India Pharmaceuticals FDA at Zero Tolerance Level  HSBC Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


India Pharmaceuticals
FDA at Zero Tolerance Level
 Mylan receives a warning letter from the FDA regarding its
Caguas facility, its first CGMP violation in nearly 50 years
 FDA’s strict standards and zero tolerance approach to
persist, resolution likely to be a slow process
 Ranbaxy, Cadila Healthcare, Dr. Reddy's Lab and Sun
Pharma (Caraco) already awaiting FDA clearance
Mylan CGMP alert: On 13 October 2011, the United States Food and Drug Administration
(FDA) sent Mylan (MYL US, not rated) a warning letter about its Caguas facility in Puerto
Rico citing violations of Current Good Manufacturing Practice (CGMP) regulations. This was
Mylan’s first warning, in what is an otherwise impeccable track record. This warning comes
not so long after a few issues at other companies including Hospira (consecutive 483s, Rocky
Mount facility on June and August inspections), Luitpold (warning letter, Shirley facility, on
13 September), Cadila (warning letter, Moraiya, 21 June) and Dr Reddy’s (warning letter,
Mexico, 3 June).
A “zero tolerance” approach: The FDA has issued c590 warning letters in 2011, which is
not far from the 616 letters issued in 2010 (570 in 2009). Bearing in mind that its prime goal is
safety, the FDA has committed to conducting risk-adjusted biennial CGMP surveillance
inspections of generic API and formulation manufacturers under the recently negotiated
Generic Drug User Fee Act. We believe that given the regulator’s stricter approach, resolution
of FDA issues will be a slow process for most of the companies in our coverage universe.
Indian generics not immune to FDA scrutiny: With recent warning letters issued to Cadila
(CADI.BO, OW, TP INR930) and Dr Reddy’s (REDY.BO, OW, TP INR1,950), it has
become apparent that most of the large-cap Indian generics are facing issues concerning
CGMP violation. While the most significant warnings are still being addressed, including
Sun’s (SUN.BO, N, TP INR590) Caraco and Ranbaxy’s (RANB.BO, OW, TP INR565)
import alert (the latter hangs over generic Lipitor’s fate); we believe that the FDA’s recent
approval of Cadila’s Baddi facility should alleviate near-term concerns about its US business.
Despite import bans from Dr Reddy’s Mexico facility, the company was still able to post 30%
growth in API business in 2QFY12, with possible higher sales to non-US territories. We have
also seen some successful resolutions including Sun Pharma’s Taro facility in Canada and its
New Jersey controlled substance facility both of which will be able to start contributing to the
future pipeline.
US “the critical driver” in 2012: With cUSD35bn brand expiries next year (the patent expiry
cycle peak), the US will continue to play a dominant role in base business growth for most of
the generics globally. We expect quality to remain in focus for most players as they seek to
capitalize on opportunities, including those that may arise due to change in market dynamics
(with events such as warning letters).