Hitting the US FDA wall

Risks on account of regulatory overhang came to the fore again this week, with the US Food and Drug Administration (FDA) issuing a Form 483 for Lupin's Goa plant. Early resolution of the issue is crucial because the US market is important for most Indian companies. For example, Lupin's Goa plant and Cadila's Moraiya plant account for about 60 per cent of their US revenues and for most major Indian generic companies, the US accounts for 40 per cent of their global sales. There has been a 75 per cent increase in FDA inspections of facilities abroad in the past five years and 70 per cent of these result in a Form 483. While every Form 483 doesn't escalate into a warning letter, regulatory warnings over six months have heightened investor concerns and pushed earnings growth of domestic companies into an area of uncertainty. While analysts don't see it as a long-term risk, the FDA actions have led to a slew of earnings downgrades, on the back of US revenue loss, slower approvals and currency volatility.