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With rise in US FDA warning letters and import alerts to Indian pharma companies in recent years for not complying with good manufacturing practices, cash rich large and mid sized Indian companies are increasingly looking at the option of acquiring US FDA approved API and formulation facilities. This may help them to avoid setbacks in their export earnings as well as credibility of the drugs being manufactured by them.
Currently, India accounts for 29 per cent and 36 per cent of non-US API and formulations facilities, respectively. Since 2008 the US FDA has issued 50 warning letters to Indian drug makers, of which 40 per cent have turned into import alerts.
The increase in regulatory actions against Indian drug makers by US FDA has led to considerable revenue losses. Barring top pharma players like Sun Pharma, Aurobindo Pharma, Dr Reddy's having multiple manufacturing facilities, other large and mid sized players with limited number of API production facilities have high risk of losing business in regulated markets in case of adverse observations by US FDA.
Therefore, these players are considering acquisition of US FDA approved API and formulation facilities to diversify their manufacturing base. They would then have the option to register their products at multiple locations. In case a particular location faces US FDA regulatory issue, the companies would have the option to produce products from the other locations, said Rikin Sanghvi of ICICI Securities.
Last month Glochem, a Hyderabad based company, signed an agreement to sell its API manufacturing unit in Vishakhapatnam to Torrent Pharma. With this acquisition, Torrent Pharma now has three API manufacturing facilities for the regulated markets.
Compared to large and mid sized companies, smaller companies face a much higher risk since they cannot put up multiple facilities due to resource constraints. They are the most affected by US FDA regulatory action, said Sanghvi.
For example, a small company like Smruthi Organics Limited lost nearly half its revenue after it received a warning letter from the US FDA in March 2014. Its revenue fell from Rs. 180 crore in FY13 to Rs. 92 crore in FY14.There are other cases like this.
Considering this, the promoters of smaller companies are now open to the option of exiting the business rather than facing regulatory hurdles resulting in loss of business and value, he said.
There has been a rise in the number as well as the stringency of US FDA inspections in recent years post implementation of GDUFA. In 2015 US FDA inspected 240 drug manufacturing facilities in India; this was approximately 2.5 x the number of facilities inspected in 2010.
A number of factors like insufficient arrangements to check alteration in laboratory test results and associated documentation, non compliance of cGMP norms during R&D, validation, lack of robust training programmes for manpower have led to US FDA to take regulatory action against the drug makers in India, said Sanghvi.
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