FDA seizes three US facilities of Sun arm

In a blow to Sun Pharma, India’s largest drug maker by market capitalisation, three facilities of Caraco Pharmaceutical, its US subsidiary, were on Thursday seized by the US Food and Drug Administration (FDA).

The action followed the company’s “continued failure to meet the FDA’s current Good Manufacturing Practice (cGMP) requirements.”

Caraco has been asked to immediately stop further distribution of drugs manufactured from the three Michigan facilities — at Detroit, Farmington Hills and Wixom — until it assures compliance with cGMP.

According to Caraco’s website, the company manufactures and markets 67 different products. The three facilities seized by USFDA manufactured 33 of these drugs.
The early estimated value of the inventory seized by the FDA is in the range of $15-20 million, the US firm indicated in a statement to its shareholders on Friday.

The company statement also specified that the products subject to seizure do not impact products on hand manufactured by third parties under their own label or manufactured for Caraco under the Caraco label. It also does not impact Caraco-manufactured products recently sold into the market.

Caraco’s Detroit facility has been under FDA scanner since October last year. Due to manufacturing defects, the firm had had to recall two products —- Diogxin in January this year and another undisclosed product in April. 

These also included oversized tablets.

A Sun Pharma spokesperson said in an e-mail response that the recall of these two drugs had translated into sales losses of close to $4 million for Caraco.

FDA had last inspected Caraco’s sites in May 2009, where unresolved violations of cGMP requirements were found.

The US regulator has indicated that the seizure is intended to lead to major changes at Caraco’s facilities. Following a court action, the firm may need to hire outside experts, write new procedures and conduct extensive training of employees.

New York Stock Exchange-listed Caraco had a turnover of $337.2 million FY09, of which $112 million came from sale of own products and $225 million from sale of Sun Pharma products.

US sales accounted for roughly 35% of Sun Pharma’s overall revenues in FY09.
Caraco sales were down 67% in Q4 FY09.

Following the FDA move, Caraco’s abbreviated new drug approval (ANDA) filings will remain pending till the issue is resolved.

Sun Pharma has 108 ANDAs pending approval, including 25 from Caraco.
Sun holds 76% in Caraco and almost 33% of its revenues come from the US business, which could be significantly impacted.

Sarabjeet Kaur, analyst with Angel Broking, estimates 14% of the Indian company’s sales being impacted.

Ranjit kapadia, vice-president, institutional research at HDFC securities, feels the impact on Sun will depend on the time Caraco takes to resolve the issue. “It can be either an impact just on the quarter numbers, but if the issue extends, then further quarters will also be impacted,” he said.

Sun’s spokesperson said the ban will not have any impact on the company’s products, which are marketed and sold by Caraco in the US.

Industry observers believe the recent development also puts the drug major’s reputation at stake.

Caraco had a cash balance of approximately $64 million as of June 25, 2009, including a loan of $18 million. Based on the estimated sales of distributed products and Caraco products manufactured by third parties, the company believes the profit generated from those products will cover estimated ongoing expenses.

Accordingly, Caraco expects that the financial position will allow it the time to resolve its pending FDA issues.

FDA had come down heavily on Ranbaxy Laboratories last year and had banned about 30 drugs for violation of manufacturing standards at its Dewas and Paonta Sahib manufacturing facilities in India. Lupin had received similar warning letter for one of its manufacturing facilities for manufacturing violations.