 "Delay in Halol plant resolution to hurt Sun Pharma profit")
A delay in resolution of quality control issues at the Halol plant will adversely impact Sun Pharma's FY18 profit, say sector analysts.
Halol plant is key for Sun Pharma and it contributed in high single digits to its US sales before it was issued a warning letter last December. Last week the FDA raised fresh concerns about the plant following an inspection.
Credit Suisse has cut Sun Pharma's FY 2018 profit estimate by 5 per cent to Rs 7,484 crore to factor the delay in resolution of issues at Halol while Religare Institutional Research said that every month's delay in issue resolution can have an adverse impact of 0.7-0.8 per cent on the next fiscal's profit estimate.
"We do not expect these issues to escalate and believe they can be resolved through a change in standard operating procedures or appropriate explanations; however, the resolution process may extend beyond the street's estimate of early-FY18 clearance for Halol," Religare Institutional Research said in a note to its investors.
Credit Suisse believes that the Halol plant could receive clearance by September 2017.
Also Read
The violations listed by the FDA after its latest inspection at Halol include problems with Sun's quality control system, some of which were also cited by the U.S. health regulator in its warning letter issued to Sun in December 2015.
"Appropriate controls are not exercised to assure that changes to documents related to the manufacture of drug products are instituted only by authorised personnel," FDA inspectors said in their recent report.
They also listed a lack of proper maintenance of important records related to the manufacturing process and cited concerns about the accuracy of some of the drug testing methods employed. Other findings included delays in informing the agency of contamination or failure of drug batches.
"We expect it will take two-three quarters for Sun Pharma to complete remedial measures post which the company will have to call the FDA for a re-inspection. In our view five of the observations are critical and four are procedural in nature. The plant has been under the scanner for the last two years and we believe the company could have done a lot more in terms of training and quality control," said Ranjit Kapadia, senior vice president, Centrum Broking.
The Halol plant has been under regulatory scanner since September 2014 when it received 483 observations. Subsequently, no new product approvals have been granted from the plant. Remediation measures undertaken to restore compliance also hit supplies from the plant impacting the overall sales.
Following the issuance of warning letter last December, Sun Pharma managing director Dilip Shanghvi had indicated that the company's main focus would be to restore compliance rather than site transfers (that is shifting production to other facilities).
"Halol is an important location from which we have filed products. It is the only site from which we have filed injectable products. So to that extent, I expect Halol to be an increasingly important site for Sun. So, getting the site back in compliance is our major priority and focus," Shanghvi had said last December.
Sun Pharma has hired third-party consultants and senior professionals in quality and compliance apart from investing in technology as a part of remediation efforts.
