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US drug regulator finds violations at Sun Pharma's key plant

Indian drug maker says committed to promptly addressing FDA observations

The resolution of the Halol issue is crucial for the recovery of Sun Pharmaceutical's business in the U.S.   © Reuters

MUMBAI (NewsRise) -- Sun Pharmaceutical Industries, India's biggest drug maker by market value, said the U.S. drug regulator found three violations at its key plant in western India that was warned for breach of quality standards more than two years ago.

In 2015, Sun Pharmaceutical had received a warning letter from the U.S. Food and Drug Administration, citing violations of manufacturing standards at its unit in Halol in Gujarat state. The plant had been under the FDA lens for more than a year before it issued a warning letter.

The warning letter barred the company from making any fresh filing of drug applications from the unit. The Halol facility, which manufactured key injectable drugs, accounts for 25% of the company's U.S. sales, barring that of unit Taro Pharmaceutical, according to Jefferies. In 2016, the FDA raised hackles over nine violations -- including some repeat violations -- after another audit.

In a statement to exchanges on Friday, the company said the FDA conducted a fresh inspection of the facility from Feb. 12 to 23, and has concluded it with three observations. The company will submit its response to the U.S. FDA within 15 days.

"The company is committed to addressing these observations promptly," Sun Pharmaceutical said without disclosing the details of the violations.

The resolution of the Halol issue is crucial for the recovery of Sun Pharmaceutical's business in the U.S., its largest market, where the approval and expansion of several key drugs are in limbo. The company is already grappling with falling drug prices in the U.S., where the FDA has expedited its approval rate for generics, paving the way for increased competition from new players. A rising number of retail pharmacies in the U.S. are joining hands to gain leverage in buying generic drugs in bulk, pushing prices down further.

In the quarter ended in December, the drug maker saw its net profit plunge 75% after a 35% decline in U.S. sales due to the Halol ban and steep price competition. It also warned that the overall sales decline this fiscal year may be wider-than-anticipated due to declining U.S. business.

"Halol is crucial for Sun's generic business going forward," analysts Amey Chalke and Siddhant Mansukhani of HDFC Securities wrote in an e-mail, soon after the company made the disclosure. "Considering the size of the facility, we believe that this was the most likely outcome, with zero observations an unlikely scenario."

The nature of the observations will decide how quickly Sun will start to get approvals from this facility again, they said.

On Friday, Sun's shares gained 5.2% in Mumbai trading, while the benchmark S&P BSE Sensex closed up 1%.

Most Indian drug makers are grappling with regulatory issues amid rampant violation of FDA norms on manufacturing standards. The FDA had in December 2015 issued a warning letter to second-ranked Dr. Reddy's Laboratories' three plants, which it has yet to resolve. The FDA also warned third-largest Lupin in November citing quality issues at two of its plants.

--Dhanya Ann Thoppil

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