Indian pharmaceutical companies spread business to avoid regulatory ire

Increased USFDA import alerts could be reason for finding alternative sites

In 2019 so far, Indian drug makers (including active pharmaceutical ingredient makers) got 11 warning letters from the US drug regulator —much more than the seven which came in all of 2018. Major companies say to de-risk their business; they have developed alternative sites for their key products. 

The aim being to reduce dependence on a single site, in case they get an import alert that would stop export to the US from the particular site. 

Once the US regulator, the Food and Drug Administration (FDA), inspects a particular site, it may classify under Official Action Indicated (OAI) or Voluntary Action Indicated (VAI) or No Action Indicated (NAI). OAIs are usually escalated to a warning letter — unlike an import alert from there, even this does not stop export. 

Kedar Upadhye, global chief financial officer at Cipla, said his company had a practice of developing alternate sources. The company’s Goa plant recently received what is termed a Form 483 (given at the conclusion of an inspection, when the team doing so notices what could be objectionable conditions), with 12 observations, from the FDA. 

Upadhye said: “Single source products from Goa are less than 2.5 per cent of company revenues. Every pharmaceutical company, especially after the Good Manufacturing Practices (GMP) regime changed, has worked on critical product de-risking. Otherwise, one’s business model gets affected. We started (doing so) about two years back; most of the critical products, we have been able to de-risk.”

A senior official of Glenmark Pharmaceuticals said over the past few years, the company has ensured it has multiple sites prepared for key products. “Once an import alert happens, one cannot shift the products to another site. So, one has to be ready beforehand for any such exigency, so that the business of the company is not affected,” he explained. 

An example is Cadila Healthcare’s unit at Moraiya, near Ahmedabad. The site received a warning letter in December 2015; it used to contribute 60 per cent of the firm's US revenue. The company transferred at least nine key products to other sites (including products that they would have been filing for approvals in future) and has got approvals for those. 

Analysts feel a sharp increase during 2018 in product recalls has led to higher FDA scrutiny. There were 58 such recalls by Indian companies in 2018, led by the issue of cancer-causing impurity (from a Chinese bulk drug) in a high-blood pressure drug, Sartan. Analysts at Spark Capital said there was an 87 per cent year-on-year (YoY) increase in product recalls by Indian companies during 2018. 

This year, says ratings agency ICRA, there have been a total of 11 warning letters. Gaurav Jain, vice-president at ICRA, said this included all the smaller entities which supply bulk drugs or chemical intermediates to the US. “Growth and profitability would, however, be constrained by regulatory interventions such as price controls or compulsory genericisation for domestic market. For the US market, faster generic approvals and continued regulatory overhang with respect to manufacturing quality deficiencies, highlighted during USFDA audits, remains a key concern," he said. 

Jain felt a higher pace of ANDA (Abbreviated New Drug Applications) approvals (up 44 per cent over 2015-18 calendar years) had led to higher competitive intensity. “The pace of official action post the USFDA audit has also increased during the eight months of calendar year (CY) 2019, with 11 warning letters compared to seven in CY2018.” 

The larger entities have got a total of seven warning letters so far this year. ICICI Direct Research said around 10 inspections were classified as OAIs, with a number of adverse observations from the FDA. 

Warning letters assume significance in the context of pending product approvals from a site. For example, Aurobindo Pharma's unit VII in Telangana has 33 pending FDA approvals from the site. It recently received a Form 483, with seven observations.  

"We believe the observations are critical and the company is likely to face further remedial action from the FDA, like a warning letter or in a worst case scenario, an import alert," ICICI Direct said. Aurobindo, too, has a number of alternate plants at its disposal, say analysts. 

Indian plants also got a high number of warning letters in 2017 (16) and 2015 (17).