Sun Pharma to withdraw sales guidance after Caraco debacle

Written by fe Bureau | Mumbai | Updated: Jun 28 2009, 08:00am hrs
Sun Pharmaceutical Industries on Saturday said it was withdrawing its sales guidance for 2009-10 following the US Food and Drug Administrations (FDA) seizure of 33 drugs from its subsidiary Caracos Michigan facilities in Detroit, Farmington Hills and Wixom.

On a conference call with analysts and investors, Sun Pharma chairman and managing director Dilip Shanghvi said the facilities under the FDA scanner produced drugs worth $112 million (around Rs 538 crore). This revenue could not be included in the projections for the next financial year.

Earlier this month, after announcing its financial results for FY 2009, Sun Pharma had forecast a sales growth of 13%-15% in the current financial year (FY 2010). We will reissue our guidance, and that will reflect the current issues, Shanghvi said. Accepting that the FDA move could impact its future drug launches in the US market too, Shanghvi said the company would also reverse its guidance for filing abbreviated new drug applications (Andas) in the US. Caraco has filed ten Andas relating to nine products with the FDA during FY 2009, bringing the total number of Andas pending approval to 29 relating to 25 products. In its guidance for FY 2010, the company had said it intended to file Andas for 30 products across sites.

The greater issue, however, is a likely dent the FDA action could have on Sun Pharmas credibility in the US market, and at stake is another $225 million worth of drugs it distributes in the US through Caraco.

As a company, we have always given more thrust on credibility than money. This is a great negative for us, Shanghvi said. He said the FDA has become more vigilant not just on manufacturing products, but has also tightened the method of giving approvals on products in the US market.

A similar action by the FDA on Ranbaxy Laboratories, leading to a ban of 30 products manufactured by the firm in two of its Indian facilities, dented Ranbaxys US sales by 7% for the first quarter of ended March 2009. Caraco, in which Sun holds 75%, contributes to as much as 33% of Suns sales. In FY 2009, Sun had net sales of Rs 4,272 crore. Caraco posted revenues close to Rs 1,622 crore during the period.

On Thursday, the FDA seized the drugs, including generic versions of heart, pain and psychiatric medicines, blaming Caracos continued failure to meet current good manufacturing practice requirements. In a statement, the FDA said, Through this seizure, the FDA seeks to immediately stop the firm from further distributing drugs until that the firm complies with good manufacturing requirements.

Shares of Sun Pharma, which is Indias biggest drug maker by market capitalisation, had tanked more than 17% in intra-day trade Friday on the FDA news.

This is not the first time the company has come under the regulators scanner. Last October, the FDA had conducted inspection of its facilities and found significant deviations from current good manufacturing practice regulations.

Since January 2009, Caraco had initiated voluntary recalls of drug products to protect the public from potentially defective medications. This (the new FDA move) is a setback for Caracos efforts in the last one year to return to full current good manufacturing practice compliance, Shanghvi said.

However, Sun has no plans to move the production of these drugs from the said facilities to locations outside. We want to manufacture in the US. This episode does not affect our thinking, Shanghvi said. He added the SEC wanted greater protection of minority interests, and due to this transactions between Sun and Caraco would be on an arms length basis. We cannot treat Caraco facilities as one more manufacturing unit for Sun. he said. Sun also does not plan to separate manufacturing drugs from distribution in the US.

Bitter pill

Sun Pharma had forecast a sales growth of 13% to 15% in FY 2010

It also said it intended to file ANDAs for 30 products across sites

Caraco filed 10 ANDAs relating to 9 drugs with the FDA during FY09

Company might take a credibility hit on products distributed by Caraco

Caraco distributes $225 million worth of Sun's drugs in the US