The Saga Of U.S. FDA Inspections And Their Impact On Big Pharma

Indian pharma companies faced increased scrutiny from the U.S. regulator as inspections resumed after two years of pandemic-driven hiatus. And such audits of manufacturing standards are only expected to increase in 2023. But analysts are not too worried.

The U.S. Food and Drug Administration resumed physical inspections and audits of manufacturing facilities this year. Zydus Lifesciences Ltd.’s Moraiya facility received a report on violations but no significant health hazard in 2022. Most others including Sun Pharmaceutical Industries Ltd., Glenmark Pharma Ltd., Cipla Ltd., Biocon Ltd., and Lupin Ltd. received observations on objectionable conditions that warranted regulatory action, followed by warning letters and import alerts in some cases.

“While the earlier part of the year was relatively better, the second half seems to have carried sizable bad news,” Navroz Mahudawala, founder and managing director at Candle Partners, which specialises in pharma and healthcare, consumer and retail, said. “Both Glenmark Pharmaceuticals and Sun Pharmaceuticals have got import alerts in the last four to six weeks itself.”

Abdulkader Puranwala, a pharma analyst at Elara Capital, told BQ Prime that these inspections were in line with expectations. “The regulator prioritised inspecting facilities that already had existing issues identified in pre-Covid inspections.”

Manchanda said the FDA scrutiny may have increased as:

• The regulator may have raised the bar for compliance.

• Pricing pressures in the U.S. may be compelling companies to cut corners in terms of costs and management.

• Companies became negligent on compliance due to inspections not happening in the past two years.

Krishnanath Munde, associate director at India Ratings and Research Ltd., expects FDA scrutiny at Indian manufacturing facilities to increase for both active pharmaceutical ingredient and formulation manufacturers due to pending inspections and product approvals.

Yet, analysts do not see a serious risk for Indian drugmakers.

The inspections are a part and parcel of the industry, Munde said. The criticality in terms of impact of the inspections that existed in 2016 does not hold true anymore since companies are better prepared now to deal with the outcomes, he said.

Also, the overall level of scrutiny is high for Indian pharma companies—around 10% of all global inspections—as most of the domestic facilities have been approved by the FDA, according to Munde.

Indian companies also have a huge pipeline of products filed in the U.S.—both abbreviated new drug applications or ANDAs, and drug master files, or DMFs, which led to a lot of pre-approval inspections at the filing facility. The U.S., according to Mahudawala, contributes about 30–33% of the formulation revenues of most of the Indian pharma companies.

India exported about $7 billion in total pharmaceutical formulations to the United States in 2021, according to Vishal Manchanda, a pharma analyst with Systematix.

Manchanda expects a net impact of not more than 0.5%—around Rs 290 crore—on these exports due to the import alerts. “We shall see competing Indian players stepping in to substitute supplies disrupted by plants under import alert. On a relative basis, the impact is thereby small.”

According to Mahudawala, in the last three to four years, the market analysts have already factored in the negative U.S. news and underperformance in their calculations.

Munde and Mahudawala said companies are now better poised to handle risks from FDA inspections than in 2016 as they have learnt from their experience.

Pharma companies now have more facilities that could be used for transferring some manufacturing and launching pipelines, de-risking their operations, Munde said. Diversified manufacturing bases, even in terms of geography, and automation are enabling better practices.

A company can offset the impact of pending product approvals with six to nine months by transferring production to a new U.S. FDA-approved plant, he said. Zydus Lifesciences and Lupin, Puranwala said, have created new production sites. Lupin currently has U.S.FDA observations on six of its existing facilities.

Companies also work with top consultants for remedial measures and conduct regular self-inspections, he said.

As a measure to reduce risk and delays, Manchanda said, companies do not submit new filings from facilities under observation.

Puranwala, however, said that companies with facilities under import alerts and warning letters may take at least two to three years to get resolved.

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