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Business News/ Companies / FDA import alert for Sun Pharma’s Karkhadi plant

FDA import alert for Sun Pharma’s Karkhadi plant

Karkhadi contribution to consolidated revenue negligible; drug maker maintains its 2013-14 fiscal's growth forecast

Sun Pharma manufactures active pharma ingredients and formulations at its Karkhadi unit. Photo: Hemant Mishra/MintPremium
Sun Pharma manufactures active pharma ingredients and formulations at its Karkhadi unit. Photo: Hemant Mishra/Mint

Mumbai: Shares of Sun Pharmaceutical Industries Ltd dropped as much as 6.36% on BSE on Thursday after the US drug regulator issued an import alert against its Karkhadi plant in Gujarat, banning shipments from the factory that makes some pharma ingredients and formulations for the US market.

“This factory near Vadodara in Gujarat that makes a small quantity of antibiotics got an import alert on Thursday," said a person at Sun Pharma familiar with the development. “But the revenue impact is very negligible."

After falling to as low as 565.60 on BSE in intra-trading, the shares closed 5.03% lower at 573.60 on a day the exchange’s benchmark Sensex fell 0.37% to 21.774.61 points.

The contribution of the Karkhadi facility, near Vadodara, to Sun Pharma’s consolidated revenue is negligible, and the drug maker maintains its 2013-14 fiscal’s consolidated sales growth forecast, a Sun Pharma spokesman said in a statement.

“The company remains fully committed to compliance and has already initiated several corrective steps to address the observations made by the US FDA (Food and Drug Administration)," the spokesperson said.

Sun Pharma manufactures active pharma ingredients and formulations at its Karkhadi unit. The drug maker operates some 12 US-approved factories—six in the US, three in India and one each in Canada, Israel and Hungry, and it has sufficient manufacturing capacity to serve export markets.

“Thus, the company has well diversified manufacturing infrastructure to cater to the US markets, which contribute around 54% to its sales," said sector analyst Sarabjit Kour Nangra at Angel Broking Ltd.

Sun Pharma’s subsidiaries, including Taro Pharmaceutical Industries Ltd, Caraco Pharmaceutical Laboratories Ltd and the recently acquired DUSA Pharmaceuticals Inc., among others, currently account for a major chunk of sales and growth.

“We estimate the impact of the import alert on Sun Pharma’s Karkhadi plant at less than 1% of Sun’s total sales," said Balaji Prasad, a sector analyst with Barclays Securities (India) Pvt. Ltd.

“However, we note that Sun’s premium valuations yield limited down-side support should such operational risks become repetitive."

The FDA alert on Sun Pharma’s Karkhadi plant was a follow-up to observations from the last inspection of the regulator in December and is related to the non-compliance with current good manufacturing practices.

Sun Pharma resolved a much larger issue of similar nature at a US factory belonging to its subsidiary Caraco in 2013 after a nearly six-year long compliance exercise. It’s the first such FDA action it’s facing in India in several years.

The US regulator, which has expanded its inspection network in India by adding more people to the team and also by initiating surprise inspections, had issued import alerts on at least half a dozen drug manufacturing units in the last couple of years.

India’s largest drug maker Ranbaxy Laboratories Ltd has been the worst hit by FDA actions in the recent past; the US drug regulator banned its export-oriented formulation unit at Mohali and the active ingredients factory at Toansa, both in Punjab, in the last seven months.

Ranbaxy signed a consent decree with the US drug regulator to become compliant with quality regulations at two of its larger Indian factories, located at Poanta Sahib and Dewas in Himachal Pradesh and Madhya Pradesh, respectively, which were under an import ban since 2008.

It also paid a penalty of $500 million to the US department of justice in 2012 after the company was charged with fabrication of documents and selling adulterated drugs in the American market. Ranbaxy has lost nearly $1 billion of US business annually since 2010 because of regulatory issues.

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Published: 13 Mar 2014, 10:36 AM IST
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