FDA Halts Importation By Sun Pharmaceuticals

By Christian Zeron,
Money and Investing Writer

The Food and Drug Administration has officially regulated the importation of pharmaceutical products from Sun Phar­maceutical Industries Ltd. This ban has the potential to cause the multibillion dollar Mumbai based pharmaceutical producer notable financial strife.

Indian entrepreneur Dilip Shanghvi founded Sun Pharma in 1983 with only one treatment for psychiatric illnesses and within 29 years has grown it to be India’s most valuable pharmaceutical company. Sun Pharma’s success has helped Shang­hvi’s net worth hit $13.6 billion, according to the Bloomberg Billionaires Index.

Sun Pharma is a key player in the world of generic pharmaceutical produc­tion. Its model is relatively simple and without change.

Private pharmaceutical research com­panies develop, patent, market and sell its treatments to the market at a premium price to cover not only operating costs but also the often massive initial investment of funds and time.

Eventually, these pharmaceutical companies who developed the treatment from the ground up, lose their patent and the treatment becomes available for all cer­tified producers to manufacture and sell. Sun Pharma is one of those manufactur­ers who avoids development and research costs and awaits patent expiration dates to mass produces generic treatments and sell internationally.

Generic drugs, which made up almost 80 percent of the 4 billion prescriptions written in the U.S. in 2011, helped Ameri­cans save $193 billion that year.

In late February, prior to the FDA’s actions, Sun Pharma released a positive earnings report that read: “Q3 net sales are at an increase of 50 percent over last year. Material cost as a percentage of the net sales is 18.3 percent, lower than Q3 last year. Staff costs as a percentage of the net sales were at 12 percent, lower than Q3 last year.” This financial breakdown released to the public not only demonstrated the great worth of Sun Pharma, but also its consider­able sales growth and margin spread.

After this earnings report, the FDA began their importation restrictions on Sun Pharma. The specific regulations on imports from Sun Pharmaceuticals are referred to as “red list” regulations. This means any products from Sun Pharmaceu­ticals can be detained by authorities with­out physical examination. When the news of FDA crack down surfaced, Sun Pharma shares dropped 5.2 percent to 572.95 ru­pees on the National Stock Exchange of India.

The infringements the FDA reported Sun Pharmaceuticals committed were clas­sified as “non-compliance of current good manufacturing practice regulations”. Spe­cifically, Sun Pharmaceuticals conceded to mass error when they recalled 2,528 bot­tles of their diabetes treatment after reports of a customer finding tablets of a drug used to treat seizures in their bottle. The Food and Drug Administration has made it clear that their priorities lie not on any one man­ufacturer but rather on the welfare of the American consumer; therefore, mistakes such as this are not tolerated.

The United States generic pharmaceu­tical market, being estimated at $93 billion, is heavily reliant on India’s pharmaceutical production industry. Annually, the United States imports $14.6 billion in Indian manufactured pharmaceutical products. Sun Pharma has not been the only Indian manufacturer to be on heavy watch by the Food and Drug Administration, more than 20 other companies have been identified as dangers to the American consumer.

Sun Pharma’s recent press release spoke regarding their progress in regain­ing full importation rights: “The company remains fully committed to compliance and has already initiated several correc­tive steps to address the observations made by the U.S. FDA.” Despite the challenge posed by the FDA, Sun Pharma main­tained its initial forecast of 29 percent sales growth for the year ending March 2014.

Sun Pharmaceutical’s ability to mass produce generic treatments has made them fabulously successful; but will it be that same strategy of mass production that ends their market opportunity? One should find it hard to believe that self-made multibil­lionaire entrepreneur and Sun Pharma founder Dilip Shanghvi is going down without a fight.

A version of this article appeared in the Tuesday, Mar. 25 print edition.

Contact Christian at
christian.zeron@student.shu.edu

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