Wockhardt (WCKH.BO)
Alert: Warning Letter Issues Not Trivial
Warning Letter Issues Not Trivial – A first read of the Warning Letter for
Wockhardt's Waluj facility indicates that the issues are not trivial in nature. We
maintain our view that it could take around two years or so for full resolution
although the company may be able to contain the financial impact through some
mitigation initiatives outlined earlier. We do not see further risk to our estimates and
valuations appear very attractive, leading us to retain our Buy rating while
acknowledging that upside may be limited till there is some sign of progress on
either resolution or the mitigation initiatives outlined by management.
Warning Letter First Read – As expected, the FDA has issued a Warning Letter
(WL) to Wockhardt’s Waluj facility and it is now available on the USFDA website
(link here). Deficiencies highlighted include:
1. Efforts to delay, deny or limit FDA inspection of the facility - some examples cited.
2. Failure to prepare batch production & control records for each batch of product.
3. Inadequate lab records - did not contain all data from all tests conducted in order
to make sure that the product complies to established specifications & standards.
4. Failure to record and justify any deviations from required laboratory control
mechanisms + the investigation towards the deviations was not comprehensive
enough to determine the extent and impact of the problem.
5. Inadequate training / experience for each person involved with the production
process to perform the function(s) properly - advises Wockhardt to develop a
robust CGMP training program to ensure the same.
6. Failure to provide adequate washing and toilet facilities in working areas as well
as documented evidence that updated cleaning procedures and studies
demonstrate effectiveness.
The WL advises Wockhardt to engage an independent CGMP expert to undertake
comprehensive inspection of the facilities, method, and controls used to
manufacture drugs, and determine whether the facilities, method, and controls used
to manufacture drugs are in compliance with CGMP requirements.
No Added Financial Implication – as we have already built in that complete
resolution could take around two years (as with Aurobindo's & Claris' facilities in the
past). Our estimates do not factor in any upside from the various measures initiated
by the Management to minimize the impact from the Import Alert.
Please refer to our past research on this issue for more details: 1) FDA Overhang
Queers the Pitch; 2) Worst Case on Waluj; Cut TP to Rs1,620; 3) Management
Call Takeaways – Worst Priced In; 4) It Gets Worse at Waluj – UK MHRA Import
A
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Alert: Warning Letter Issues Not Trivial
Warning Letter Issues Not Trivial – A first read of the Warning Letter for
Wockhardt's Waluj facility indicates that the issues are not trivial in nature. We
maintain our view that it could take around two years or so for full resolution
although the company may be able to contain the financial impact through some
mitigation initiatives outlined earlier. We do not see further risk to our estimates and
valuations appear very attractive, leading us to retain our Buy rating while
acknowledging that upside may be limited till there is some sign of progress on
either resolution or the mitigation initiatives outlined by management.
Warning Letter First Read – As expected, the FDA has issued a Warning Letter
(WL) to Wockhardt’s Waluj facility and it is now available on the USFDA website
(link here). Deficiencies highlighted include:
1. Efforts to delay, deny or limit FDA inspection of the facility - some examples cited.
2. Failure to prepare batch production & control records for each batch of product.
3. Inadequate lab records - did not contain all data from all tests conducted in order
to make sure that the product complies to established specifications & standards.
4. Failure to record and justify any deviations from required laboratory control
mechanisms + the investigation towards the deviations was not comprehensive
enough to determine the extent and impact of the problem.
5. Inadequate training / experience for each person involved with the production
process to perform the function(s) properly - advises Wockhardt to develop a
robust CGMP training program to ensure the same.
6. Failure to provide adequate washing and toilet facilities in working areas as well
as documented evidence that updated cleaning procedures and studies
demonstrate effectiveness.
The WL advises Wockhardt to engage an independent CGMP expert to undertake
comprehensive inspection of the facilities, method, and controls used to
manufacture drugs, and determine whether the facilities, method, and controls used
to manufacture drugs are in compliance with CGMP requirements.
No Added Financial Implication – as we have already built in that complete
resolution could take around two years (as with Aurobindo's & Claris' facilities in the
past). Our estimates do not factor in any upside from the various measures initiated
by the Management to minimize the impact from the Import Alert.
Please refer to our past research on this issue for more details: 1) FDA Overhang
Queers the Pitch; 2) Worst Case on Waluj; Cut TP to Rs1,620; 3) Management
Call Takeaways – Worst Priced In; 4) It Gets Worse at Waluj – UK MHRA Import
A
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