Sun Pharma To See Supply Issues From Mohali Plant After FDA Directives

Sun Pharmaceutical Industries Ltd. may see supply disruptions impacting its revenues after the U.S. Food and Drug Administration asked it to undertake corrective action at its Mohali facility before supplying products to the U.S.

About $70 million, or around Rs 574 crore, is coming from Mohali for Sun Pharma, according to Vishal Manchanda, a pharma analyst at Systematix Group.

In the exchange filing dated April 23, the company disclosed that the facility was inspected by the FDA between Aug. 3 and 12, 2022, and classified as "official action indicated" on Nov. 8, 2022. It has received a "consent decree correspondence/non-compliance letter" from the FDA.

"U.S. FDA has directed the company to take certain corrective actions at the Mohali facility before releasing further final product batches into the U.S. These actions include, among others, retaining an independent CGMP (current good manufacturing practises) expert to conduct batch certifications of drugs manufactured at the Mohali facility."

The company is taking the required corrective steps, but there will be a temporary pause in the release of batches from Mohali until the FDA mandated measures are implemented. "U.S. shipments from Mohali will resume once these measures are in place."

"The observations highlighted the risk of data integrity," Nomura Holdings Inc. said in a report. "The U.S. FDA's step to ensure further scrutiny of batches at the site signals an escalation of the matter, in our view."

• Maintains a 'buy' rating with a target price of Rs 1,190, implying an upside of 20% from the closing price on April 21.

• The Mohali facility is for oral solid formulations.

• The facility has been inspected six times since 2011.

• It was put under import alert in 2013 following the inspection in 2012. The import alert was lifted in 2017.

• Since 2017, an estimated around 13 products have been approved on the site.

• The estimated annual sales contribution from the Mohali site for the U.S. business is $100–150 million, or around Rs 820–Rs 1,250 crore, with gPentasa contributing more than 50% of the sales.

• The other large products on the site include Pantoprazole ODT and Diltiazem caps XR.

• Since Sun Pharma is the only generic in gPentasa, it is likely to be a very high-margin product.

• The stoppage of supplies can adversely impact profit margins in the near term.

• The brokerage assumes $30 million, or around Rs 246 crore, of quarterly sales from the site.

• The company has not indicated a tentative timeline for a resolution yet.

Exports from Mohali will stall temporarily until Sun Pharma puts the desired corrective action in place and appoints an independent CGMP consultant for batch-to-batch inspection and clearance.

"We believe the requisite action might take a few months and raise the cost of operations in Mohali and thus impact Sun Pharma's competitive positioning," Manchanda said.

He said three key products from Mohali might have an impact:

• gPentasa: $50–60 million, or around Rs 400–500 crore, in annual sales. There is no competitor as of now, but the U.S. FDA might prioritise review of pending abbreviated new drug applications.

• gProtonix oral suspension: Ajanta Pharma Ltd. is the sole other ANDA in the product. About $5 million, or around Rs 40 crore, in annual sales for Sun Pharma. Ajanta has not launched the Protonix suspension despite approval. Hence, practically, Sun Pharma is the sole player in the product category.

• gRanolazine: About $7–8 million, or around Rs 55–65 crore, for Sun Pharma. Ajanta Pharma is the key competitor.

Systematix currently has a 'buy' rating on the stock.

Shares of the company were trading 1.94% lower at Rs 970 apiece as of 12:50 a.m., compared to a 0.26% rise in the benchmark Nifty 50.

Out of the 52 analysts tracking the company, 50 maintain a 'buy' rating and two recommend a 'hold' on the stock, according to Bloomberg data. The average 12-month consensus price target implies a potential upside of 24.9%.