Sun Pharma Shares Fall After U.S. FDA Setback For Halol Plant

The U.S. drug regulator barred India’s largest pharmaceutical company’s Halol, Gujarat, facility from getting any fresh approvals for exporting to the American market.

Sun Pharmaceutical Industries Ltd. received a letter from the U.S. Food and Drug Administration classifying the plant as “official action indicated”, according to an exchange filing. U.S. FDA may withhold approval of any pending product applications or supplements filed from this facility till the outstanding observations are resolved, the filing said.

The company, however, said it would continue to manufacture and distribute existing products for the U.S. market and doesn’t expect any major supply disruption for such items. But Sun Pharma, in the filing, said it doesn’t want to comment on a possibility of a warning letter being issued to this plant.

The U.S. FDA’s official action indicated status classification came after the American authorities issued a Form 483, a kind of inspection letter, with eight observations to the Halol plant—Sun Pharma’s primary site for key filings, including injectable products—after an inspection from Dec. 3-13, 2019. This unit was cleared by the drug regulator in June 2018 with an establishment inspection report, paving the way for its first drug approval in five years from the plant.

The Halol plant, which according to the filing contributes 3-4 percent to Sun Pharma’s consolidated revenue, currently has 19 abbreviated new drug applications and two new drug applications pending approval for exporting to the U.S. market. These are likely to be withheld due to the official action indicated status and will only be approved once the facility is fully compliant with the regulator’s norms.

And though Sun Pharma has an additional injectable site at Baska, Gujarat, a backup of such products may not be possible as the facility cannot manufacture some of the dosage forms filed from Halol, the filing said.

Shares of Sun Pharma fell as much as 7.7 percent in opening trade on Monday, but pared most of the losses to end the day 1.35 percent lower at Rs 333.65 apiece. That compares with benchmark Nifty 50’s 4.38 percent fall today.

Here’s what analysts have to say:

Investec

• An official action indicated is a setback but not anticipating any major EPS cut to FY22 estimates.
• Continue to like the long-term build up and street is undervaluing the global brand and specialty business of Sun Pharma.
• Top pick in sector; use weakness to accumulate.

Citi

• Official action indicated usually is a precursor to a warning letter.
• It could have an impact on growth, if remediation takes time.
• Important complex generic filings such as Lupron Depot (treat disorders of the uterus), Focalin XR (attention deficit hyperactivity disorder) or Makena (lower the risk of premature birth in a woman who has already had one premature baby) filed from Halol.

CLSA

• Official action indicated sets back its U.S. generics business.
• Incremental U.S. growth drivers are the six specialty products at an inflection point.
• Current valuations largely reflect the relatively higher security and growth visibility of its India business.

Macquarie

• Relevance of Halol as a growth driver has waned.
• Most key filings have been transferred to other plants.
• Any major EPS hit due to official action indicated status seems unlikely.
• Remediation and reinspection could take at least 1.5 years.

Nomura

• Sensitivity of Halol to earnings is currently low compared to that in December 2015 (first warning letter).
• Market expectations of upside from generic launches are limited.
• Scaling up of specialty sales is the key earnings driver.