Sun Pharmaceutical Industries Ltd’s shares fell on news that one of its Indian factories had fallen short of US food and drug administration’s (FDA’s) quality standards. It’s a blow to the company and its investors. This development comes in the backdrop of a recent visit by FDA commissioner Margaret Hamburg to India.
The government had asked leniency for Indian firms from FDA in its handling of deviations from good manufacturing practices. Though the government and industry got a patient hearing, the regulator clarified that the US consumer was its foremost concern and FDA’s mandate was to ensure drugs sold in the US met quality standards.
Evidently, it’s business as usual at FDA and its inspections have seen another company trip up.
On Thursday, Sun Pharma announced that FDA has issued an import alert on drugs made at its cephalosporin unit at Karkhadi, Vadodara, in Gujarat. The news saw the share fall by 5%, losing ₹ 6,250 crore of its market capitalization.
The sharp fall is despite the firm clarifying that the affected unit’s contribution to revenues is small. It expects little impact on performance and its guidance is maintained.
Analysts at Barclays Research concur, saying that the ban will impact less than 1% of sales. The brokerage firm also maintained its overweight rating on the stock. All this should have been reassuring.
But the fall reflects investor dismay at such a development, at a firm as reputed as Sun Pharma, even if its actual impact is negligible. They are unable to comprehend why these incidents occur in the industry, despite prior knowledge about stringent FDA inspections. The larger fear, of course, is whether this is an isolated instance or are there more such cases to follow? Both Ranbaxy Laboratories Ltd and Wockhardt Ltd fall in the latter category, where investors have seen their wealth erode over a period of time.
FDA has said it will ensure that companies selling drugs to US consumers, whether located in the US or in India, meet equal standards of compliance. More budgets and more staff in India may mean more inspections. Since investors find it difficult to gauge this risk (of being non-compliant), they can only worry about what tomorrow may hold in store.
