact, analysts had already factored in huge revenues from this facility, which means that its revenue potential will remain.

“Our estimates already assumed a clearance for Unit-IV; the clearance now de-risks our US$280 mn and US$343 mn revenue forecasts for the sterile business in FY2021/22, respectively,” said analysts at Kotak Institutional Securities.

Nevertheless, investors are now looking at how fast the business closes the acquisition of Sandoz, which has quite a few key products that are expected to generate decent revenue.

However, some of Sandoz’s key distribution agreements are expected to end, which may hamper revenue growth. Still, the company has access to three manufacturing facilities, which aids in strengthening product portfolios and also cost synergies.

The stock’s run-up of 19% in the past two days was because the Street was positively surprised by the clearance. But the company faces growth challenges as some of its tie-ups come to an end. Additionally, scaling up of its new facilities and pace of product approvals in the US need to be watched.

News Source:- livemint

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