USFDA scrutiny challenge for Indian pharma companies: Icra

Greater scrutiny by the US Food and Drug Administration (USFDA) is emerging as a key challenge for Indian pharmaceutical sector as it can delay new product approvals and add to margin pressures, a report says.

"Greater scrutiny by USFDA is emerging as a key challenge for the (Indian) pharmaceutical sector. New product approvals and margins of pharma companies are at risk but credit profiles are unlikely to be impacted," said the report by rating agency Icra.

The issuance of Warning Letters (WL) and Import Alerts (IA) for domestic manufacturing facilities have increased significantly over the past couple of years following USFDA's greater focus on compliance of guidelines of cGMP (current good manufacturing practice) by pharmaceutical companies.

With a slew of warning letters being issued to some of the leading pharmaceutical companies in the recent past, such regulatory actions are steadily emerging as a key risk for the sector as they hold potential to delay product approvals and launches in the US.

In an environment where companies are going through pricing pressure owing to increased competition, these developments are likely to add to margin pressures, Icra said. Sun Pharma, Dr Reddy's, Cadila Healthcare and IPCA Laboratories were the prominent companies to receive WLs/IAs during 2015.

However, Icra believes the credit profile of affected entities is unlikely to be impacted in view of their strong balance sheets and liquidity. While the extent of deviation from cGMP guidelines varies across companies, there are some common reasons that have prompted USFDA to take regulatory action.

These include inadequate systems and controls to prevent alteration in laboratory test results and associated documentation, slippages with respect to adherence of cGMP norms during R&D, validation and absence of robust manpower training programmes.

The rating outfit pointed out that adherence to the US health regulator's directives and site transfer in a timely manner are vital to mitigate business risk.

As a result of USFDA's stringent follow up on manufacturing standards, pharmaceutical companies are now mandated to review their R&D and manufacturing procedures, implement comprehensive action plans and even conduct risk assessment of products that are already in the market.

Large pharmaceutical companies have better track record in resolving FDA actions and a majority of warning letters are resolved within 12-15 months, the report said.

"Our analysis of the resolution of warning letters suggests that large pharmaceutical companies have a superior track record in resolving FDA's observations vis-a-vis the mid-size companies," it added.