The ICRA Research has pointed out that the Indian pharmaceutical segment is passing through challenging situation on account of issuance of warning letters and import alerts to the leading companies by US FDA. Greater scrutiny by US FDA is emerging as a key challenge for Indian pharmaceutical sector and such regulatory actions are holding potential to delay product approvals and launches in the US.

ICRA said in reports that in an environment where companies are going through pricing pressure owing to increased competitive intensity, these development are likely to add to margin pressures. Nonetheless, it believe that the credit profile of affected entities is unlikely to be impacted in view of their strong balance sheets and liquidity. During 2015, US FDA issued 17 warning letter against 7 in the 2014 and major companies like Dr Reddy's Laboratories, Cadila Healthcare, Sun Pharmaceutical, Unimark Remedies, Micro Laboratories were recipient of  warning letters or import alerts during 2015. Earlier, Wockhardt, Ranbaxy, Jubilant Life, Aarti Drugs, USV Ltd, etc also received warning letters.  

Inadequate systems and controls to prevent alteration in laboratory test results and associated documentation, slippages with respect to adherence of cGMP guidelines during R&D, validation and manufacturing stages, and absence of robust manpower training programmes and management systems were the common reasons that have actually prompted US FDA to take regulatory action.

As a result of US FDA's stringent follow up on manufacturing standards, pharma companies are now mandated to review their R&D and manufacturing procedures, implement comprehensive action plans and even conduct risk assessment of products that are already in the market. Based on the severity of the deviations, the FDA has also directed some companies to get third-party evaluation of their remediation processes. In addition, companies have also been taking site transfer (especially for major launches) and pursuing filings from dual locations for future ANDAs. We believe, these measures are likely to entail significant resources and impacts earnings of select companies in the near-term.

ICRA mentioned that analysis of the resolution of warning letters suggest that large pharma companies have a superior track record in resolving FDA's observations vis-a-vis the mid-size companies. For instance, out of nine warning letter resolved so far, seen (78 per cent) of them belong to large companies. Additionally, the escalation of warning letters to import alerts also stands higher for small and mid-size companies. In terms of the time period less than 50 per cent of the warnings letters have been resolved with 12-15 months period with the average time frame being 24 months.