US FDA raises fresh concerns on Sun Pharma's Halol plant

The Halol plant is a key manufacturing unit for Sun Pharma, which earns about half its revenue from the US market

The US Food and Drugs Administration (USFDA) has found deviations in goods manufacturing practices at Sun Pharmaceutical’s Halol plant — a development which might delay revival of the drug maker’s US business.

The Halol plant is a key manufacturing unit for Sun Pharmaceutical, which earns about half its revenue from the US market. Halol contributed in high single digits to the company’s US sales till it was served a warning letter in December 2015. The resolution of quality issues at the plant is thus crucial for the company else it will not be able to receive fresh product approvals from this plant.

The US FDA made adverse observations (known as Form 483), following an inspection at the plant on December 1. Sun Pharma confirmed the development.

“A Form 483 observation letter was issued by the US FDA after the inspection. We are currently in the process of responding… within the stipulated timeline of 15 days,” Sun Pharma said in a notification to stock exchanges.

Its stock dropped six per cent on Wednesday to Rs 663.95 on the BSE, following the announcement and brokerages said the observation was a big negative as it would prolong the resolution of quality issues.

“Halol clearance is material to the company over the medium term and any potential delay beyond six months will have an impact on Sun Pharma’s earnings estimates,” brokerage IIFL said in a note to investors. 

The contents of the FDAs communiqué are not known and analysts said they may adjust their earnings estimates upon receiving further information on the most recent observation.

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 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.