Sun Hit As US FDA Raises Fresh Concerns Over Key Halol Plant

Indian generic giant Sun Pharma says the US FDA has flagged up new potential violations of good manufacturing practices at the company's key Halol factory, which exports a large number of products to the crucial US market and had been expected to overcome its past compliance problems.

Sun Pharmaceutical Industries Ltd.'s shares had been rising on investor optimism that US Food and Drug Administration inspectors would give the all-clear to the company’s flagship Halol plant after their visit last month to the factory, located in India's western Gujarat state.

But instead the FDA team found new potential breaches of good manufacturing practices at Halol, Sun Pharma disclosed Dec. 7 in a statement that sent the company’s shares tumbling by around 6% in Mumbai trading.

“A Form 483 observation letter was issued by the US FDA post the inspection. We are currently in the process of responding to the said letter to the US FDA within the stipulated timeline of 15 days,” the company said in a statement released to stock exchanges.

The FDA issues a Form 483 when its inspectors detect any “objectionable” conditions or practices that may violate US regulations. Sun Pharma, controlled by billionaire tycoon and founder Dilip Shanghvi, didn’t say how many observations the FDA team made or whether they were minor or serious.

Inspectors normally discuss their findings with company management who follow up with a submission to the US agency of a written corrective action plan. After this is implemented, the company asks the regulator to re-inspect the facilities. The whole process can take months and sometimes years.

But analysts said a report by Indian brokerage IIFL that the notice was 14 pages in length suggested that the FDA inspectors appeared to have found a number of problems at the plant, which is Sun Pharma's largest domestic factory and a key part of its global supply chain.

Plant Under A Cloud Since 2014

The problems at Halol are among a string of international regulatory compliance issues embroiling Indian pharmaceutical firms, which have been targeted by the FDA and European regulators over quality controls, hygiene and data problems during the last few years. The heightened scrutiny is part of a crackdown on Indian pharmaceutical companies that fail to comply with western regulatory standards in manufacturing procedures.

The Halol plant has been under a regulatory cloud since September 2014 when the US drug regulator first issued a Form 483 to Sun Pharma, citing 23 observations relating to deviations from manufacturing norms at the plant.

That action was followed up in December 2016 by a warning letter to Sun Pharma about the facility. The violations mentioned in the December letter highlighted leaky ceilings, sterility concerns and minor environmental issues, but found no significant data integrity or other problems.

The Halol plant, whose output accounts for 15% of Sun Pharma's US sales, is still shipping to the world's largest pharmaceutical market. However, the company has not received any FDA approvals to launch in the US new drugs made at Halol since September 2014.

Analysts say full FDA clearance of the Halol plant, which makes a range of products from tablets to nasal sprays to injectables, is critical to Sun Pharma’s future revenue growth, especially for its US operations, which accounted for nearly 50% of the company's total $4.3bn in sales in the financial year to March 2016.

The company's US sales slowed by 8% in fiscal 2015-16 from a year earlier to $2.07bn, affected by regulatory problems, particularly at the Halol site.

Analysts had been expecting the regulatory issues at Halol to be settled by the end of this year. Sun Pharma had said a year ago it was implementing a "detailed remediation plan" at the site with assistance from "globally reputed consultants", adding it was committed to "24x7 compliance" with FDA norms.

But the fresh Form 483 means that product approvals for the US market could be delayed by at least a further three to six months. Any serious observations by the FDA could take one to two years to remedy, analysts say.

Other Problems

Sun Pharma also has other FDA problems on its plate, mainly relating to its $4.1bn takeover in March 2015 of troubled domestic rival Ranbaxy Laboratories Ltd. The acquisition made Sun Pharma the fifth-largest specialist generic company globally but the integration has been tougher than expected.

In addition, Sun Pharma is struggling to overcome regulatory issues at its own Karkhadi unit which has been under an FDA import ban since March 2014, as well as at Ranbaxy’s former facilities at Mohali, Dewas, Paonta Sahib and Toansa, which are also under US import bans.

Last month, the FDA issued a Form 483 with seven observations to Sun Pharma’s formulations plant at Mohali in the northern state of Punjab after a re-inspection of that facility.

The string of compliance problems and new warning have slammed the brakes on a sharp run-up in Sun Pharma’s shares since it reported in early November that second quarter net profit jumped by 117% to INR22.35bn from a year earlier, beating analysts' estimates by nearly 20%.

Buying interest in the stock had been fueled by expectations that the Halol problems would be resolved soon, Sun Pharma's relatively low valuations - described by one brokerage as "compelling" - the US presidential election win of Donald Trump (who’s perceived by markets to be friendlier to pharma interests), and a weak currency that could boost the company’s bottom line.

From the editors of PharmAsia News.