Why contract drug manufacturers meet FDA norms easily while others struggle

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Over the past year, the US Food and Drug Administration has slapped restrictions on the manufacturing facilities of some Indian generic drug companies that sell medicines in the US for failing to meet good manufacturing practices.

In almost stark contrast, contract development and manufacturing organisations (CDMO), which make key drug ingredients for pharmaceutical client companies after carrying out innovation and development work, hardly fail to meet the FDA’s rigorous manufacturing standards.

Consequently, generic drug companies lose revenue because the launch of their new products is delayed until the curbs on their manufacturing facilities are lifted by the US regulator.

In India, examples of CDMOs include Laurus Labs and Suven Pharmaceuticals. Cipla, Dr Reddy's Laboratories and Sun Pharmaceutical Industries are among the main generic drug manufacturers.

Sun Pharma said on April 23 it will temporarily halt production at its Mohali manufacturing unit to implement corrective measures, as guided by the FDA, before it can release further product batches into the US.

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A pharma analyst for a domestic brokerage, who spoke on condition of anonymity, explained that CDMOs undergo several rounds of inspections by their clients before they go ahead with checks from the FDA.

After going through so many inspections by their clients, the manufacturing units become well-equipped to clear the FDA's checks, the analyst said.

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"Drawing a comparison over the inspection results of CDMOs and US generic players is like comparing the results of a student who has taken several mock tests before giving an exam while the other has landed straight to writing the paper,” the analyst said.

Vineet Gala, the founder of Xylem Investment Managers who tracks the pharma sector, said client inspections help but he majorly attributed the relatively easier ride for CDMOs to the lower scrutiny they face because the production process for each drug is different.

"CDMO players supplying intermediates/APIs (active pharmaceutical ingredients) generally face lower scrutiny from the US FDA versus what a typical generic formulations player would," Gala said. "As for players doing formulations in CDMO, many have their plants in the US or the European Union, where standards of compliance are higher even for their employees, giving them an edge over generic players."

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