All you wanted to know about... import alert

NALINAKANTHI V | Updated on March 08, 2018 Published on March 27, 2017


bl28_new slate

Investors in the stock of Divi’s Laboratories were in for a rude shock last week. The stock shed over 20 per cent in just one trading session following the announcement that its Unit II facility at Vishakhapatnam has received an import alert from the US drug regulatorFDA.

What is it?

Companies that sell medicines in the US market are required to comply with the regulations mandated by the FDA. Manufacturing units that supply drugs to the US are inspected by the FDA periodically. If there aren’t any lapses in compliance with regulatory standards, the facility gets a clean chit and can continue its supplies to the US market. However, if any lapses in the adherence to the mandated regulations are observed by the inspectors, the same is notified by the FDA in Form 483 as observations. This is the first level of action by the FDA in case of deviation from the so-called good manufacturing practices (GMP). The company is given time to respond to the observations and if the reply is not convincing the FDA may issue a warning letter.

A warning letter restricts the ability of that manufacturing unit to supply drugs to the US from that facility. The company in that case needs to appoint consultants to advice on corrective actions and also monitor implementation of the same. After this, the company approaches the FDA and makes a request for re-inspection. If the regulator is satisfied with the corrective measures, it can issue a close-out letter.

If the FDA is unhappy, it can issue an import alert, implying a ban on the facility from supplying drugs to the US. This is perceived a big negative as the deviations in this case are usually found to be serious in nature and have a considerable impact on the quality of the drug manufactured from the facility. Hence the timeline for resolution in the case of an import alert can be quite long. However, there have been instances in the past where the FDA has directly issued an import alert even without issuing a warning letter, keeping in mind the seriousness of the deviations observed.

Why is it important?

The US is the largest pharmaceutical market in the world. Given the slew of patent expiries expected over the next few years, the generic opportunity in this market is huge. Also, the share of Indian pharma companies in the US market has risen significantly over the past few years.

India caters to nearly 40 per cent of the pharma drug requirement of the US, thanks to the ability of Indian drug makers to manufacture quality generic drugs at competitive prices. As a result, the US is a critical market for India’s large drug makers. Companies such as Sun Pharma, Lupin, Dr Reddy’s, Cadila Healthcare and Torrent Pharma derive a big chunk of their revenue from this market. Thanks to the large generic opportunity in this market, the share of the US is only bound to increase in the near term.

Why should I care?

If you are an investor in pharma stocks that garner a significant portion of their revenues from the US, it is important to keep a close tab on the regulatory action by the FDA as they can pose growth risks.

The bottomline

The progression of observations into import alerts and warning letters has been increasing of late. But investors need to focus on the speed with which a company resolves these issues. For the recent spate of warnings letters and alerts can provide a long-term buying opportunity.

A weekly column that puts the fun into learning

Published on March 27, 2017

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.