Sun Pharma shares dip on surprise audit by USFDA at Halol plant

Shares of Sun Pharmaceuticals Industries Ltd were down by nearly 4 per cent on reports that its Halol manufacturing plant in Gujarat has been subjected to surprise inspection by the American drug regulator United States Food and Drug Administration (USFDA).

The stock, which opened at Rs. 850.70 on the NSE this morning, dropped to a low of Rs. 808 before recovering to Rs. 819.60, a loss of Rs. 38 or 4.45 per cent.

No information has been posted on their Web sites about the reported inspection of Sun Pharma’s Halol facility by the USFDA. But there was market buzz about it, leading to stock coming under pressure.

Sarabjit Kour Nangra , VP- Research ( Pharma), Angel Broking, Mumbai, in her remarks said that it was learnt that Sun Pharma’s manufacturing facility at Halol (Gujarat) “is undergoing a surprise inspection by the US Food and Drug Administration (USFDA)”.

The action might be a fallout of a “number of recent recalls from the plant”, she said quoting sources “familiar with the development”.

She said in May, Sun Pharma’s unit in Karkhadi in Gujarat was warned by the US FDA “after investigators identified violations of current good manufacturing practice and regulations for finished pharmaceuticals”.

She mentioned about Sun Pharma recalling three important medicines from the US market, all of which were produced from Halol.

The company had recalled 40,000 bottles of Venlafaxine Hydrochloride extended-release tablets after it failed dissolution test.

Two other drugs recalled were Gemcitabine for manufacturing issues (lack of sterility assurance) and Metformin for packaging problems (Gabapentin tabs found in Metformin bottles). She said while all these were limited to specific batches, they were manufactured at Halol.

Nangra said Halol plant was believed to contribute to nearly 40 per cent of the US sales and close to 25 per cent of the consolidated profit of Sun Pharma.

She felt that the ongoing inspection was crucial in view of the plant’s importance to the company’s US revenues and its overall performance going forward.

During 2013-2014 FY, the US business accounted for 60 per cent of the sales (Rs 16,000 crore). Post merger with Ranbaxy Labs, Sun Pharma’s dependence on the US market might come down to about 45 per cent of the anticipated sales in FY2016.

She said that the contribution of the Halol plant to the overall sales might decline (expected to be around 10 per cent of sales in FY2016). While the profitability could be hit, it was “too early to call given that company has voluntarily done some withdrawal and given the importance of the facility”.

She felt that “in case of any adverse impact, the company could witness a dip of around 15 per cent from these levels” and maintained a ‘neutral view’.