Sun tanks 6% as Halol unit comes under cloud

Shares of Sun Pharmaceutical Industries dropped over 4% on Thursday on unconfirmed reports that the US Food and Drug Administration (FDA) made a surprise inspection at its manufacturing facility at Halol in Gujarat.
The scrip opened at Rs 853 on the BSE on Thursday, fell 6% intra-day to Rs 808 before recovering to Rs 822.80 at the close, down 4.29% over the previous close.

According to industry sources, an increased number of drug recalls from the Halol plant is seen as the reason behind the surprise inspection by FDA. A Sun Pharma spokesperson, however, declined to comment to an email query sent by dna.

In the last few months, Sun Pharma recalled a little over 2.9 lakh bottles of Venlafaxine Hydrochloride extended-release tablets. The product is manufactured at its Halol facility. It has also recalled 200 vials of Gemcitabine due to lack of sterility assurance. In another update on its website, FDA said Sun Pharma has recalled over 4.5 lakh bottles of Cephalexin Capsules of strength 250 mg and 500 mg. These products were recalled because they were manufactured with active pharmaceutical ingredients (APIs) that were not manufactured with good manufacturing practices.

Earlier this year, the company also recalled 2,528 bottles of Metformin Hcl-extended release tablets because of packaging problem as a foreign tablet was found by a customer in a Metformin bottle. It also recalled over 1.7 lakh Cetirizine Hydrochloride chewable tablets (including Children's Cetirizine) due to failed impurities/degradation specifications.

Ranjit Kapadia, senior VP – pharma, Centrum Broking, said, "The Halol facility contributes to about 15-20% of the US sales. With the FDA now having an office in India, these surprise visits are nothing unusual. So it is too premature to comment on this issue."

He, however, said the increasing number of recalls by Sun Pharma possibly prompted US FDA to do a surprise audit on the Halol unit. The company's Karkhadi facility in Gujarat was issued a warning letter early this year for not maintaining good manufacturing practices.

Kapadia said while the recent recalls are on various grounds, they all finally leads to the current good manufacturing practice (CGMP) issue. If some major deviations in observations were found, US FDA is likely to issue a Form 483 immediately. The company will have to then respond within 15 days of receiving the letter.

Results of the ongoing inspection at Sun Pharma's Halol plant would be significant given its importance to the companies US revenues as well as for its overall performance, feels Sarabjit Kour Nangra, VP-research (pharma), Angel Broking.

"During 2013-14, the US business accounted 60% of the overall sales of the company (Rs 16,000 crore). Going forward, after the merger with Ranbaxy Labs, its dependence on the region would reduce to around 45% of the expected sales in fiscal 2016. Thus the share of the plant in the overall sales would reduce, going forward (expected to be around 10% of sales in fiscal 2016)," she said. "Profitability could be impacted, given low profitability of Ranbaxy Labs, in case of an adverse implication, though it is too early to call given that company has voluntary done some withdrawal and given the importance of the facility. In case of any adverse impact, the company could witness a dip of around 15% from these levels," said Nangra.

Sun Pharma in April announced its intent to acquire Ranbaxy Labs from its present owner Daiichi Sankyo. Ranbaxy is facing import ban from FDA on four of its plants in India.