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Pharma stocks take a beating on renewed US FDA scrutiny

LiveMint logoLiveMint 21-03-2017 Isha Trivedi

Mumbai: The latest regulatory troubles of Divi’s Laboratories Ltd and Dr. Reddy’s Laboratories Ltd indicate Indian drug makers face a long and uphill struggle to meet quality standards set by the Food and Drug Administration (FDA) of the US, the world’s largest drug market.

Shares of pharmaceutical companies plunged on Tuesday after the US FDA imposed an import ban on a Divi’s Labs unit in Visakhapatnam.

Television channel CNBC-TV18 also reported that the 13 observations received by Dr. Reddy’s for its Duvvada oncology formulations plant from the US FDA on 8 March contained some repeat warnings from a letter issued in 2015, indicating the company had failed to resolve the issues.

Divi’s Labs stock plunged by the 20% daily limit, while Dr. Reddy’s declined 5% to a new 52-week low. Shares of Wockhardt Ltd fell 2.5%, Sun Pharmaceutical Industries Ltd shed 1.1%, Aurobindo Pharma Ltd retreated 1.7%, Lupin Ltd 0.85% and Cipla Ltd 0.5%.

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Dr. Reddy’s had completed remediation work and sought FDA re-inspection of all the three plants that were issued warning letters in November 2015. The regulator found lapses at both the Duvvada unit and active pharmaceutical ingredients (API) plant at Miryalaguda in Telangana during the re-inspection. The company’s API unit at Srikakulam is likely to go through re-inspection before March-end.

“Even after the remediation work, the plants remain non-compliant. This raises concerns over the ability of Indian pharma companies to overcome such issues. For Divi’s Labs, the kind of lapses that were observed, it is like opening a Pandora’s Box,” said an analyst who did not wish to be named.

The observations at Divi’s Labs unit related to lack of proper controls over computer systems, the research and development division allowing activities inconsistent with manufacturing norms and improper maintenance or falsification of records.

Compliance issues such as these have persisted for the past few years as a number of drug manufacturing units in India were found to be violating good manufacturing practices prescribed by the US regulator.

These issues have eroded earnings and dented the image of Indian drug makers in the global market. In 2016, the BSE Healthcare Index declined 13% after gains of 15% in 2015 and 48% in 2014.

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While some facilities such as Cadila Healthcare Ltd’s Moraiya unit, Lupin’s Goa unit, Glenmark Pharmaceuticals Ltd’s Ankleshwar unit and Cipla’s Indore unit managed to resolve compliance issues, companies such as Sun Pharma, Dr. Reddy’s, Wockhardt, Divi’s Lab, Ipca Laboratories Ltd, Alkem Laboratories Ltd, and Unichem Laboratories Ltd continue to face regulatory hurdles.

Last week, Sun Pharma said the US FDA had decided to lift an import alert on its Mohali unit in Punjab, which the company inherited from Ranbaxy Laboratories after its acquisition in 2015. However, three other plants, which originally belonged to Ranbaxy, are still under an import ban and Sun Pharma’s own facility at Halol in Gujarat has received a warning letter from the US regulator.

“Investors have become cautious. The scenario is different for different companies. So we need to watch US FDA developments on a case-to-case basis and not generalize it as a trend for the industry,” said Surya Patra, an analyst at PhillipCapital India.

Because of the gravity of the situation, industry lobby group Indian Pharmaceutical Alliance formed a Quality Forum in 2015 to help companies improve quality standards. Leading drug makers have introduced measures such as automation of processes, focused on quality, and deployed information-technology tools to upgrade standards.

“Indian companies have to go through this learning curve and I believe they are learning fast. I think some of the companies will be able to come out of these quality issues in the next two-three quarters but for some, it will take longer,” said Ranjit Kapadia, senior vice-president at Centrum Broking.

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