Sun Pharmaceutical shares fell as much as 7.5 per cent to Rs 731 after India’s biggest drugmaker disclosed that it has received a “warning letter” from US regulator over violation of manufacturing standards at its Halol plant in Gujarat, which is its largest manufacturing facility.
The US Food and Drug Administration’s (US FDA) warning letter to Sun Pharma indicates the agency is dissatisfied with the remedial measures the company has implemented since last September, when the FDA first notified the company of its concerns after an inspection.
The Halol plant makes up about 15 per cent of Sun Pharma’s sales in its largest market, the United States. It is critical to the company as it has the capabilities to manufacture injectable products, which are difficult to make and hence a niche and lucrative market for drugmakers.
Sun Pharma said in a statement on Saturday that it had made “significant investments” in automation and training to improve quality systems at the plant, hired consultants, and was updating the FDA on all the corrective measures it was taking.
Most of the issues in the warning letter are the same as those in the report sent in September, Sun Pharma’s Managing Director and Indian billionaire Dilip Shanghvi, said in a conference call late on Saturday.
Sun Pharma itself is already grappling with U.S. import bans on five of its other manufacturing facilities in India.
Since last September, Sun Pharma has not received any US approvals to launch new drugs made at Halol. The situation will continue until the problems are fixed, Mr Shanghvi said.
Morgan Stanley, a global brokerage, has downgraded Sun Pharma to “equal weight”, cutting the pharma major’s earnings per share estimates cut by 10.5 per cent and 6.1 per cent for FY17 and FY18.
The brokerage added that the warning letter over the Halol facility will slow down US growth and the stock could remain lacklustre for six to nine months. The brokerage however said that upcoming launches could cap the downside in the stock.
Another global brokerage CLSA however maintained a “buy” rating on Sun Pharma shares with target price of Rs 950. CLSA said that the weakness in the stock is a buy opportunity and it sees low probability of an US import alert for Halol facility.
Products made at the Halol plant have not yet been banned from the US, but the county’s regulator has withheld approval for any new products from the facility till the issues are resolved.