Is dual drug filing the right tactic for pharma companies now?

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Intensive regulatory scrutiny by the US Food and Drug Administration (US FDA) has become a major roadblock in the way of major Indian pharmaceutical companies to attempt a rebound in the subdued US market.

A Form 483 being slapped by the US FDA with several serious observations on major manufacturing facilities of these drug-makers has turned into a daily occurrence in news headlines. So much so, that the news of the completion of inspection of any pharma manufacturing facility without observations is enough to send the company's stock ticking higher on the bourses.

In the past year, several major manufacturing facilities, including Cipla and Lupin's Pithampur units, Sun Pharma's Halol unit, Aurobindo Pharma's Anakapalli unit, Dr Reddy's Srikakulam unit, and Ipca's Piparia unit are some that have been caught in regulatory snags.

These regulatory challenges are hurting the financials of these companies, the fallout being the erosion in market share, shrinking margins and loss of revenue from the delay in launches of key drugs that have been filed from the manufacturing units under scrutiny.

Nonetheless, some pharma majors may have finally managed to find their own jugaad to deal with the heavy hunting of the US regulatory body. True to the saying, ‘Modern problems require modern solutions’, some pharma majors have rolled out plans to file key drugs from two different manufacturing sites, in what may be the safest bid to de-risk launch delays.

So, what are the chances of this becoming an industry-wide trend? Let's take a deep dive to know:

So far, only two major large-cap companies, namely Cipla and Sun Pharma, have chalked out plans to file key drug launches from two different sites. This will de-risk the chances of the launches getting stuck in the loop of regulatory setbacks, even if one site were to fail to pass the good manufacturing standards set by the US FDA.

That's not all. Analysts on the Street are not just cheering this decision taken by Cipla and Sun Pharma, but they also anticipate others to follow suit. Mitesh Shah, Research Analyst - Pharmaceutical Sector at Nirmal Bang Institutional Equities, believes that other pharma companies should also conform to the trend. His major backing is the fact that the drugs tangled in regulatory mishaps belong to the high-margin and high-revenue category, and spending some extra money in filing them from two facilities will be offset by what they will bring to the table.

On the flip side, a delay in the launch of these drugs will result in subsequent erosion of margin due to shrinking market size and eventually, loss of revenue opportunity.

Also Read: Delayed drug launches to hurt Cipla’s earnings in FY24

A similar optimism was stated by Kunal Randeria, Director, Nuvama Institutional Equities, who cheered the de-risking plans proposed by Cipla. He believes de-risking will reduce the regulatory overhang. Though there might be some delay in the initial approval of the new sites, but once done, that will ensure a more sustainable revenue stream from these major drugs.

Regardless of how smooth this route looks, there are challenges too, in its way, that have thus far prevented companies from looking at the option.

One of the challenges is the technicalities involved. Vishal Manchanda, Pharma Analyst at Systematix Shares and Stocks (India), spoke of the lack of specific manufacturing abilities available at other units to produce the said drugs as being the major roadblock. Such a problem may arise especially for small and mid-size companies, with limited resources at their command.

"Some drugs require specialised manufacturing facilities which might not be available for some companies at two of their different sites, making it difficult for them to go down the path of dual filing," Manchanda explained.

Shah also pointed out that some companies may be of the view that given that regulatory standards are the same for all manufacturing plants, dual filing may bring little change if practices followed in the two units are exactly the same.

To answer this, another analyst on the Street spoke of the numerous complications involved in the process of getting the US FDA's approval. "Maintaining regulatory compliance is very difficult, as the US FDA can even pin-point minuscule lapses to issue an observation, a major reason why one facility of the same company may be stuck in regulatory hurdles while the other may not," he said.

Any small issue at the said plant on the day of inspection can result in receiving an observation, while the process of making the changes and adhering to those lapses in order to receive a final get-go takes some time. In such a case, it would be worth firing from two cylinders rather than pegging all hopes on one to maximise the chances of receiving approval.

Another factor highlighted by Manchanda was the inevitable delays in the process. He stated that companies can only apply for a site transfer or addition once the drug and its manufacturing process have been cleared by the US FDA. Even in that case, some delays on account of site inspections for both the sites where the particular drug was being filed were inevitable.

However, as Randeria pointed out, companies might soon come to realise that aside from the initial delay because of approvals, dual filing presents a much safer and more sustainable path towards hassle-free drug launches.

It has only been recently that the US FDA began tightening the screws of regulatory practices in its inspections, which resulted in major manufacturing facilities falling prey to mishaps. Much of the regulatory pressure faced by domestic pharma companies has been evident after physical checks began in full swing post the COVID-19 pandemic. Hence, it is only now that these drug makers have started looking for ways to surpass the hurdles with all seriousness.

It was correctly pointed out by Manchanda that urgency is the need of the hour, as these drug delays are leading to loss of revenue, especially at a time when the US market is in a rough patch.

Summing it up, Mitesh Shah said, whether or not most pharma companies will jump onto the bandwagon of dual filing, only time will tell. However, it is definitely a step in the right direction.