Pharma stocks, which were the market’s darlings until a year ago, are now down in dumps. So what has changed in the last one year?
US drug regulators cracking the whip on Indian drug majors was a major sentiment dampener, and has caused many investors to take a cautious stance towards the entire pharma space. The BSE Healthcare Index has lost 15 per cent in the last six months alone.
A slew of negative news flows regarding manufacturing issues and regulatory action has kept the price of pharma stocks under check. Interestingly, it is not just the small and mid-size drug makers such as IPCA, Alembic Pharma and Alkem Labs that are in a regulatory tangle. Even the biggies like Dr Reddy’s, Sun Pharma, Lupin and Zydus Cadila have not been spared.
Quality control lapses
This is not something new. There have been regulatory issues involving the manufacturing facilities of large drug-makers in the past too. For instance, Sun Pharma’s Cranbury facility in New Jersey received a warning letter in August 2010 for non-compliance with current good manufacturing practises (CGMP) citing issues such as failure to investigate batch failures and procedural lapses with respect to quality control.
However, Sun Pharma managed to get the facility back on track in about a year (September 2011). Likewise, Lupin’s Mandideep facility in Madhya Pradesh was served a warning letter in May 2009 for failure to adhere to CGMP practices. However, Lupin managed to resolve the issues and make the facility FDA-compliant once again by January the following year.
Increase in oversight
While there have been regulatory issues in the past, the situation is a little different this time. The regulatory oversight has certainly increased, suggest data. The number of Indian facilities that have been under the regulatory scanner has increased in recent years. Data compiled from the FDA’s website suggests that Indian drug-makers top the list of companies that were issued warning letters due to quality and manufacturing issues.
For instance, 10 Indian companies were served warning letters in 2015 in this regard — up from seven companies in 2014. Besides an increase in absolute terms, the share of Indian entities in the overall companies globally that received warning letters has increased from about 50 per cent in 2014 to about 66 per cent in 2015.
The severity of the issue also varies across cases. For instance, in the case of IPCA Laboratories’ Indore facility, the regulator had charged the company with inadequate controls to monitor and prevent unauthorised changes to data. This is besides the regulator’s CGMP issues.
Likewise, Alkem Laboratories, the latest to receive a hard knock from the drug regulator, has been accused of manipulating and fudging data.
In the case of Sun Pharma’s Halol facility, in Gujarat, the US FDA issued the facility a warning letter, citing lapses in documentation, CGMP compliance and consequent risks to product quality.
Targeting India?
What do pharma majors have to say about all this? Is India being singled out? Even though it does hurt business in the near term, drug-makers agree that investing in quality is the way forward.
Says a top industry official: “Nearly 40 per cent of the total US drug requirement is met by India, and so it is natural that production from the country will be under close scrutiny. Until now, it was largely simple formulations that Indian companies were producing, but now companies are building a portfolio of complex formulations, such as extended release tablets, vaccines and respiratory products. It is natural that the scrutiny on drugs produced by India will also increase, and there is nothing wrong in that. I don’t think it is right to say that Indian drug-makers are being targeted.”