Sun holds a 75% stake in Caraco. Considering that Caraco contributed 33% to Sun's 2008-09 revenues of around Rs 4,590 crore ($954 million), analysts believe the move could have dire consequences. It is believed that Caraco's revenues, at Rs 1,622 crore ($337 million), could take a 14% hit by the seizure of the 33 products. This would translate into around Rs 227 crore.
An FDA statement said, This action follows Caracos continued failure to meet the FDAs current Good Manufacturing Practice (CGMP) requirements. Through this seizure, the FDA seeks to immediately stop the firm from further distributing drugs until there is assurance that the firm complies with good manufacturing requirements.
Sun Pharma did not comment on the issue, but said it will hold a conference call with analysts and investors on Saturday on the development.
This is not the first time the company has come under the regulator's scanner. Last October, the FDA had conducted inspection of its facilities and found "significant deviations from current good manufacturing practice (CGMP) regulations".
Since January 2009, Caraco had initiated voluntary recalls of drug products to protect the public from potentially defective medications. The recalls involved manufacturing defects, including oversized tablets and possible formulation error. In April, FE had reported that Caraco voluntarily recalled from the US market all tablets of cardiac brand Digoxin due to safety issues.
On Friday, panicked investors drove Sun Pharma shares down 17% at the start of trade on the Bombay Stock Exchange.
The company's shares closed at Rs 1,140, down 12% compared to the previous day's close.
Caraco's shares, fell 43% on the American Stock Exchange to close at $2.39 on Thursday.
Ranjit Kapadia, vice president-institutional research, HDFC Securities, said, Though the possible loss is difficult to quantify, the future of Suns US business depends on how fast it rectifies the defects pointed out by the FDA. Also, there will be an uncertainty over new product launches in the US.
Caraco has filed ten abbreviated new drug applications (ANDAs) relating to nine products with the FDA during fiscal 2009, bringing the total number of ANDAs pending approval by the FDA to 29, relating to 25 products.
The FDA move comes months after it banned around 30 products of the Daiichi Sankyo-owned Ranbaxy Laboratories, India's largest drug-maker, from its facilities at Paonta Sahib in Himachel Pradesh and Dewas in Madhya Pradesh on the grounds that it falsified test results. Ranbaxy reported a 7% drop in its US sales for the first quarter ended March 2009 following the ban.
Although it's too early to say what the precise impact of this will be on Sun Pharma, since this is a seizure and not a ban yet, it could well develop into a complete ban. It can then hit Caraco's revenues, said Sarabjit Kaur Nangra, vice president-research at Angel Broking.
The FDA is committed to taking enforcement action against firms that do not manufacture drugs in accordance with our good manufacturing practice requirements, said Janet Woodcock, director of FDAs Center for Drug Evaluation & Research. Compliance with these standards prevents harm to the public, she added.
The FDAs most recent inspection of Caraco, completed in May 2009, found unresolved violations of cGMP requirements. This seizure is intended to lead to major changes at Caracos facilities, said the statement.