US FDA warning letter to Wockhardt – bad news

This article talks of the US FDA warning letter that Wockhardt has received on 18 July 2013.

I had earlier written about Wockhardt on two occasions – Wockhardt stock analysis and Why did I sell Wockhardt.

You might want to read these first if you have not read them before.

US FDA warning letter to Wockhardt

The US FDA warning letter to Wockhardt is pretty stern. It has quickly followed the import alert that was issued for the Waluj, Aurangabad manufacturing facility of Wockhardt.

Some excerpts,

Your firm failed to prepare batch production and control records for each batch of drug product that include documentation of the accomplishment of each significant step in the manufacture, processing, packing, or holding of the batch (21 CFR 211.188(b)).
For example, on March 18, 2013, the FDA investigators found unofficial batch records for approximately 75 batches of injectable finished drug products torn in half in a waste area. These records contain data indicating that some batches failed to meet the in-process visual inspection specifications of not more than (b)(4)% defects, while the official batch records for these batches state that these batches had met the specifications. The uncontrolled documents indicate that up to 14% of vials had defects including, but not limited to, black particles, fibers, glass particles, sealing defects, and volume variations. According to your firm’s procedures, a defect rate higher than (b)(4)% requires initiation of an investigation; however, a senior production officer at your firm stated that no investigations are performed when this occurs.

 

And this,

 On March 18, 2013, an FDA investigator identified the presence of unlabeled and partially labeled vials in the laboratory glassware washing area. When the investigator asked a QC Analyst to describe the contents of these vials, the QC Analyst immediately began dumping the contents of the vials into the drainage sink.  The QC Analyst stated that the content of the vials could not be determined. Because you limited the direct observation by the FDA investigator and prevented any determination of the contents of the unlabeled vials, you limited the inspection

 

Read the complete US FDA warning letter to Wockhardt Limited.

 

What does the warning letter mean for Wockhardt?

They have been asked to prepare a corrective action plan. They have been urged to hire a third party auditor and relevant experts so that they come back on track in adherence to current good manufacturing practices (CGMP).

Until all corrections have been completed the US FDA may withhold approval of any new applications or supplements. They also have the right to refuse pharma products manufactured at the Wockhardt Waluj, Aurangabad plant.

Such issues take time to resolve.  Take the case of Aurobindo which took two years to get past its US FDA problems.

 

What is my view on Wockhardt?

The business is going to be hit. Analysts are already reducing their estimates.

I suspect that the stock might languish for a while before it picks up. A few quarters of observation might be helpful. One can track the management’s actions in resolving this issue and then take a call.

Stigma does not go away quickly. The company already went into a crisis a few years back when they filed for corporate debt restructuring (CDR). Now this is a second crisis. Most investors do not enter such stocks till everything is green.

In related news Laxmi Mankekar, a prominent investor has pared down stake from 1.92% to 1.01% from March to June 2013. This name first showed up in September 2010 in the company’s shareholding pattern. This was also the time when the stock was making a bottom after their debt related woes had started. Prof. Mankekar and his son are considered to be astute investors. Don’t pay too much attention to big investors but be aware of their actions. They may be right or wrong respectively.

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