Caraco shock: Sun Pharma to revise guidance

Sun Pharma today said it would revise the revenue guidance for 2009-10 as the company was not sure when its US subsidiary, Caraco Pharmaceuticals, would be able to meet the regulatory standards of the Food and Drug Administration (USFDA).

“We are withdrawing the earlier guidance for the year and will soon announce a revised guidance which will factor in the impact of the developments at Caraco,” Sun Pharma Chairman and Managing Director Dilip Shanghvi told an analyst conference.

While announcing the fourth quarter results of 2008-09, Sun Pharma had said the company was expecting sales growth of 13-15 per cent in 2009-10.

The US regulators on Thursday had seized about 33 drugs and raw materials at three plants of Caraco in the US, citing deviation from manufacturing standards.

The regulator said it would not permit Caraco to sell any drug in the US manufactured from these plants, until it met the quality standards.

Shanghvi said the road ahead for Caraco was not smooth. It will have to appoint independent lawyers to negotiate with USFDA to enter into a consent decree with timelines on complying with its standards, as the seizure was based on a court order.

Transfer of existing products of Caraco to Sun Pharma’s other facilities in the US or to India is also a complex process.

“The regulatory process for transfer of a product is similar to that of getting approval for a new product. We need to evaluate this and it has to be on a product to product basis. Basically we need to know whether USFDA will allow us to move out production,” he said.

Meanwhile, Caraco today said its financial position will give the company time to resolve the issues. The cash balance as of June 25, 2009 is approximately $64 million, which includes a loan of $18 million. The products in its inventory related to the USFDA action are currently being identified and the early estimated value of the inventory is in the range of $15 million to $20 million.

Shanghvi said the developments would have a negative impact on Caraco and its shareholders in the short term, but a smaller impact on Sun Pharma. “We have given more emphasis on credibility than money and this is the worst phase for both Caraco and Sun Pharma,” he said.