Sun Pharma stock plummets: 5 reasons why it is getting hammered by investors

Sun Pharma, which slumped yesterday, on reports of surprise US FDA inspection at its Gujarat plant, today extended its decline by another 3 percent. The US drug regulator’s surprise check could be a fallout of a number of recent recalls from the plant.

Here’s why the stock is getting pummelled:

1. Majority of ex-Taro products of Sun Pharma for the US market come from the Halol facility, the largest plant of the company, which supplies 40 percent of US sales and contributes 25 percent to the company’s consolidated profit. During FY2014, the US business accounted for the 60% of the overall sales of the company.

2. It is one of the two US FDA-approved facilities that Sun Pharma has in India in formulation. Earlier, the company’s other facility in Gujarat, the Kharkadi plant, got a US FDA import ban with serious deviations. The FDA in its warning letter on Kharkadi had asked the company to review all its global facilities for similar deviations. Sun had also faced an import alert on a US-based facility belonging to subsidiary Caraco and a warning letter over unit Taro’s Canadian plant but both were successfully resolved.

“One more facility getting audited is a cause of concern but the action of the company has taken investor to take some kind of a comfort after it withdrew many faulty products. In case there is some severe repercussion or severe audit report then it definitely spills some kind of negativity for the company,“Sarabjit Kour Nangra, Angel Broking told CNBC-TV18.

3. Analysts have in the recent past raised concerns about multiple recalls that Sun made from the US market of products made at Halol. In July 2014 report, Credit Suisse had highlighted the possibility of an increased scrutiny.

In the last few months, Sun Pharma recalled over 2.9 lakh bottles of Venlafaxine Hydrochloride extended-release tablets, which is manufactured at its Halol facility because the product did not meet the drug release dissolution specifications. It has also recalled 200 vials of Gemcitabine due to lack of sterility assurance.

The US FDA has also said that Sun Pharma recalled over 4.5 lakh bottles of Cephalexin Capsules of strength 250 mg and 500 mg because they were manufactured with active pharmaceutical ingredients (APIs) that were not manufactured with good manufacturing practices.

4. According to CNBC-TV18, United States Food and Drug Administration USFDA inspectors in two teams are auditing both the injectibles as well as oral solids units at the plant, with one team focusing on manufacturing processes and other closely auditing quality control and assurance departments.

5. Ranjit Kapadia, senior VP - pharma, Centrum Broking told the DNA that recent recalls lead to the current good manufacturing practice (CGMP) issue. “If some major deviations in observations were found, the US FDA is likely to issue a Form 483 immediately. The company will have to then respond within 15 days of receiving the letter.”

However, Sun Pharma today clarified that the US FDA inspection will not have any material impact on the company as it is just a routine check.