The curious case of USFDA observations and skyrocketing stock prices

US FDA investigation and observations have material impact on stock prices.

Vikas Dandekar | ET Bureau
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The question no one is asking: Why isn’t the Securities and Exchange Board of India (SEBI) ordering Indian pharmaceutical companies to disclose to Indian stock exchanges the details of the observations made by US Food Drug Administration (USFDA)?

USFDA investigation and observations have material impact on stock prices

“On February 23, Sun Pharma’s stock rose 5.17% in a day when it said USFDA has made three observations after inspecting its Halol facility in Gujarat. (We wrote about it here.)
” Natco Pharms’s Kothur, Telangana, site was inspected between January 16 and January 24 last year. In a BSE filing on January 24, Natco had said it received six observations for the Kothur plant as part of the audits by the USFDA. The share price had moved from a low of Rs 583 on January 3, 2017 to Rs 639 on January 24.*
” Divis Labs, which had one of its sites (Unit II) placed under Import Alert by the USFDA in March 2017, saw its stock price jump from Rs 668 on August 1, 2017 to Rs 990 on September 21, 2017. The company had informed the stock exchange that it had addressed all concerns related to the import alert-but it also said that a fresh set of six observations was issued as part of the latest inspections by the USFDA between September 11 and September 19, 2017.

Current system of discovering observations is a lottery and leads to speculation

” After any investigation, the US FDA publishes the finer details of the observations in a document called Form 483.
” Equity analysts, the media, and competitors apply under the Freedom of Official Information Act (FOIA) to get access to these documents. A totally random process decides who gets access first.
” It generally takes a week or two for the information to surface. Till then, everyone is left guessing, because nobody but the company heads directly involved and the few USFDA auditors really knows the details.
” Here is when wild WhatsApp messages by self-declared experts replace those who hold on to patience and logical conclusions. Such messages often truncate the USFDA’s observations or airbrush them as “minor observations”.

Bottomline: Given that the veracity of these messages is highly suspect, it’s time for a debate on whether drug companies should mandatorily disclose USFDA observations.

*Natco is known for disclosing all the observations it receives to the exchange.

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