Sun Eclipsed By Fears Of U.S. FDA Probe At Halol Site

Sun Pharma is under the spotlight. At least five U.S. FDA inspectors, an unusually high number, are learned to be in the middle of a thorough probe at the company’s Halol-based manufacturing site. Fear of a possible negative implication has moved the stock price southward.

MUMBAI - An extensive U.S. FDA scrutiny of Sun Pharmaceutical Industries Ltd.’s Halol manufacturing facilities in Gujarat state dented investor confidence and pulled the blue chip stock down nearly 5% at close on the Indian stock exchanges on Thursday.

Although Sun, which had a market capitalization of roughly $30 billion or three times higher than local rival Lupin Ltd. - did not confirm the information, industry sources said at least five inspectors/investigators have landed at the site and are still conducting a thorough probe of the manufacturing and QA/QC (quality assurance/quality control) process being followed.

Looming Shadow

Halol has been a key contributor to Sun with multiple lines of manufacturing oncology injectables including lyophilization capacity, tablets, capsules and nasal sprays.

“The inspection may extend over a few more days since the site is a large one,” said a person who tracked the movement closely but cautioned there is no conclusive evidence to understand if the standards are in line with the FDA norms or otherwise.

However, he described the presence of four inspectors at the same time on one site as “exceptional,” but attributed it to the large size of the Halol facility and the likely expansive scope of the investigations.

Although analysts widely termed it as a “surprise check,” an industry consultant said regulators have long moved on from notifying companies with a prior intimation unless those form part of routine and periodic GMP audit for renewal of plant validation licenses or product-wise examinations of drugs that are already approved.

Halol may have come under the FDA review given the backdrop of a spate of recalls over the last seven months that originated from the same site.

Glowing Red Lights

In the recent past Sun had recalled 40000 bottles of venlafaxine extended-release tablets from the U.S. market in July on account of stability results (Also see "Sun's U.S. Unit Issues Another Recall, Of 41,127 Antidepressant Bottles" - Scrip, 13 Jul, 2014.).

Just before that, was the reported recall of anti-cancer product gemcitabine resulting out of sterility issues. Earlier in March, the recall of metformin was also reported based on a customer complaint that one bottle of metformin extended release was found to contain gabapentin tablets.

The significant deviations noted earlier this year in March at Sun’s Karkhadi site have added to the complications (Also see "Sun Pharma Joins List Of Indian Pharmas Shadowed By U.S. FDA" - Scrip, 13 Mar, 2014.)

The site has been probed for the practice of inaccurate data reporting and the FDA’s insistence that the company put in place systems like organization charts and SOPs (standard operating procedures) to identify specific top and middle level managers who may have been in duty at the time of the violations.

The regulator had also advised an expansive internal review of Sun’s facilities while appointing an independent data integrity consultant.

In July, analysts at global investments firm Credit Suisse had forecast a close scrutiny of the Halol site, adding that the plant supplied as much as 40% of the U.S. sales and contributed 25% of the consolidated profits. The analysts said the Halol facility was last inspected in September 2012 and given the frequency of inspections every 1 or 2 years, an imminent examination was possible.

“If Halol (facility) fails the present round of inspections, Sun may face headwinds in keeping to its targets. We expect that the company is cognizant of the implications and may have taken sufficient measures for a clean and compliant manufacturing set up,” said a lead analyst at a Mumbai-based brokerage.

Sun is said to be in the middle of a global manufacturing integration exercise with Ranbaxy Laboratories Ltd. (Also see "McKinsey To Advise On Global Integration Between Sun, Ranbaxy" - Scrip, 2 Jul, 2014.)

Meanwhile, market experts kept a close eye on Sun Pharma’s notification for a shareholder approval to raise INR 120 billion ($1.9 billion) via a qualified institutional placement although a few believed it could be only an enabling provision for future deal prospects.