Granules India Shares Plunge 8% After US FDA Warning for Gagillapur Facility

Shares of Granules India slumped over 8% on February 28 after the US Food and Drug Administration (FDA) issued a warning letter for its Gagillapur facility in Hyderabad. The warning follows an inspection conducted in August 2024, with compliance concerns raised over manufacturing practices at the site.

US FDA Warning and Its Implications

In an exchange filing released post-market hours on February 27, Granules India announced that the US FDA had issued the warning letter on February 26. The facility remains classified under "Official Action Indicated" (OAI), meaning regulatory concerns persist, but the FDA has not indicated further escalation at this stage.

Despite the warning, the company confirmed that:

• Manufacturing and distribution of existing products at the facility remain unaffected.
• The warning may delay the FDA’s review of pending product submissions from this site.
• Granules has been actively addressing compliance concerns and is in communication with the FDA.

Company’s Response and Corrective Measures

Granules India has assured investors that it is taking steps to resolve the issues raised by the FDA. The company stated:

"We will respond within the stipulated timeframe and seek a meeting with the FDA to demonstrate ongoing progress towards compliance. We remain confident that this matter will be resolved satisfactorily within a reasonable timeframe."

The warning letter flagged four key concerns from the six observations noted in the FDA’s Form 483. The company claims that:

• Significant progress has been made in addressing the concerns.
• Most corrective measures have already been implemented, with the rest on track for completion.
• The company has been providing monthly updates to the FDA regarding its remediation efforts.

Past Compliance Actions & Risk Mitigation

Following the August 2024 inspection, Granules voluntarily halted production and dispatches in September 2024 to conduct a thorough risk assessment. Since then, the company has executed a comprehensive remediation plan, which includes:

• Corrective and Preventive Actions (CAPAs) to resolve manufacturing concerns.
• Oversight from three independent consulting firms to ensure regulatory compliance.
• Continuous product testing and regular updates to the US FDA.

The company remains optimistic about its growth trajectory, emphasizing that it is not solely reliant on new product approvals from the Gagillapur facility.

Stock Market Impact & Investor Concerns

The US FDA warning triggered a sharp decline in Granules India's stock price, which fell over 8% to Rs 465 per share as of 2:46 PM on February 28.

The stock’s fall also comes amid broader market weakness, but the regulatory warning has raised concerns among investors regarding:

• Potential delays in US product approvals.
• Regulatory scrutiny affecting future earnings.
• Impact on the company’s reputation in the pharmaceutical sector.

Additional Developments: GST Investigation Closure & Leadership Change

In another exchange filing, Granules India announced that it has closed an investigation with GST authorities after making a payment of Rs 3.27 crore related to the erroneous availment of refund for accumulated Input Tax Credit (ITC).

Additionally, the company disclosed that Sethu Madhavan Sankaran, Senior Vice President & Head of API Manufacturing and Operations, has resigned.

What Lies Ahead?

While Granules India’s management is confident about resolving the compliance issues, the stock’s movement in the coming weeks will largely depend on:

• FDA’s response to the company’s corrective actions.
• Investor confidence in the company’s ability to maintain regulatory compliance.
• Long-term impact on product approvals and revenue growth.

Conclusion

Granules India faces short-term pressure due to the US FDA warning, but the company has taken proactive measures to address compliance concerns. With a structured remediation plan in place, investors will closely watch developments around the facility’s regulatory status and potential impact on financial performance.

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