Sun Pharma slips 3% after US FDA visit at Dadra plant

Dadra is firm's second most important plant serving US market, contributes $250 mn; Stock dips 3%

The US Food and Drugs Administration (FDA) is conducting a surprise inspection of Sun Pharma’s Dadra plant to check compliance of current good manufacturing practices.

The Dadra plant is the drugmaker’s second most important facility serving the US market after Halol. The company’s stock dipped three per cent on Friday on reports of the inspection. Sun Pharma did not comment on the issue.

The US market accounts for about half the drugmaker's consolidated revenues but the business is under pressure because of price erosion and regulatory issues. In nine months of FY17, the US market contributed over Rs 10,000 crore in sales.

According to analysts’ estimates, the Dadra plant contributes around $250 million (over Rs 1,600 crore) to US sales. “Any disruption in sales will be detrimental to the company and the stock,” said an analyst.

The company’s stock underperformed both the Sensex and the health care index and fell 23 per cent in calendar year 2016. On a year-to-date basis (from January 1 till date) the stock has fared better and is 5.7 per cent higher.

Sun Pharma's Halol plant has been under the regulatory scanner since September 2014, when it received adverse observations known as Form 483. Subsequently, no new product approvals have been granted from the plant. 

Remediation measures undertaken to restore compliance also hit supplies from the plant, impacting overall sales. In December 2015, it received a warning letter and last December the plant received the Form 483 again following an inspection by the FDA. The development led to brokerages cutting the profit estimate for FY18.

Sun Pharma has been working to streamline its quality control processes with investments in information technology and staff training.