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Phibro Animal Declines as FDA Moves to Revoke Mecadox

Shares of Phibro Animal Health Corporation PAHC dropped 2.3% to $26.89 on Friday, after the FDA’s Center for Veterinary Medicine (“CVM”) moved to revoke the marketing approval for the company’s Mecadox drug. Notably, it is a renowned drug available in the U.S. for over 40 years and is used to treat certain bacterial diseases in pigs.

A recent reexamination of the drug by the Federal health regulators has led the authority to question its safety, concluding that consumption of Mecadox-treated pigs might pose potential cancer risks to humans.

According to the FDA, Phibro failed to provide sufficient scientific data to support this drug’s safety, while the recent reevaluation indicates Mecadox may result in carcinogenic residues. This led the regulatory body to take this drastic decision.

In the 1970s, the FDA first approved Mecadox to control swine dysentery and bacterial swine enteritis following rigorous safety reviews.

However, a few years later, more advanced analysis by the FDA showed that Mecadox’s residues in tissue persisted longer than previously determined; thereby raising concerns about its safety. This led the company to conduct rigorous clinical trials to prove the safety of this drug.

In Jul 2014, the Codex Alimentarius Commission determined that there exists no safe level for Mecadox’s or its metabolites’ residues in food. Therefore, the Commission recommended that the drug should not be used in food producing animals.

On a brighter note, according to Phibro, to-date none of the clinical evidence from these studies demonstrated any anomaly as far as the safety of Mecadox is concerned. The recent action by the FDA will not stop the company from selling it in the U.S.

Nevertheless, Phibro has 30 days to request a hearing, following the news. If the company does not do so, the FDA can proceed with the removal of the drug from the market.

Unfortunately, Phibro’s studies will take 90 days to be completed. At present, the company intends to request a hearing and refute the allegations, expecting the final results to support the continued safe use of Mecadox.

Phibro is confident on Mecadox to overcome all the regulatory hurdles and it believes that the FDA’s move to revoke the drug will not hurt its reputation. However, in our opinion, the company will have to present strong evidence to effectively prove the safety of the drug and maintain revenue growth.

Currently, Phibro carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the medical sector are Orthofix International N.V. OFIX, LeMaitre Vascular, Inc. LMAT and Baxter International Inc. BAX. While Orthofix sports a Zacks Rank #1 (Strong Buy), LeMaitre Vascular and Baxter hold a Zacks Rank #2 (Buy).

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