Ipca Laboratories said it has voluntarily stopped shipments to the US from its bulk drug manufacturing facility at Ratlam, Madhya Pradesh, after the Food and Drug Administration The letter outlined a half a dozen violations of standard production practices at the site.
The FDA issued Ipca a 'Form 483', a letter in which it outlines violations of its guidelines observed during plant inspections.
"The company has voluntarily decided to temporarily suspend API shipments from this manufacturing facility for the US markets till this issue is addressed," Ipca informed the exchanges.
The suspension will have an impact on the company's formulations exports to the US as Ipca's formulations manufacturing units situated at Piparia (Silvassa) and SEZ, Indore (Pithampur) use active pharma ingredients manufactured at the Ratlam unit, it said in a statement.
Sbicap Securities in a report said, "Management has cited six point observations two of which are critical, relating to data integrity issues and lab practices. Other findings are minor in nature mainly relating to training, power back-up and documentation issue for one batch. Resolution can take 4-6 months," it said.
According to analysts, 5-10% of Ipca's sales are likely to be impacted in the near term.
Surajit Pal of broking firm Prabhudas Lilladher said the move is most likely to have a financial stress on Ipca for at least six months, and even beyond.
Sarabjit Kour Nangra, VP research - pharma, Angel Broking, said, "The US during fiscal 2014 contributed sales of Rs 419.6 crore (12% of total sales and 20% of exports). Out of this, formulation: API mix is around 61:39. Further, the company has another API facility at Baroda, which is FDA approved. Thus, net impact on the company would depend on the time it takes to come out of the same or shift its business to other FDA-approved facility. Thus, we expect 2014-15 sales to be impacted."
Religare Securities estimated a revenue hit of Rs 300 crore (annualised) due to disruption in the US business. Moreover, the overhang of quality-related issues (data integrity) could potentially turn more serious would limit valuation multiples, it said.
"Ipca's US business was largely dependent on Ratlam API unit which accounted for Rs 204 crore in formulation sales and Rs 93 crore worth of API supplies in 2013-14. We expect disruption in high-margin US sales until remediation, implying a revenue loss of Rs 200 crore, assuming six months for recovery."
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