Sun Pharma has announced that the USFDA inspected its Halol facility over 12-23 February 2018. Post the inspection, three 483 observations were issued. We await the details of the observations. The company shall respond to the observations over the next 15 days as mandated. The facility is currently under warning letter. We shall await the details of the 483 observations to assess the potential time to resolution. However, given that number of observations is limited to just three for a large plant inspected over two weeks, this appears to be a good outcome. It is difficult to predict timelines for FDA action, but as a base case we expect closure of the inspection and issuance of EIR to take six months. This implies slight slippage from our assumption of early FY19F resolution. Halol was the most important site for Sun Pharma, at the time warning letter was issued in Decemebr 2015. However, the contribution to sales from Halol has declined substantially over the years. We track the sales of products manufactured at Halol.
As indicated in Fig. 1, the sales from Halol declined considerably since the inspection in September 2014 that led to issuance of the warning letter.
Initially, there were supply disruptions from the site as the company implemented remediation measures. However, in the recent past, the fall is driven by pricing pressure and rise in competition, in our view. There is higher competition in products like gDacogen, gDoxil and other key products. The company has attempted to gain back lost market share in some of the products, which has prevented further slide in sales in the recent past. Given the competitive intensity, we don’t expect any meaningful recovery in lost sales over time post resolution.