This is not a recommendation to buy or sell the stock. Analyst and family do own some of the positions listed here. Please assume we are biased. With this publication we track the events from the issue of the warning letter in December, 2015 which derived from a Form 483 issued in September, 2014 to this week’s issuance of another Form 483.
We will have a follow on update on this once the latest Form 483 has been made public.
Dilip Sanghvi led Sun Pharmaceutical Industries is yet to see the daylight in the recent re-inspection of its Halol plant by the United States Food and Drug Administration. Related Post:Sun Pharma and Ranbaxy to Merge, Create Giant Pharma Co
We had managed to get our hands on the Warning Letter issued by US FDA late last year. The inspection lasted 12 days from the 8th September to the 19th September, 2014 while the warning letter was issued only in December, 2015 – a complete year later as there were multiple exchanges between the company and the USFDA.
This time, after a gap of 12 months since the warning letter (24 months since the initial inspection) and continuous remediation’s, Sun Pharma requested (request for re-inspection which was likely put in with the US FDA by June 2016) the US FDA team to conduct a re-inspection of their Halol facility in Gujarat as it was confident that the necessary remediation plans had been taken.
However to their surprise and after a long wait, the same US FDA team that inspected the company’s Mohali facility a fortnight ago, conducted the re-inspection of the Halol facility in Gujarat. This re-inspection lasted 15 days from 17th November to 1st December, 2016.
The US FDA team arrived at the conclusion that the observations noted during the prior inspection in December last year were no longer applicable as the company had put in place all the remediation needed. However, the US FDA team sent another shock wave with a fresh Form-483. (An FDA Form 483 is issued to firm management at the conclusion of an inspection when an investigator(s) has observed any conditions that in their judgement may constitute violations of the Food Drug and Cosmetic (FD&C) Act and related Acts)
This time there were 9 new observations noted and the Form 483 ran 14 pages long (6 observations running 7 pages last year).
Not only does this mean that Sun Pharma needs to wait a little longer(FDA inspects thousands of plants for which they have to organize inspection. So they have to prioritize within their own priority) it also means that the company would have to wait for 2 EIR’s [If no enforcement action is contemplated, or after enforcement action is concluded, FDA provides inspected establishments with a final inspection report, called an Establishment Inspection Report (EIR)] from each of the inspections conducted. And it is well known the FDA does not conduct re-inspections very quickly or easily.
For now, Sun Pharma is busy prepare its battle plan to counter the observations raised which it needs to submit to the US FDA within a period of 15 business days.
This does not mean that the Halol plant will stop production of products. The plant will continue to supply materials and produce products with the exception of new approvals. So any new products that the company has filed for production to be made from the Halol site will not be possible until the US FDA provides a clearance to the site in the form of EIR. (Post the September 2014 inspection, the US FDA has withheld future product approvals from the Halol facility. This situation may continue until all issues are resolved. Sun Pharma is awaiting a re-inspection of this facility by the US FDA)
The Halol plant makes a range of dosage forms across tablets, capsules, ophthalmic and difficult-to-make products like injectables, nasal sprays and soft gel capsules. There are also special dedicated areas to manufacture dosage forms for categories such as steroids, anticancer and hormones. It is unclear as to what is the revenue contribution from this plant to the company’s overall revenues.
We have requested the US FDA to re-inspect the Halol facility and we are awaiting this re-inspection.
Once the re-inspection happens, it takes time to write a report. Looking at the experience of some of the other sites; it can take more than three months post the inspection, for the site to get the clearance. So, I hope that we should be able to do this within five months, but I do not know whether that will actually happen.
Our initial reading of the warning letter indicates that it is based on the form-483 observations issued in September 2014 –
Our view: looks like not much was done since the issues observed in the form 483 and the warning letter were the same.
The issues highlighted in the warning letter are mostly the same that were identified by the USFDA during the last inspection in September 2014, for which a remediation plan is already under implementation since then.
Our view: clearly, none of the remediation steps communicated to the US FDA were not as per their expectation or good manufacturing practices (cGMP).
The sales to the US from Halol is a high single digit number in percentage terms for our total sales. It is the only site from which we have filed injectable products.
Original 483 issues raised were about the sterility assurance and validation of the sterility system and all of those issues but not system wide compliance issue.
Between the last inspection (Sep-14) and today (Dec-19), in excess of maybe 10 or 12 regulatory inspections for Halol have been done including by the European agency.
Gleevec was one of the products transferred for production from the initial Halol plant.
Our cGMP remediation efforts at the Halol facility are also on track
Since the first inspection has official action indicated(official action indicated is that till the time the concerns are not addressed we will not get new approvals), the site will come back in compliance only after it is re-inspected and we address all the concerns which were raised by the FDA
Gleevec have been de-risked form Halol as we have filed from an alternate site.
There is no restriction currently on the exports out of the Halol facility. We will try to come back to full production without waiting for FDA to come back.
No constraint in our ability to file for approvals to the US FDA. But we have not filed Doxil in any other major geography and the two major geographies would be Europe and Japan.
Supply from Halol has improved for products like Duloxetine or Doxycycline or Liposomal Doxorubicin.
In this quarter US business is significantly lower because of supply disruption
Excluding Taro, Sun’s sales have grown by $30 million to $273 million which is basically Halol debottlenecking.
Operating constraint at Halol in the past. There are some products which are impacted with this constraint.
Three things that are impacting business – currency volatility, rationalization of low margin and non- remunerative businesses and then some products from Halol which we are not being able to sell into these markets as well.