MOSL: AUROBINDO PHARMA (Buy)-Deficiency in injectables manufacturing controls
Aurobindo Pharma: Deficiency in injectables manufacturing controls; Robust CAPA required to resolve issues
(ARBP IN, Mkt Cap USD3.5b, CMP INR429, TP INR500, 17% Upside, Buy)
- The USFDA inspected Aurobindo Pharma's (ARBP) Unit 4 from 4th-13th Nov'19 and issued form 483 with 14 observations.
- Observations are largely related to deficiencies in studies and monitoring conditions necessary for aseptic processing/injectable facility. It would take 4-6 months of enhanced efforts to resolve the issues, in our view. Unit 4 accounts for 7-8% of US sales and has 47 ANDAs pending for approval.
- Despite intensifying regulatory headwinds over the past 8-9 months, ARBP has been able to maintain growth momentum in US generics (+27% YoY in 1HFY20) on the back of new launches and acquisitions. Further, it has a healthy pipeline of 153 ANDAs pending for approval in US generics. Separately, EU business profitability is on track owing to its foray into newer markets and shift in product manufacturing to India. We value ARBP at 8x 12M forward earnings and arrive at a target price of INR500. Maintain Buy.
Aurobindo Pharma is a vertically integrated pharmaceutical group based in India. Co. maintains a product portfolio spread over major product areas encompassing CVS, CNS, Anti-Retroviral, Antibiotics, Gastroenterologicals, Anti-Diabetics and Anti-Allergic with approved manufacturing facilities by USFDA, UKMHRA, WHO, MCC-SA, ANVISA-Brazil for both APIs & Formulations. In addition to Semi-Synthetic Penicillins, Co. has a presence in key therapeutic segments such as neurosciences, cardiovascular, anti-retrovirals, anti-diabetics, gastroenterology and cephalosporins, among others. Co. exports to over 125 countries across the globe.
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