 "Sun Pharma gets FDA warning over Halol plant")
Sun Pharmaceutical Industries’ hopes of an early resolution to regulatory concerns have suffered a setback with US Food and Drugs Administration (FDA) issuing a warning letter to its Halol plant in Gujarat.
On Saturday, India’s largest generic drug maker announced it had received a warning letter. This follows the FDA inspection at the Halol plant, about 140 km southeast of Ahmedabad, last September.
The regulator had made over 20 observations mostly pertaining to sterility assurance levels — which expresses the probability of having microorganism in a sterilised facility — in the plant, which is of significance to Sun Pharma as all the inject-able product filings for the US market are from the site.
Warning letters are issued for violations of regulatory practices and these could lead to enforcement actions such as an import alert, if not promptly and adequately corrected in compliance with the US regulations.
The Halol plant contributes about eight to 10 per cent of Sun Pharma’s consolidated revenue. The drug regulator has banned new product approvals from the plant since last September. The US market accounts for half of the company’s consolidated revenue.
The FDA action has been one of the reasons why the company was not able to ramp up its US sales at the earlier rates. Analysts have tweaked its FY16 earnings estimates. The stock, too, is trading almost 35 per cent lower (CMP Rs 790) compared to its peaks of Rs 1,200 in April this year.
While analysts were factoring in the possible clearance for the Halol plant from the middle of FY17, the fresh warning letter means the resolution will now take longer. Thus, the earnings estimates for FY17 and FY18 will have to be tweaked by five to 10 per cent, according to analysts.
Also, the letter could spark concerns about a possible import alert against the plant, affecting Street sentiments.
“Sun Pharma responded to the US FDA inspection observations with a robust remediation process that is still on-going, with significant investments in automation and training to enhance its quality systems. Sun Pharma has been working with external consultants to ensure its remediation activities have been completed in an appropriate manner,” the drug maker said in a statement.
In a call with analysts Sun Pharma Managing Director Dilip Shanghvi said there will be no further change in the revenue guidance for FY16 as a result of the FDA warning.
“Our focus remains on securing compliance for the Halol plant,” Shanghvi said, adding that the company was not looking at “site transfers”, that is, manufacture its products at other certified plants.
Shanghvi said the warning essentially reflected regulator’s observations last September and that the company might have to expedite and augment remediation measures.
Given that substantial remediation work has already been done the company expects to secure clearance from FDA within a year. In an earlier communication the company had said securing clearance would be a time-consuming process.
“We do not know what triggered the FDA warning letter but perhaps it is our inability to communicate effectively the extent of remediation measures carried out at the plant,” he stated.
Shanghvi asserted that other plants which supply products in US market have been inspected last year and there were no observations against them. Even the Halol plant has been inspected by regulators of over 10 other countries since last September and there are no adverse findings, he added.
The recent approval to the generic version of the anti-cancer drug, Gleevec’s, received by Sun Pharma on 180-day exclusivity from February 2016 is a positive development and has been viewed favourably by analysts.
The approval for the product that is expected to contribute $340 million in revenues and $230 millions in earnings according Nomura estimates was filed from the Halol plant and approved after site-transfer filings by the company.
Last month, Dr Reddy’s Laboratories has received a warning letter from the US FDA over quality-control issues at three of its manufacturing facilities. Dr Reddy's Laboratories has responded to the warning letter, the company said.
In their note to investors, CLSA said the impact of warning letter will be more visible in FY18 than FY17. It added that margins will remian flat despite Ranbaxy.
