IPCA Laboratories' Ratlam facility gets favourable FDA classification

IPCA Laboratories has received a clean chit for its Ratlam manufacturing unit from the US Food and Drug Administration (USFDA).

FDA classified the Ratlam facility, which specialises in manufacturing Active Pharmaceutical Ingredients (APIs), as 'Voluntary Action Indicated' (VAI) in its Establishment Inspection Report (EIR).

VAI is the second-best classification that a plant can get from the USFDA. The classification, as defined by the regulator, is as follows: ‘Objectionable conditions or practices were found during the inspection but the agency is not prepared to take or recommend any administrative or regulatory action’.

A VAI is generally issued when the response from a plant to certain observations appears satisfactory to the regulator. It is then up to the regulator whether they would like to reinspect the facility to assess the remediation.

USFDA terms simplified: What are NAI, VAI, OAI and EIR that affect pharma company stocks

The VAI classification within the EIR is a promising sign for IPCA Laboratories. It suggests a potential green light to resume manufacturing for the US market from this specific facility. This is important as it marks a potential resolution to long-standing compliance issues that have plagued this plant.

It's worth noting that this particular facility underwent inspection in June of this year and was issued 11 observations. It has also been grappling with an import alert since 2014-2015, alongside two other plants operated by IPCA Laboratories. An import alert means the products manufactured at the plant do not fit US standards and hence are barred from the US unless stated otherwise.

Investors and market observers are now eagerly awaiting developments regarding the other two plants. These two facilities are both formulation plants, with one located in Pithampur, Madhya Pradesh, and the other in Piparia, Silvassa. Both of these facilities also faced an import alert in 2015.

Broking firm Nomura has a 'buy' call on the IPCA stock with a target price of ₹1,133.

Nomura views the VAI classification of the Ratlam site as a positive surprise, bringing considerable relief. The focus now shifts to the fate of the other two facilities. For IPCA Laboratories, obtaining a positive signal from the US FDA after enduring an import alert underscores their successful efforts in compliance management.

Shares of IPCA Labs settled 6.10% higher at ₹993. The stock has gained 11.30% in the past month.