Preparing for surprise inspections

May 27th, 2022, marked an important milestone for Express Pharma: we presented our first offline industry meet post-COVID: the third edition of “Vizag Pharma Summit”. I am sure many of our readers would have followed the live updates from the venue on our social media channels and full coverage of the Summit will follow in the July print edition.

While delegates were happy to revert to face-to-face meetings after two years of virtual interactions, we also noticed that a fair number regretted that they could not attend “Vizag Pharma Summit” as they had to stay on site. They had long pending ANDAs in the inspection/approval pipeline and were expecting surprise site inspections from regulators.

This is only to be expected. During a virtual conference hosted by the Food and Drug Law Institute on 9th December, 2021, Elizabeth Miller, from the US FDA’s Office of Regulatory Affairs (ORA), had announced that they were resuming a pilot programme of unannounced inspections of drug manufacturing facilities outside of the US, starting with India and China.

While the US FDA aims to clear its backlog, will surprise site inspections be the end of a long wait? Or the start of another tunnel into non-compliance?

Senior pharma personnel, while relieved that they were finally at the end of a long COVID-induced wait, are also wary of the outcomes of these inspections. While rising COVID case numbers have meant that the pilot cannot be implemented at pharma sites in China, their counterparts in India are understandably on tender hooks.

In fact, an ICICI Securities (I-Sec) report dated 13th May asks if US FDA inspections will mean a ‘Return of ‘The Overhang?’ It goes on to point out that while most Indian companies are waiting for the US FDA to begin physical inspections post-COVID, as they have many DMFs pending approval, the threat of adverse results like observations, Official Action Indicated (OAIs) and warning letters is the flip side of the coin. The top three companies with pending ANDAs are Aurobindo Pharma (225 pending ANDAs), followed by Dr Reddy’s Laboratories (DRL) (116) and Sun Pharma (114). As per company data compiled in the I-Sec report, in FY22 till date, nine US FDA inspections have been conducted in India in FY22 (ending 30th September), which resulted in one OAI and two WLs.

India Pharma Inc’s caution is only to be expected as the country is one of the top-four pharma exporters to the US (after Ireland, Germany and Switzerland). Pharma is the second-largest category of imports from India into the US, after gems/diamonds.

As Indian firms increased ANDA filings over the past few years, especially for complex products, which warrant more scrutiny, the I-Sec report quotes data to show that warning letters from the US FDA to non-US companies have increased, with China and India facing the brunt. Consider that pre-COVID, the US FDA had issued 220 warning letters in FY20 versus an average of ~150 p.a. between FY15-FY20. As the number of foreign sites supplying to the US increased, so did overseas factory inspections, reflecting an increase in the number of ‘non-US’ countries in the defaulters list, from a five-year average of 52 to 70.

China and India, accounting for the largest number of sites exporting to the US, top the list of defaulters, together receiving almost half (~47 per cent) of total warning letters for the non-US segment in FY20, whereas the average between FY15-FY20 was ~60 per cent.

The uncertainties, arising out of factory inspections, are a sign of increasing regulatory scrutiny. While this is necessary to ensure medicine quality and benefits the patient-consumer, companies which are unable to speedily address these deviations could find their market valuations dipping. Combined with the existing woes of ‘steep price erosion in the US market due to high channel inventories among other macro causes,’ the I-Sec analysts now prefer companies with a focus on the domestic market.

Have pharma companies in India prepared enough for these surprise site inspections? Investments made in quality systems over the years will hopefully now pay dividends, in the form of no adverse consequences of these inspections. One hopes that companies have invested not just in equipment and technologies, but also training/upskilling of employees, which was sorely lacking in previous years.

And will the increasing cost of compliance become a reason to sell out as smaller companies prefer to exit? We are already seeing some signs of consolidation. The latest example is Medley Pharma, where the second generation pharma promoters are reportedly looking to sell out to more experienced players, with big Indian pharma companies and private equity players engaged in the bidding. Likewise, there are reports that Torrent Pharma and JB Chemicals are bidding for Curatio Healthcare, after four other pharma companies dropped out of the race.

Torrent Pharma’s recent acquisition of four brands from Dr Reddy’s Labs to strengthen their presence in gynaecology and urology is also the latest example of strategic bolt-on acquisitions, a trend that we could see picking up, as many companies look to invest their COVID windfalls to pick up assets and plug gaps in their product portfolios.

Meanwhile, investor interest in select Indian pharma companies continues, and we should see more deals like the Abu Dhabi Investment Authority (ADIA) reportedly acquiring around three per cent in Intas Pharmaceuticals as the existing investor Temasek Holdings parts with some of its holdings. A challenge is an opportunity waiting to be won and India Pharma Inc has proved it can be done.