Limited impact on growth as only 3-4 per cent of consolidated sales is sourced from Halol
Sun Pharma’s Halol plant had received 10 observations at the end of a GMP (good manufacturing practices) inspection by US FDA. The long-awaited inspection of the plant was carried out from April 26 to May 9 this year.
Earlier, the Halol plant was classified as OAI (Official Action Indicated) in March 2020 and was awaiting an inspection for clearance; this may now get further extended. At the time of OAI, Sun Pharma clarified that 3-4 per cent of consolidated sales was sourced from Halol, supplying to US.
As per the recent 9MFY22 results, US accounted for 29 per cent of total consolidated sales. Of US sales, Taro accounted for 37 per cent and speciality products (Ilumya, Cequa, Odomzo and others) accounted for 40 per cent (assuming a large portion of reported global speciality sales are from US) which leaves 23 per cent from US generic formulation sales.
Growth in the generic formulation segment would most likely be impacted to the extent of approvals pending from Halol facility. The company reported that 13 505 B(2) filings, i.e. filings for limited competition products, are pending overall. Some of these may be from Halol, impacting new product growth. Speciality sales ($183 million worldwide in Q3FY22) growing at 24 per cent y-o-y in Q3, has been the valuation driver for Sun Pharma apart from domestic and emerging market sales. As long speciality sales continue unobstructed, the impact can be limited.
The company will file a response in 15 days post which further clarity on plant status can be expected. The stock price decline of 2.8 per cent in such volatile market today attests the limited impact the market is ascribing to the event. In any case, the plant classification and the extent of product impact — formulations wise or new approvals wise — are still unknown now. The stock can react further when these are put out.