MUMBAI (NewsRise) -- The U.S. drug regulator has raised fresh concerns about one of the key facilities of Sun Pharmaceutical Industries in western India, a step that could potentially halt new approvals for the company's drugs made there and crimp its revenue growth in the world's largest drug market.
Sun Pharmaceutical late Sunday said the U.S. Food and Drug Administration has classified its facility in Halol in Gujarat as official action indicated, or OAI, after conducting an inspection. The Halol facility, Sun's largest supplying to the U.S. market, had barely got a clean chit from the U.S. FDA in 2018 after coming under a warning letter in 2015. The plant is also important to Sun's research arm Sun Pharma Advanced Research, which makes some of its key drugs there.
Since the clearance of the Halol warning letter in 2018, Sun has received 37 approvals, of which eight are from the facility.
"We do not anticipate any major supply disruption for existing products due to the classification," Sun said in a statement. "We will work with the FDA to ensure that there is no shortage in supplies to the U.S. market."
According to the company, it had 19 new generic drugs and two new dosages pending approval from Halol for the U.S. market. The plant, which manufactures injectable drugs, contributes up to 4% of its consolidated, and 9% to 12% of the U.S. revenues. The company said it doesn't expect supply of existing products from Halol to be affected.
The latest development spooked investors. Shares of Sun Pharmaceutical closed down 1.3% at 333.65 rupees -- an eight-year low -- in Mumbai trading, while the benchmark S&P BSE Sensex lost 4.6%.
After an inspection of the Halol facility in December, the FDA had raised questions about the robustness of its data as well as highlighted deficiencies in its test results.
"The observations around lack of appropriate process to analyze microbiological contamination and particulate matter, and concerns on integrity of data captured in its systems are serious and led to the OAI classification," Nomura said in a report on Monday.
CLSA said it is cutting Sun's U.S. sales estimate by 3% citing no new approvals from Halol. It also reduced its earnings outlook for the company for the fiscal year 2021-2022 by 4%.
The FDA issue springs as India's drug industry faces several challenges in the U.S. Drug prices in the country are falling as the FDA hastens its approval rate for generics, drawing more companies and increasing competition. A rising number of retail pharmacies in the U.S. have also joined forces to buy generic drugs in bulk, pushing prices further down.
Sun has been pressing the pedal on ramping up some of its branded medicines, including its first biologic drug Ilumya and topical eye drug Cequa in the U.S. But analysts remain wary. "The upside on Sun's shares hinges on ramp-up of specialty drugs, where progress is not encouraging so far, and we stay cautious," Credit Suisse said in a note.
The brokerage also flagged concerns about the company being one among the several drug makers that have been part of a criminal antitrust probe for alleged price fixing by the U.S. justice department. Sun has in the past denied any wrongdoing.
"The market is underestimating exposure of Sun Pharmaceutical to price fixing litigation," Credit Suisse said Monday. The brokerage cut its target price on the stock to 400 rupees a share from 450 rupees. It also reduced its fiscal year 2020 to 2022 earnings estimate by 4% for the first two years and 3% thereafter.
--Dhanya Ann Thoppil