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Import alert on Roorkee facility

Jubilant Pharmova (Jubilant) announced that it has received import alert from USFDA for its Roorkee facility. USFDA re-inspected the plant in Mar’21 and subsequently has issued an import alert to it. It is a solid dosage formulations manufacturing facility with supplies to US in addition to ROW markets. USFDA has exempted certain products from purview of import alert subject to fulfilment of certain conditions by the company.

We view this development to be negative for the company as supplies of non-exempted approved products will have to be withheld which contributed ~3% of total revenue in FY21 and new approvals would be delayed until resolution. Resolution of import alert generally takes few years. This facility was already under warning letter from Mar’19. Maintain HOLD with a revised target price of Rs725/share (earlier: Rs798/share).

* Import alert on Roorkee formulations facility:

USFDA has issued an import alert on Jubilant’s oral solid dosage formulations manufacturing facility at Roorkee. This facility was classified with an OAI status post inspection in Aug’18 which later escalated to warning letter in Mar’19. The plant was re-inspected in Mar’21 and post assessment the plant has been issued an import alert. This suggests USFDA was unsatisfied with the remedial measures undertaken by the company. The company will be working with the agency to resolve the issues and ensure GMP compliance.

* Impact:

US sales from this manufacturing facility contributes ~6-7% of consolidated sales of Jubilant in our view. Certain products have been exempted from import alert is the company fulfils certain conditions. These are Meclizine, Olanzapine – orally disintegrating tablets, Risperidone – orally disintegrating tablets, Spirinonolactone tablets and Valsartan. The products which have been impacted due to import alert contributed less than 3% of total sales in FY21, as per company. We lower our revenue and EPS estimates by 4-5% and 13-15% respectively for FY22E-FY23E as these impacted products would not be supplied, new approvals would get delayed and company will have to bear costs to implement remedial measures.

* Outlook:

We expect overall revenue and adjusted PAT to register CAGR of 5.0% and 14.4% over FY21-FY23E. Radiopharma business would gradually pick-up in coming quarters as impact of lockdown would normalise and CMO business would continue to grow at steady pace. However, generics and API businesses would be under pressure due to regulatory issues.

* Valuations and risks:

Maintain HOLD on the stock with a revised target price of Rs725/share based on 15xFY23E earnings (earlier Rs798/share). Key upside risks: early resolution of USFDA issues and faster scale-up in CMO business. Key downside risks are regulatory hurdles and delay in gaining market share in Rubyfill.

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