MOSL: SHILPA MEDICARE (Buy)-Product approvals/EIR – key indicators of successful compliance

​SHILPA MEDICARE: Product approvals/EIR – key indicators of successful compliance

(SLPA IN, Mkt Cap USD0.8b, CMP INR624, TP INR797, 28% Upside, Buy)

• Shilpa Medicare (SLPA) was recently issued 10 observations in form 483 as part of the USFDA inspection at its Jadcherla formulation facility. Our interpretation of the form 483 indicates the resolution may take 3-6 months. Although the observations appear to be product-specific, we believe SLPA will have to take a holistic approach in reviewing and strengthening procedures, particularly related to media fill, OOS and stability program. In our view, either product approvals or the receipt of EIR for this facility will be an indication of successful USFDA compliance.
  
• The USFDA, at its inspection held from 20-30th November 2017, issued 10 observations for the company's Jadcherla facility. This is the fourth USFDA inspection at this facility over the past three years.
  
• One observation highlights the need for (i) thorough investigation of complaints and out of specification (OOS) laboratory results and (ii) strengthening of procedures. In our view, resolution of this issue would not take more than three months. The USDFA appears to have made its norms stricter for OOS (it has been part of 483s for many companies of late), and thus, SPLA needs to be more vigilant about OOS-related compliance.
  
• Another observation highlights the gaps in performing activities during filling which might lead to microbial contamination of drug, which again necessitates strengthening of procedures. As Jadcherla is a sterile facility, resolution of this issue is critical, which could take at least three months, in our view.