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Action against Caraco to hit Sun revenues

Action against Caraco to hit Sun revenues
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First Published: Sat, Jun 27 2009. 12 34 AM IST

Indian drug firms have had regular brushes with FDA in the past year. Sandeep Bhatnagar / Mint
Indian drug firms have had regular brushes with FDA in the past year. Sandeep Bhatnagar / Mint
Updated: Sat, Jun 27 2009. 12 34 AM IST
Mumbai/New Delhi: Sun Pharmaceuticals Industries Ltd’s overall revenue will be significantly hit in 2009-10 following the US drug regulator’s seizure of medicines from its US subsidiary’s Michigan facility, effectively barring the manufacturing of drugs there until the firm complies with mandatory quality practices.
The US subsidiary, Caraco Laboratories Ltd, which operates three plants in the Michigan facility, accounted for 33% of Sun’s $337 million (Rs1,618 crore) US sales in fiscal 2009. Sun’s overall sales during the year were $950 million.
Indian drug firms have had regular brushes with FDA in the past year. Sandeep Bhatnagar / Mint
Sun, India’s largest drug maker by market value, has a 76% stake in Caraco.
“Caraco contributes about 12% to the total business of Sun Pharma,” said Ranjit Kapadia, pharma analyst at HDFC Securities Ltd. “We can expect a topline impact of about 12%, though we have to wait and watch now when they (Caraco) will be able to restart production.”
“It could have a negative impact of about $18 million to the bottomline on recurring profit,” said Hemant Bakhru, a pharma analyst with CLSA Asia-Pacific Markets.
“Sun may also have to write off some part of (its) inventory.”
On Thursday, the US Food and Drug Administration (FDA) seized drugs and raw materials from Caraco’s Michigan plants. FDA inspectors who visited the facility in May found serious violations of manufacturing standards and quality control, Deborah Autor, director of the office of compliance at FDA’s Center for Drug Evaluation and Research, said on Thursday in a statement on the regulator’s website.
On Friday, Sun Pharma shares dropped 12% to close at Rs1,140.45 on the Bombay Stock Exchange (BSE), while the benchmark Sensex climbed nearly 3% to 14,764.64 points.
A person close to Sun Pharma said on Friday the real impact of the FDA action would be seen in the following quarters of the current financial year.
“The entire $112 million worth (of) sales that Caraco generates through its own manufacturing will be lost during this year as there is no certain time limit that the company could envisage for resolving the issue so far,” this person said. He did not want to be named because of the sensitivity of the issue.
Indian drug firms have had regular brushes with FDA in the past year. In September, the US regulator pulled up Ranbaxy Laboratories Ltd for deviations from good manufacturing practices at its Paonta Sahib plant in Himachal Pradesh and Dewas facility in Madhya Pradesh. Cipla Ltd and Lupin Ltd, too, have faced similiar problems in recent months.
Caraco, which manufactures 33 drugs in multiple strengths at its Michigan plants, had failed to meet FDA’s good manufacturing practice standards, which are laid out as an assurance of the quality of drugs manufactured at facilities approved by the regulator.
FDA, through its seizure, seeks to immediately stop the firm from distributing drugs from the Michigan plants until these standards are met, the regulator said in a statement.
As to drugs already distributed from Caraco’s Michigan facilities, FDA will issue alerts to the public and take regulatory action if it finds potential risks to patient safety from these medicines.
Responding to a query on whether there is a time frame by when Caraco has to correct the deviations observed by FDA, a Sun Pharma spokesman said on Friday, “There is no timeline at the moment.”
Sun has been aware of the deficiencies for at least a year.
The US regulator had in October warned Caraco that its inspection during May-June 2008 had revealed significant deviations from good manufacturing practices.
These deviations were notified to the company in FDA 483 form at the closure of the 2008 inspection. FDA 483 is a standard form the regulator uses to notify its observations to a violator of manufacturing standards.
Following this warning, Caraco initiated a voluntary recall of some its drugs since January.
These recalls were due to manufacturing defects, including oversized tablets and possible formulation error, Caraco had said then. Sun Pharma’s fiscal 2009 earnings reflected a marginal revenue loss from the product recalls.
“Caraco has reported regularly all the corrective actions that it has taken over the last year, and it has also made significant efforts to correct (the deviations), wherever required, as per the FDA observations,” the company spokesman said.
He added that Sun Pharma is awaiting a statement from Caraco on whether it has any alternative options to remain in the market with its own products while the problem is being resolved, and on the estimated revenue loss.
Caraco sells products from its own manufacturing portfolio as well as from Sun Pharma’s Indian facilities that have FDA approvals.
ch.unni@livemint.com
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First Published: Sat, Jun 27 2009. 12 34 AM IST